FY 2008 Audit/Inspection/Special Project Reports

Ammonia Supplier Billings

2008-11530

September 30, 2008

We audited $7.9 million of costs billed to TVA by a contractor for supplying ammonia and providing engineering and technical services for ammonia facilities to various TVA fossil plants.  In summary, we found (1) the prices billed for $2.8 million of the ammonia delivered to five TVA fossil plants could not be verified because prices for the ammonia were not included in the contract, (2) TVA was overbilled $106,054 for ammonia shipments to a fossil plant because an incorrect markup had been used, and (3) TVA was billed $4,375 for ineligible surcharges that were not provided for by the contracts.  Additionally, we found that TVA did not have a process in place to verify the amount of ammonia that was delivered and subsequently billed to its plants.  We recommend TVA management (1) recover the overbilled costs, (2) determine the reasonableness of the ammonia prices billed for the five TVA fossil plants, and (3) implement controls to independently verify the quantities of ammonia being delivered to TVA's plants.  (Summary Only)
 

TVA's Customer Relations Performance

2007-11401

September 29, 2008

This review was the first in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regards to Customer Relations."  In conducting this review, we (1) assessed key performance measures and their alignment with the key strategic objectives; (2) evaluated TVA's results relative to targets and available benchmark information; and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives.

We found, overall, TVA's performance results in the area of customer relations are excellent.  TVA has delivered electric service with 99.999 percent reliability.  Also, TVA's electricity rates are competitive given that rates are (1) 24 percent below the national average; (2) below the median when compared with neighboring utilities; and (3) at the median when compared to other utilities within one wheel of TVA.  In addition, TVA slightly outperformed its potential competitors in fiscal year 2007 in overall customer satisfaction.  The top four challenges that affect the area of customer relations include (1) high cost of new generation; (2) uncertainty around fuel cost and delivery; (3) managing an aging generation fleet with potential changes to regulatory requirements; and (4) inherent conflicts in TVA's role as a regulator.  (Full Report)
 

TVA Enterprise Risk Management

2008-11869

September 29, 2008

Since the Office of the Inspector General's previous review of TVA's risk program in 2003, TVA has enhanced its Enterprise Risk Management (ERM) capabilities in the following areas:  risk identification and assessment; management tone; strategic decision-making support; commitment to ERM staffing; and promotion of an ERM culture.  The areas in need of improvement include:  linking risks and objectives to effectively identify and prioritize risks, focus discussions, and allocate resources; clearer mapping of likelihood and severity with associated risk; measurement of inherent risk to identify critical risks with a higher need for monitoring; role of the Board and executive management in defining risk tolerance which is policy driven; a formal, comprehensive risk policy approved by the Council and Board; and increased reporting and discussions of ERM with the Board.  We recommended TVA address the areas needing improvement.  Management generally agreed and is taking or plans to take appropriate action.  (Summary Only)
 

Federal Information Security Management Act of 2002 Evaluation

2008-11964

September 25, 2008

The Office of the Inspector General's review of TVA's compliance with the Federal Information Security Management Act (FISMA) of 2002 determined that TVA had improved (1) tracking of security weaknesses, remediation actions, and incidents and (2) measures to ensure appropriate personnel complete role-based security training.  While TVA continues to make progress in implementing information technology controls required by FISMA, we noted additional controls are needed to improve (1) oversight and evaluation of contractor systems, (2) completing system certifications and accreditations, (3) defining and tracking configuration management metrics, and (4) consideration of e-authentication risks at TVA.  (Summary Only)
 

Contractor Accounting for the Watts Bar Nuclear Plant Unit 2 Construction Project

2008-11874

September 12, 2008

We reviewed the contractor's processes and key controls for tracking and accounting for costs used in invoicing TVA for its work.  Based on the review, we believe the contractor's system increases the risk of improper billing.  Specifically, the system used for TVA billings (1) has limited design documentation and prescribed controls; (2) requires significant manual data entry; (3) increases the hours spent to prepare project invoices; and (4) results in numerous adjustments which, according to TVA management, have totaled more than $1 million.  These adjustments include additional charges and credits to reflect actual expenses.

To address the issues, we recommended the Vice President, Watts Bar Nuclear Plant Unit 2, in conjunction with the contractor project director, either (1) further assess the feasibility of amending the billing terms to allow the use of the contractor's standard systems, (2) consider an alternative billing system, or (3) require improvements to the current system and processes to address the (a) systemic issues resulting in billing adjustments, (b) lack of key control activities, and (c) other reconciliation/documentation issues.  In addition, we recommended all aspects of the billing process and key control activities be documented and tested.  TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.  (Summary Only)
 

Tishomingo County Development Foundation Easement Review

2008-11878

September 8, 2008

Based on concerns expressed to the Office of the Inspector General, we initiated an inspection of TVA's easement with the Tishomingo County Development Foundation (TCDF). The objective of the review was to determine whether easement payments were made in accordance with the agreement.  We found that while TCDF was not in compliance with amended easement payment provisions, the payment provisions were recently amended for the second time to provide the developer, Pickwick Pines Marina (PPM), an opportunity to develop and operate the marina.  We also noted that the minimum investment provision of the easement has not been met.  On August 6, 2008, TCDF sent PPM a notice of default.   (Full Report)
 

Browns Ferry Unit 1 Operating Issues Since the Restart in May 2007

2008-11802

September 3, 2008

We reviewed certain Browns Ferry Unit 1 (BFN U1) operating issues that have occurred since the restart in May 2007.  We found the operating issues were primarily caused by improper installation of a fitting during the restart project and another fitting during initial construction, original plant design errors, failure to identify the correct root cause of a previous issue in a timely manner, and failure to identify a missing wood support during walkdowns.  The root causes for the SCRAMs (safety control rod axe man) appear to not be the result of work performed under project milestones tied to the Unit One Executive Compensation plan.  In addition, we found the total cost of the BFN U1 project to be approximately $1.8 billion through fiscal year 2007.   (Full Report)
 

Review of Marina and Campground Agreements

2007-11428

August 7, 2008

Review of selected marina and campground license and lease agreements were performed at the request of the Chief Financial Officer organization to determine whether (1) payments to TVA were accurate and timely and (2) TVA and the counterparties complied with key provisions of the agreements.  In summary, our review of the eight selected marina and campground agreements found:

• For five, payments appeared to be calculated in accordance with payment terms.
• For two, a lack of records prevented the verification of lease payment calculations and compliance with other key provisions of the contract.
• For four, there were unapproved additions at three campgrounds and an unapproved modification at a marina.
• For three, seasonal guests were given preference to return to their site each year and were allowed to leave camping vehicles and equipment on site while the campground was closed.
• TVA had provided no written guidance for the management of these agreements, including verification of the accuracy of payments received.
• Operations Business Services personnel recently requested documentation from the counterparties to support gross revenues earned in the period prior to being invoiced by TVA.  This appears to address certain invoicing and payment controls; however, the agreements had not been amended to reflect these changes.

We recommended the Vice President, Environmental Stewardship & Policy:

• Implement written guidance, as deemed necessary, regarding the management of recreational facility agreements.
• Determine whether the agreements should be amended based on the implementation of payment control activities.

For certain agreements, we recommended the Vice President, Environmental Stewardship & Policy:

• Require the counterparty to comply with the documentation requirements of the agreement.
• Require adequate documentation for any modifications to the agreement.
• Implement necessary actions to ensure the counterparties comply with terms of the agreement and, when necessary, consider termination options.  

(Full Reports--see list below)

2007-11428-02 - Review of Riley Creek Campground Lease Agreement
2007-11428-03 - Review of Skull Island Campground License Agreement
2007-11428-04 - Review of Buchanan Resort and Marina License Agreement
2007-11428-05 - Review of City of Lenoir City License Agreement
2007-11428-06 - Review of Fooshee Pass Campground License Agreement
2007-11428-07 - Review of Goat Island Campground Lease Agreement
2007-11428-08 - Review of Normandy Cedar Point Public Use Area Lease Agreement
2007-11428-09 - Review of Terrace View Marina License Agreement
 

Subcontract for Professional & Technical Assistance

2007-11347

July 8, 2008

We audited $19 million of costs billed to TVA for subcontract services on the Browns Ferry Unit 1 recovery project.  We determined the costs billed by the subcontractor for providing professional and technical support personnel were fairly stated and in accordance with the terms of the subcontract.   (Summary Only)
 

Supplemental Maintenance and Construction Services Contract

2006-033C

June 16, 2008

We performed an interim audit of costs billed to TVA by a contractor for providing (1) modification and supplemental maintenance services at TVA nuclear plants (operating unit work) and (2) construction services for the restart of Browns Ferry Nuclear Plant (BFN) Unit 1.  The scope of our review included $492.4 million of craft labor costs billed by the contractor through October 29, 2006, which had not previously been audited including: (1) $214 million for modification and supplemental maintenance services and (2) $278.4 million for the BFN Unit 1 services.  In summary, we found TVA had been overbilled $1,986,254 because the contractor had (1) used a labor classification not provided for by TVA's contract, (2) miscalculated its payroll tax costs, (3) overpaid certain craft employees as a result of duplicate hours and ineligible double-time labor costs, and (4) misclassified some employees when it paid them.  TVA management is planning to review the audit findings in detail to determine what amounts should be recovered from the contractor.   (Summary Only)
 

Review of TVA Actions to Protect Social Security Numbers and Eliminate Unnecessary Use

2007-11216

June 2, 2008

While TVA has taken several actions to better protect social security numbers (SSNs), we found opportunities to further protect or reduce the usage of SSNs that will lower the risk of exposure.  TVA's Information Services has several initiatives under way to improve protection of SSNs.  We are recommending several actions to further protect SSNs.  Management agreed and has initiated corrective actions.   (Summary Only)
 

Review of TVA's Process for Handling Lost or Stolen Computers

20Z-315

May 30, 2008

We initiated a special project to determine if (1) TVA's policies, procedures, and practices for handling lost or stolen computer equipment were adequate; (2) those policies, procedures, and practices were followed; and (3) the lost or stolen computers contained sensitive or restricted information. We found:

• TVA's policies, practices, and procedures for maintaining an accurate inventory of computer equipment were not adequate.  Since the August 2004 implementation of the HP Service Desk (HPSD), which contains an inventory of TVA computers, TVA has been unable to track over 5,550 computers. The inability to adequately track, as well as the lack of encryption, on these computers increases the risk for the disclosure of sensitive or restricted information.
• The policies for handling/reporting stolen computers were not consistently followed.
• At least one of the stolen computers contained personally identifiable information-employee social security numbers.  We have not been able to confirm whether the remaining stolen computers contained sensitive or restricted information, although we believe the risk is moderate.  

(Full Report)
 

Construction and Modification Services Contract

2007-11109

May 30, 2008

We audited $22.1 million of costs paid by TVA to a contractor for construction and modification services at TVA facilities.  In summary, we found

• An estimated $20.8 million billed by the contractor for craft augmentation labor using hourly billing rates was inflated by approximately $619,000 because the contractor's billing rates included (a) overstated payroll tax costs and (b) calculation errors; and
• The contractor billed TVA $25,658 for subcontract services it had not incurred. 

We recommended TVA management recover the inflated and overbilled costs and take steps to ensure the contractor's billing rates for craft augmentation labor are reasonable based on the company's actual costs.   (Summary Only)
 

2007 Green Power Accreditation

2008-11684

May 30, 2008

We completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of CRS' Green Pricing Accreditation Program for the year ended December 31, 2007.  The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS.  No exceptions were identified.   (Summary Only)
 

Land Clearing and Restoration Services Contract

2007-11208 and 2007-11208-01

May 7, 2008

We reviewed $14.2 million of costs billed to TVA by a contractor for providing right-of-way clearing and restoration services and found:

• TVA had been overbilled $81,533 including (a) $38,796 in unallowable miscellaneous material costs, (b) $34,776 in duplicate billings for initial clearing costs, and (c) $7,961 in unsupported labor costs.  Additionally, we found the contractor had underbilled TVA $5,776 due to various invoicing errors.  The contractor agreed with our finding regarding unsupported labor costs and provided explanations for why it believed the remaining items were billed correctly.  TVA management agreed with the findings regarding unallowable material costs, unsupported labor costs, and underbilled costs and stated they are conducting a review of the $34,776 in suspected duplicate billings for initial clearing services.
• Prior to award of the contract, Procurement's contract manager had requested the contractor to change its proposed billing rates to "TVA Valley-wide" rates.  That action, which the contractor agreed to, caused TVA's costs to increase $522,212 because most of the rates that had been proposed by the contractor were lower than TVA Valley-wide rates.  Procurement informed us that TVA had deployed a strategy to negotiate consistent pricing among all suppliers and that would be more favorable to TVA.  Procurement further stated that although some of the prices were higher than the contractor's initial offer, lower prices were achieved in four areas (line items) where TVA expected the majority of the expenditures to take place; however, since the actual quantities of work performed under the various line items were other than anticipated, the resulting charges increased TVA's total cost by approximately 3.7 percent. 

Procurement plans to use this experience in some lessons-learned sessions.  (Summary Only)
 

Trust Funds Administered by Economic Development

2007-513I

April 28, 2008

A review of trust funds administered by Economic Development (ED) found the majority of the trust funds were inactive, and according to ED management, had been established between 1983 and 1991 for a variety of purposes.  ED management said they found no activity in the majority of these trusts.  ED had closed approximately 11 inactive trust funds as of July 27, 2007.  Our review further found that documentation of these trust agreements was limited.  TVA management could not provide documentation to show the recipients of fund balance distributions or the reallocation of the funds beyond a 2006 closeout memorandum from TVA to the recipients that certified that the contract requirements had been met and that funds had been used as required by the contract.  In addition, TVA management could not provide us with account statements for 11 of the 16 trust accounts, bank account numbers for 6 of the 16 trusts, or the underlying agreements for half the trusts.  Because of the limited documentation, we were unable to determine whether the trust funds are being administered in accordance with the terms of the agreements and applicable laws and regulations.  According to the Senior Vice President, ED, TVA no longer establishes trust accounts, and it does not intend to do so in the future.   (Full Report)
 

Cleaning Services Contracts

2007-11204

April 3, 2008

We audited $16.5 million of costs billed to TVA by a contractor for providing cleaning and removal services using high-powered vacuum and hydro-blasting services to various TVA locations.  In summary, we found the contractor had (1) overbilled TVA an estimated $115,617 in unsupported and ineligible costs and (2) performed certain services and fixed price tasks not provided for by the contracts.  The contractor agreed it had overbilled TVA for certain questioned costs and disagreed with other questioned overbillings.  The contractor also agreed TVA had made payments for certain services and fixed price tasks not provided for by the contracts.  TVA management agreed with our findings from the detailed review of invoiced costs but requested additional information regarding the methodology used for estimating the overbilling.  Management, however, did not address how it planned to ensure prices being paid for services currently included in the contract are reasonable.   (Summary Only)
 

Widows Creek Fossil Plant - Environmental Matters - Air

23C-8

March 4, 2008

We previously issued an audit report (2007-019F) that noted (among other things) significant duct leaks at two fossil plants.  Management agreed with our recommendation to work to promote a culture of transparent reporting throughout TVA organizations.  We have now closed a joint investigation with the EPA Criminal Investigations Division that found installation of a Selective Catalytic Reduction system led to deterioration in the flue gas ductwork at the Widows Creek Fossil Plant.  The deterioration caused extensive leaks that became progressively worse.  In spite of the extent of the leaks, it appeared TVA gave little, if any, consideration to reporting them to regulatory authorities.  While TVA patched the leaks as they occurred and eventually replaced large sections of the ductwork, we recommended management consult with the TVA Ethics and Compliance Officer to incorporate ethics and compliance considerations into daily operations at the fossil plants.   (Full Report)
 

Pre-Implementation Review of TVA's New Enterprise Access Protection System

2007-007T

March 31, 2008

We performed a pre-implementation review of security, application testing, and data loading for TVA's Electronic Access Protection System (EAPS).  We determined the EAPS security plans and procedures and TVA's plans for application testing and data loading provided adequate controls over security, testing, and data reliability.  (Summary Only)
 

Review of TVA's Contract Award Process

2007-024C

March 31, 2008

We reviewed 40 contracts awarded by Procurement during fiscal year 2006 and found: (1) insufficient competition existed in the award of seven of the contracts because only one bid had been received and evaluated; (2) Technical Contract Managers contacted vendors and received pricing quotes prior to Procurement's involvement in five of the contract awards; and (3) with some exceptions, Procurement's contract managers and purchasing agents had appropriate documentation in the contract files.  To help TVA assure it is receiving adequate competition, we recommended TVA Procurement: (1) require management approval for all contracts greater than $25,000 when only one bid is received; (2) reinforce compliance with TVA's requirement that only Procurement personnel are authorized to obtain proposals from potential suppliers; and (3) provide clear guidance as to the contract file documentation requirements.  In addition, we suggested Procurement consider the benefits of creating a position of Competition Advocate, a position required for other federal agencies.  TVA management is reviewing our recommendations to decide what actions should be taken to improve the contract award process.  (Summary Only)
 

Information Services Organizational Effectiveness

2007-11348

March 27, 2008

The recent restructuring of the Information Services (IS) operations area mirrors leading practices.  In addition, IS' methodologies and tools for conducting information technology projects are above those of its peers.  However, our review showed some areas needed improvement, such as, TVA needs to (1) better integrate IS governance with TVA business strategy; (2) improve focus on strategic business partnering and communication with customers; (3) target organization and policy changes, performance measures, and service management toward aiding customers to achieve business goals; (4) consolidate procedures to increase usability; and (5) develop a strategy for handling the risk of the aging workforce and ensuring knowledge transfer.  Management generally agreed with the recommendations and is taking corrective action.   (Full Report)
 

IT Security Organizational Effectiveness

2007-11348-01

March 26, 2008

While IT Security has made strides in establishing the technology infrastructure, we found (1) IT Security lacks a business-level mechanism to provide cross-agency oversight, a strategic TVA-wide approach, and grounding in risk management; (2) coordination and communication with business units were not well defined and could be more effective with increased training, communication, and business unit involvement in security planning; (3) procedures were outdated and did not address issues for all business segments; and (4) performance management was substantially undefined.  Management agreed with the recommendations and is taking corrective action.  (Summary Only)
 

Prescription Drug Program

2006-517I

March 18, 2008

TVA entered into a contract with a vendor to provide a fully integrated prescription drug program that would include both retail and mail order prescription drug services.  The contractor was required to (1) maintain a Participating Pharmacy Network to provide retail pharmacy services, (2) provide base administrative services including processing and adjudicating TVA's prescription drug claims in accordance with TVA's plan design, (3) issue checks to participating pharmacies and/or claimants on TVA's behalf, and (4) implement and administer health management programs.  We reviewed the costs billed and formulary rebates credited to TVA by the contractor.  Specifically, our inspection covered:

• Claims payments by TVA to the contractor for the period December 22, 2001, through December 30, 2005.
• Base administrative fee payments made by TVA to the contractor for the period January 5, 2002, through December 5, 2003.  (There were no base administrative fee payments for calendar years 2004 and 2005.)
• Formulary rebates credited to TVA for claims adjudicated and billed from January 1, 2002, through December 31, 2005.

We found, in general, the contractor billed costs in accordance with the contract terms and TVA plan provisions with the exception of certain Consumer Directed Health Plan (CDHP) claims.  In addition, formulary rebates allocated to TVA exceeded the minimum guaranteed rebate amounts, when applicable, and nothing came to our attention during the limited testing of formulary rebates that would indicate TVA rebates were not determined in accordance with contract terms.  TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action to resolve the issues identified regarding CDHP claims.   (Summary Only)
 

Contract Audit

2007-11169

March 12, 2008

Our audit of $5.9 million of costs billed to TVA by a contractor that conducted various projects and programs from April 1999 through September 2007 found the costs were fairly stated and agreed with the terms of the contract.  However, about 20 percent of the payments TVA had made to the contractor were related to a specific project under which TVA acts as an administrator, collecting funds from various federal agencies and disbursing the funds to the contractor.  Since the benefits received by TVA for incurring the costs of administering the collection and disbursement of the funds for the project appear negligible, we recommended TVA consider transferring the administration function for the project to the contractor.  TVA management and the contractor agreed with the audit recommendation.  TVA management and the contractor agreed with the audit findings.   (Summary Only)
 

Contractor Purchasing Card Usage

2007-10994

February 14, 2008

We identified 21 TVA contractors who held purchasing cards from March 28, 2004, to March 28, 2007, incurring 35,605 transactions totaling about $16.7 million.  This included six contractors whose purchases each totaled more than $1 million for the period.  A review of documentation supporting selected transactions found instances of noncompliance with TVA's policy and procedures.  Specifically, we found (1) purchases that were, by policy, disallowed (e.g., computer equipment, computer software, fuel, rental of heavy equipment, and rental of vehicles); (2) transactions where it appeared the total charge was split to stay below the $5,000 transaction limit and avoid obtaining additional approval; (3) transactions with no detailed receipt showing the description and quantity of items purchased; (4) transactions with no receipt; and (5) transactions with receipts that were illegible.  We also identified other control improvement opportunities.  TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.   (Full Report)
 

Review of TVA's Dam Safety Program

2007-11023

January 31, 2008

We reviewed the TVA dam safety inspection process to determine whether it (1) met federal guidelines for dam safety, (2) was being followed by Dam Safety inspection personnel, and (3) was adequately supported by an information database.  In summary, we determined River Operations' (1) inspection process met Federal Emergency Management Agency guidelines for periodic dam safety inspection programs; (2) inspection personnel appeared to adhere to the process for identifying, monitoring, and correcting inspection deficiencies based on the five dams we reviewed; (3) information databases provided adequate support for the inspection process; and (4) management had implemented planned corrective actions in response to recommendations in our 2001 audit.  However, our review found (1) 57 out of 81 work orders/requests related to Maintenance and Repair (M&R) identified by the dam safety inspections for the five dams we reviewed were not completed by the estimated due date on the inspection report, and (2) there was a historical trend of not completing M&R items by the estimated due date.  We recommended the Senior Vice President of River Operations consider implementing a prioritization and scheduling process that ensures timely completion of M&R projects.  Management agreed with our findings and has initiated or plans to initiate corrective action.   (Full Report)
 

Subcontract Services

2007-11189

January 28, 2008

As part of our annual audit plan, we audited $5.2 million in costs billed to TVA by a contractor for subcontract services provided on the Browns Ferry Nuclear Plant Unit 1 (BFN U1) recovery project.  Under its subcontract, the subcontractor provided engineers for the BFN U1 project to assist in the resolution of technical issues developed during the field implementation of modifications.  Our audit objective was to determine if the costs the contractor billed to TVA were in compliance with the provisions of the contract and the subcontract.  In summary, we determined the contractor billed TVA $25,331 for costs that were not in accordance with the contract provisions.  TVA management plans to recover the overbilled costs.   (Summary Only)
 

Review of Provisional Billing Adjustments

2007-11027

January 17, 2008

We determined the provisional billing adjustments a contractor calculated for calendar years 2005 and 2006 were understated by $267,040 due to various errors in the contractor's reconciliations of previously billed and incurred costs.  Also, we found the contractor owed TVA an additional $636 due to various billing and payment errors.  The contractor and TVA management agreed with our findings.   (Summary Only)
 

Review of Reportable Environmental Events at TVA Facilities

2007-019F

December 17, 2007

We identified issues related to (1) noncompliance with reporting requirements; (2) different interpretations on how some environmental occurrences should be classified; (3) environmental issues that were not documented and managed through TVA's corrective action program; (4) lack of a corporate reportable environmental events (REE) procedure; (5) inaccurate environmental data in the Electronic Corrective Action Program (eCAP), Environmental Event Reporting (EER) system, and REE registry; and (6) two instances where TVA did not externally report events because they did not feel it was required.  We recommended TVA's Environmental Stewardship and Policy (1) clarify the environmental occurrences required to be classified as Environmental Events, (2) develop a corporate REE procedure, (3) clarify the environmental occurrences required to be managed through the corrective action process, and (4) review environmental data in the eCAP, EER system, and REE registry for accuracy, correct identified errors, and identify a method to prevent future environmental database errors.  We further recommended TVA's Environmental Executive work with other TVA executives to promote a culture of transparent reporting throughout TVA organizations.  This could include a periodic briefing of management or executives on the status of REEs, Environmental Events, Notices of Violation, and Environmental Management System findings.  Management agreed with our recommendations.   (Summary Only)
 

Resource Management (RM) External Contractual Services

2007-510I

December 17, 2007

Our review covered the external contractual services' conducted by RM.  Our objectives were to determine if (1) work was performed in accordance with applicable policies and procedures and (2) costs associated with TVA employees working for outside entities/agencies were adequately recovered.  In summary, we found:

• The majority of fiscal year (FY) 2006 RM External Contractual Services' revenue was generated from work for other federal agencies, and the projects we selected for review appeared to be in compliance with the Economy Act of 1932, as amended (31 USC 1535).  In addition, direct costs and approved overheads were captured on a project-specific basis and automatically billed to ensure cost recovery.
• The work performed was not a TVA core business and did not appear to align directly with TVA's Strategic Plan.  RM stated the work was consistent with the spirit and historical enablement of the TVA Act and was implicitly included and serves as an enabler for many parts of TVA's new Strategic Plan.
• The work increased TVA's monetary, reputational, and environmental risks.  RM stated, however, that they continue to improve the risk profile for the RM External Contractual Services' efforts through completion of high-risk projects, through their strategy on the nature of future work, and through actions and processes to mitigate financial risks including purchasing insurance and incorporating written indemnity clauses in certain contracts.
• For 5 of the 14 projects reviewed, a contract could not be provided.  In addition, key decisions required by RM policies and procedures were not documented, or documentation was incomplete.

Based on the risks and the lack of a clear direct nexus to TVA's core business as discussed above, our draft report recommended that the President and Chief Executive Officer terminate the RM External Contractual Services' program.  Management stated in their comments to our draft report that RM plans to continue the program but will exit chemical agent work as it carries the greatest risk for TVA.  Management also plans to (1) further review the risks associated with the program and update TVA's risk assessment as needed and (2) improve program documentation as TVA implements its new business management software in FY 2008.  We agreed with management's planned actions.   (Redacted Report)
 

Review of Fiscal Year 2007 PwC Financial Statement Audit

2007-11133

December 12, 2007

TVA contracted with the independent certified public accounting firm of Pricewaterhouse-Coopers LLP (PricewaterhouseCoopers) to audit the balance sheets as of September 30, 2007, and 2006 and the related statements of income, changes in proprietary capital, and cash flows for each of the three years in the period ended September 30, 2007.  The contract required the audit be done in accordance with generally accepted government auditing standards.  Our review disclosed no instances where PricewaterhouseCoopers did not comply, in all material respects, with generally accepted government auditing standards.   (Full Report)
 

Review of TVA Coal Supplier Contracts

2007-11053; 2007-11054; and
2007-11055

December 7, 2007; December 10, 2007; and
December 10, 2007, respectively

We conducted three reviews to determine whether the coal supplier was in compliance with weighing, sampling, and shipping provisions of the respective contract.  We performed tests to verify that shipment weight and coal test results documentation maintained at each mine supported the amounts used to (1) invoice TVA for tonnage shipped and (2) calculate coal-quality adjustments.  In summary, our reviews found documentation maintained at the respective mine for ten randomly selected shipments agreed with the information provided to TVA regarding tons shipped and coal-quality test results.  Each supplier was also found to be in general compliance with the weighing, sampling, and shipping provisions in the contract and/or applicable standards.  However, we also found some control improvement opportunities.  TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.   (Summary Only)
 

Review of Risk Assessment Performed on Personally Identifiable Information

2007-11198

November 20, 2007

In a prior audit, 2007-10997, Review of Temporary Shares for Sensitive Information, the OIG identified numerous incidents of Personally Identifiable Information (PII) and TVA sensitive information on temporary shares available to anyone with a TVA network ID.  TVA's Information Services (IS) organization subsequently reviewed other temporary shares and identified additional instances of PII available on the shares.  For this audit, we (1) reviewed the risk assessment methodology used to evaluate PII identified during the reviews of temporary shares and (2) determined if IS' conclusions regarding risk exposure of PII were reasonable.  In summary, we found the (1) risk assessment methodology was consistent with the National Institute of Standards and Technology's and Office of Management and Budget's guidance, and (2) conclusions reached were reasonable.   (Full Report)
 

Ingram Barge Company

20Z-303

November 7, 2007

We investigated the amount of coal being left in barges after they were unloaded at the Cumberland Fossil Plant.  Information provided by the barge company showed that from August 1, 2006 through July 31, 2007, TVA abandoned roughly 14,000 tons of coal per month.  Based on the average cost per ton, including transportation costs, we estimated TVA lost over $6 million annually.  Management advised they would review the cost effectiveness of using a contractor to clean out barges and they would issue an early Request for Proposals to attempt to negotiate language to provide for dedicated barges or clean out services.   (Redacted Report)
 

Review of TVA's Hospitality Expenses

2007-030F

November 6, 2007

We reviewed hospitality expenses incurred by TVA October 1, 2005, through June 30, 2007, to (1) determine the type and level of expenditures; (2) assess compliance with policies and procedures; and (3) identify changes in hospitality policies since our last hospitality audit.  We found total hospitality expenditures, including employee recognition expenses, averaged about $2.3 million per year during the period, representing a 64 percent reduction from fiscal year 2003 spending.  For the period reviewed, TVA generally complied with policies and procedures, except as related to obtaining preapproval of hospitality expenditures.  Management agreed with this finding and took corrective action.   (Full Report)
 

Review of TVA's Hospitality Expenses

2007-030F

November 6, 2007

We reviewed hospitality expenses incurred by TVA October 1, 2005, through June 30, 2007, to (1) determine the type and level of expenditures; (2) assess compliance with policies and procedures; and (3) identify changes in hospitality policies since our last hospitality audit.  We found total hospitality expenditures, including employee recognition expenses, averaged about $2.3 million per year during the period, representing a 64 percent reduction from fiscal year 2003 spending.  For the period reviewed, TVA generally complied with policies and procedures, except as related to obtaining preapproval of hospitality expenditures.  Management agreed with this finding and took corrective action.   (Full Report)
 

Agreed-Upon Procedures for TVA Fiscal Year 2007 Performance Measures

2007-11330

October 26, 2007

We performed agreed-upon procedures, requested solely to assist management in determining the validity of the Winning Performance payout awards for fiscal year (FY) ending September 30, 2007.  In summary, we found:

• The FY 2007 Winning Performance goals were properly approved.
• Actual year-to-date inputs for the sampled metrics agreed with the respective basis worksheet.
• Actual inputs for the nine TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, except for the calculation of the Delivered Cost of Power (DCOP) metric, which was inconsistent with the Board-approved formula.  This resulted in a one cent overstatement of the calculated DCOP, further resulting in a .25 percent increase in the TVA Scorecard percentage.  Management agreed and made the appropriate correction during the engagement.
  
  Also, in applying the procedures, we noted the Fuel Cost Adjustment (FCA) metric improperly included Browns Ferry Nuclear Plant precommercial costs.  The FCA metric approved by the Board did not include these costs.  Including these costs in the FCA metric resulted in an 8.25 percent overstatement in the TVA Scorecard percentage.  After discussion with management, these costs were removed from the FCA metric and subsequently included in the DCOP metric.  A revised payout report was provided for retesting.  We noted during retesting, the precommercial costs were properly excluded from the FCA metric and included in the DCOP metric.  We further noted Allowance for Funds Used During Construction was added to the DCOP metric.
• The payout percentages were recalculated by the OIG based on the changes to the DCOP metric noted above.   (Summary Only)
   

Volunteer Services Performed by TVA Retirees

2007-11182

October 19, 2007

We audited $324,000 of costs billed to TVA by a contractor for providing volunteer services using TVA retirees to determine if the contractor had billed TVA in accordance with the contract terms and conditions.  In summary, we found the contractor had overbilled TVA $63,755 including (1) $44,855 of unsupported costs and (2) an estimated $18,900 of ineligible travel expenses.  The contractor agreed it had overbilled TVA $30,022 but stated (1) it disagreed with $25,000 of unsupported costs because a TVA employee had authorized the expenses and (2) the ineligible travel expenses would be reduced to $10,167 if TVA retroactively changes a contract reimbursement rate for mileage expenses.   (Summary Only)