FY 2009 Audit/Inspection/Special Project Reports

Coal Contract Reviews

2009-12702 – 12705

September 30, 2009

We conducted four reviews to determine whether each coal supplier was in compliance with weighing and sampling provisions of the respective contract. We performed tests to verify that shipment weight documentation maintained at each mine supported the amounts used to support invoices to TVA for tonnage shipped. 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. Each supplier was also found to be in general compliance with the weighing and sampling requirements of the contracts. However, we did identify a few issues requiring management action related to bias testing. Specifically, we recommended the General Manager, TVA Fuel Supply:

• Include in future coal contracts a specific frequency requirement pertaining to the periodic bias testing of samplers.
• Follow up with one coal supplier to either identify a method of bias testing that is acceptable or amend the contract to extend the period in which the samplers need to be bias tested.
• Follow up with one coal supplier regarding correction of the qualified opinion received from the independent lab in its 2009 dynamic bias test of Sampler #2 and determine whether any further corrective actions are warranted when current bias test results are received.

TVA management generally agreed with our findings and recommendations and plans to take corrective action.

(Summary Only)

Campground Reviews

2009-12965-01-11

September 29, 2009

At the request of the Senior Vice President of Environment and Research, we initiated reviews of the 11 Tennessee Valley Authority (TVA) managed campgrounds to determine if the (1) campgrounds were being operated in accordance with the program intent and (2) operating controls were functioning as intended. We found that the campgrounds were operating in accordance with the program intent, which was to provide public areas for recreation. In addition, we found the operating controls appeared to be functioning as intended and campground guidelines were generally being complied with. However, we noted:

• Some minor overall program guideline inconsistencies.
• For the four campgrounds with a resident manager, the resident manager contracts did not include some specific responsibilities identified in the TVA Resident Manager Manual.
• The resident manager contract for one campground differed somewhat with regard to duties and responsibilities when compared to the other three resident manager contracts.
• One resident manager contract had not been updated to reflect revised responsibilities.

TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective actions.

(2009-12695-01 – Review of Cherokee Dam Campground Full Report)
(2009-12695-02 – Review of Douglas Dam Headwater Campground Full Report)
(2009-12695-03 – Review of Douglas Dam Tailwater Campground Full Report)
(2009-12695-04 – Review of Foster Falls Campground Full Report)
(2009-12695-05 – Review of Melton Hill Campground Full Report)
(2009-12695-06 – Review of Barton Springs Full Report)
(2009-12695-07 – Review of Loyston Point Campground Full Report)
(2009-12695-08 – Review of Pickwick Dam Tailwater Campground Full Report)
(2009-12695-09 – Review of Watauga Dam Tailwater Campground Full Report)
(2009-12695-10 – Review of Mallard Creek Full Report)
(2009-12695-11 – Review of Wilson Dam-Lower RockpileFull Report)

Pre-Implementation Review of Enterprise Asset Management (EAM) System

2008-11792

September 29, 2009

We performed a pre-implementation review of the Enterprise Asset Management (EAM) System, Phase 1 implementation, which provided for supply chain and work management processes. We determined plans and processes in place were adequate after actions were completed to address our concerns, regarding application access controls, system security, system testing, data conversion, and general controls. During our audit, the EAM Project Team and Information Services took actions to address our findings and initiated plans to implement additional corrective actions and address remaining concerns during subsequent system implementation phases.

(Summary Only)

Hickman-Fulton Counties Rural Electric Cooperative Corporation - Distributor Review

2008-12039

September 29, 2009

The OIG performed a review of the Hickman-Fulton Counties Rural Electric Cooperative Corporation (Hickman-Fulton) which is a distributor for TVA power based in Hickman, Kentucky. Our review of Hickman-Fulton found metering issues that could result in (1) inaccurate billing of electric sales by the distributor to their customers and therefore, impact the electric sales reported on the distributor's financial reports to TVA and (2) disparate treatment among similarly situated customers that could be construed, under Section 5 Resale Rates of the power contract, as discrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect because sufficient information was not available.

In addition, we found Hickman-Fulton had more than enough cash on hand to cover planned capital projects and provide a cash reserve. The cash reserve after planned capital projects was about 6 percent which was within the guidelines (cash ratio of 5 percent to 8 percent) TVA established to determine if a distributor has adequate cash reserves. We also found improvements were needed to comply with contract provisions in the area of customer contracts.

Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA has not provided guidance for distributors on (1) what types of appurtenances are allowed or at what point in time the use must be predominately residential and (2) what constitutes prudent expenditures.

We recommended the Chief Financial Officer (CFO) work with Hickman-Fulton to (1) develop and implement a process to test in-house any meters identified during independent testing with a power factor below 85 percent and install demand meters that measure kVA as needed and (2) ensure all customers with appurtenances used for commercial operations are metered the same. In addition, the CFO should establish guidance for distributors on allowable appurtenances and at what point in time the use must be predominately residential to qualify for a residential rate. TVA is in the process of addressing findings from previous reviews that we also found at Hickman-Fulton related to a lack of guidance for distributors on what constitutes prudent expenditures.

TVA and Hickman-Fulton management agreed and are taking actions to address the first recommendation. However, TVA and Hickman-Fulton management disagreed with the recommendation related to ensuring all customers with appurtenances are metered the same and the recommendation to provide additional guidance to distributors on appurtenances.

(Full Report)

Contract for Modification, Supplemental Maintenance and Construction Services

2008-11510

September 25, 2009

We audited the 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 Unit 1 (BFN U1). The scope of our review included $272.2 million of noncraft costs billed by the contractor through December 31, 2007, including (1) $89.6 million for modification and supplemental maintenance services and (2) $182.6 million for the BFN U1 services.

In summary, we found TVA had overpaid the contractor (1) from $876,519 to $1,579,575 for BFN U1 performance fees due to an overstated fee base and inflated fee rates, (2) $268,538 due to ineligible and unsupported billings for labor costs, (3) $54,633 due to overbillings for temporary living and relocation costs, and (4) $6,650 due to miscellaneous overbilled costs. We recommended TVA management recover up to $1,909,396 in overpaid costs from the contractor.

(Summary Only)

Contract for Research and Development Services

2008-11999

September 23, 2009

We audited $25 million of costs billed to TVA by a contractor for providing research and development activities. In summary, we found (1) TVA made invoice payments in advance of the work being performed, thus losing an estimated $1,125,000 in interest over the audit period, (2) project status reports submitted by the contractor were incomplete and inaccurate, and (3) TVA was delinquent in recovering overfunded project amounts.

We recommended TVA management (1) discontinue the use of advanced payments unless the contractor is required to pay interest on the advanced payments; (2) require the contractor to provide a final status report for all projects worked, and (3) recover all unspent funds and institute procedures for ensuring the timely collections of all future overpayments.

(Summary Only)

Subcontracted Services for Browns Ferry Nuclear Plant Unit 1 Construction

2007-001C-01

September 1, 2009

We audited $2.8 million in subcontractor costs billed to TVA by a contractor for work related to the restart of Browns Ferry Nuclear Plant Unit 1. Our preliminary review of the costs billed by the subcontractors caused us to have concerns that certain costs that were billed may have also been billed to TVA under other contracts. We identified two direct contracts TVA had with the companies and expanded our review to include $985,984 TVA had paid to the companies under these contracts.

In summary, we found TVA had been overbilled $1,075,020 including (1) $174,912 of unsupported and ineligible labor and per diem costs, (2) $621,428 of unsupported and ineligible equipment costs, (3) $199,180 of unsupported material costs, and (4) $79,500 of overstated task costs.

(Summary Only)

Employee Misconduct - Ethics

1K-12095

June 9, 2009

This redacted Report of Administrative Inquiry regarding a personnel matter was released on September 14, 2009, in response to an administrative appeal of a FOIA request.

The OIG reported that a TVA employee provided false information to the OIG during an OIG inspection of the Maintain and Gain (M&G) Program.

(Redacted Report)

Distributor Review of City of Oxford Electric Department

2008-12036

August 31, 2009

The OIG performed a review of the City of Oxford Electric Department (Oxford) which is a distributor for TVA power based in Oxford, Mississippi. Our review of Oxford found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Oxford and TVA would not be material.

In addition, we found Oxford had more than enough cash on hand to cover planned capital projects and provide a cash reserve. The cash reserve after planned capital projects was about 6.6 percent which was within the guidelines (cash ratio of 5 percent to 8 percent) TVA established to determine if a distributor has adequate cash reserves. We also found improvements were needed to comply with contract provisions in the areas of (1) co-mingling of funds, (2) customer bill adjustments, (3) Oxford's accounting practices, and (4) customer contracts.

Finally, we noted opportunities to enhance TVA oversight of the distributors. Specifically, we noted TVA has not (1) performed a joint cost study in over 20 years when the TVA Accountant's Manual calls for one to be performed every three to four years or when major changes occur that affect joint operations, (2) provided adequate guidance on when a demand meter is required, (3) provided definitive guidance for distributors on what constitutes prudent expenditures, and (4) adequately defined how often meters should be tested by the distributors.

We recommended the Chief Financial Officer (CFO) work with Oxford to improve compliance with the contract. In addition, we recommended that the CFO (1) put procedures in place to perform joint cost studies with each distributor that shares costs with other entities at least every three to four years, and (2) develop guidance to indicate when a distributor should require that a demand meter be installed for GSA Part 2 customers. TVA is in the process of addressing findings from previous reviews that we also found at Oxford related to (1) a lack of guidance for distributors on what constitutes prudent expenditures and (2) how often meters should be tested by the distributors.

TVA and Oxford management generally agreed with and are taking actions to address the recommendations with the exception of our finding of co-mingling of funds where no management action is planned. If TVA management accepts the mingling of electric system funds and accounts with other funds and accounts of the Municipality, we suggest TVA consider modifying Section 1 of the power contract in their planned formal implementation of a rate change to no longer prohibit such actions.

(Full Report)

Contract for Performing Preheat and Post-weld Heat Treatment Services

2007-001C-02

August 14, 2009

We audited the cost billed to TVA by a contractor for performing preheat and post-weld heat treatment services and found the contractor (1) had billed certain tasks at lump sum prices instead of using the time and material billing rates provided for by the contract and (2) overbilled or could not provide support for $1,350 that had been billed as time and material.

We recomended TVA Supply Chain Management ensure the (1) contract documents how Procurement Agents will determine whether to use time and materials pricing or fixed prices for task assignments, and (2) Procurement Agents maintain documentation of how TVA assessed the reasonableness of the price for any work performed as fixed price. Additionally, we recommended TVA recover the $1,350 of overbilled/unsupported cost.

(Summary Only)

Review of Kingston Fossil Plant Ash Spill Root Cause Study
and Observations About Ash Management

2008-12283-02

July 23, 2009

On December 22, 2008, a major dike failure occurred on the north slopes of the ash pond at the Tennessee Valley Authority’s (TVA) Kingston Fossil Plant. This failure resulted in the release of approximately 5.4 million cubic yards of coal ash spilling onto adjacent land and into the Emory River. TVA’s Chief Executive Officer (CEO) directed the TVA Office of the General Counsel to contract with a firm to do a root cause analysis of the spill, and AECOM Technology Corporation (AECOM) was commissioned with the task. The objectives of our review were to (1) provide an independent peer review of AECOM’s root cause analysis and (2) review TVA’s ash management for weaknesses. To assist us with technical aspects of this review, we hired Marshall Miller & Associates (Marshall Miller) to independently peer review TVA’s root cause analysis and provide other observations about ash management practices at TVA. In summary, we found:

• TVA management handled the root cause analysis in a manner that avoided transparency and accountability in favor of preserving a litigation strategy. TVA elected not to publicly disclose management practices that may have contributed to the Kingston Spill.
• TVA could have possibly prevented the Kingston Spill if it had taken recommended corrective actions. TVA was aware of “red flags” that were raised over a long period of time signaling the need for safety modifications to TVA ash ponds.
• AECOM overemphasized the “slimes” layer as a trigger for the Kingston Spill. Marshall Miller concluded that factors other than the “slimes” layer may have been of equal or greater significance.
• Despite internal knowledge of risks associated with ash ponds, TVA’s formal Enterprise Risk Management process, which began in 1999, had not identified ash management as a risk. While over the years there was internal discussion about placing the ash ponds under the TVA’s Dam Safety Program, ultimately, TVA did not place the ash ponds under its Dam Safety Program. Treating the ash ponds like dams would have required more rigorous inspections and engineering.
• Attitudes and conditions at TVA’s fossil fuel plants that emanate from a legacy culture impacted the way TVA handled coal ash. Ash was relegated to the status of garbage at a landfill rather than treating it as a potential hazard to the public and environment.

In addition, this Office of the Inspector General report was presented to the TVA Board on
July 14, 2009. After the OIG briefed the Board on its findings, a specially called Board meeting was held on July 21, 2009. A report prepared by McKenna Long and Aldridge that was commissioned by the Audit Committee of the Board in February of 2009 was released. TVA management acknowledged at the July 21, 2009, meeting many of the management failures that we identify in this report. These admissions reflect the type of transparency and accountability for TVA that the OIG has pressed for some time. We applaud the Board’s leadership in this matter and TVA management’s acknowledgement of TVA’s role in the Kingston Spill.

TVA’s CEO provided comments on a draft to this report. The CEO generally agreed with our recommendations and, in addition to identifying actions already taken, stated that actions in-process or planned include (1) implementing a cultural focusing initiative across the agency, incorporating lessons learned from the Kingston Spill, (2) using the detailed, technical explanation of what and how the Kingston dike failure occurred to ensure that it never happens again and to safely close the failed cell, (3) developing and implementing (a) more detailed and rigorous policies and procedures for storing, handling, and maintaining ash and ash disposal facilities and (b) a comprehensive program for future Coal Combustion Product remediation and conversion, and (4) implementing enterprise risk management improvements to better achieve the goals of the program.

(Full Report)

(Opening Statement of Richard W. Moore, Inspector General, Tennessee Valley Authority before the Subcommittee on Water Resources and Environment of the Committee on Transportation and Infrastructure - July 28, 2009)

Right-of-Way Clearing and Land Restoration Services - Contract Compliance Review

2008-11828

July 16, 2009

We reviewed $9.98 million in costs billed to TVA by a contractor for right-of-way clearing and land restoration services for transmission line projects. In summary, we found the contractor overbilled TVA $34,678 including: (1) $28,925 in unallowable rental costs, and (2) $5,753 due to miscellaneous invoice errors. Additionally, we could not determine if price changes had been accurately accounted for under the contract because the contract's provisions relating to price changes were unclear. We recommended TVA recover $34,678 in overbilled costs and revise the price change clause in the contract to clarify when and how price changes should occur.

(Summary Only)

Review of TVA's Financial Performance

2007-11399

June 23, 2009

This review was the second in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to financial performance." 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.

In our judgment, TVA's overall financial performance for this assessment period was adequate; however, the agency faces several significant financial challenges, some of which have recently emerged. This conclusion is based on our analysis of TVA's financial health in three areas: (1) maintaining adequate revenues, (2) making sound capital investments, and (3) containing costs. In summary:

• TVA's ability to set its own rates and the implementation of a fuel cost-adjustment clause provides flexibility to help maintain adequate revenues to cover costs. Additionally, TVA operates in a service area that is largely free from competition and has a large diverse customer base.
• TVA has made certain investment decisions in the past that did not pay off. TVA is seeking to improve its capital investment decisions and the financial performance of its capital assets. However, TVA's ability to make these large investments pertaining to (1) new generation and transmission assets, (2) environmental requirements, and (3) existing assets that are aging and need regular updates to keep running, will be a challenge given its financing structure and legislative debt ceiling.
• TVA is attempting to reduce certain costs to improve its financial position. TVA fairs poorly when compared to other electric utilities with respect to non-fuel operation and maintenance (O&M) costs. TVA is seeking to reduce non-fuel O&M costs but has made limited progress to date. TVA has also focused on reducing interest costs as a percentage of revenues and has made progress in doing so in recent years.

Recent events have negatively affected TVA financially including: (1) a wet coal fly ash spill at the Kingston Fossil Plant, (2) a downturn in the economy causing declining power sales, (3) a court ruling on a lawsuit brought by the state of North Carolina, and (4) significant losses on accounts established to fund pensions and asset retirements. Our report includes discussions of the necessity to manage commodity price, investment price, credit, and capital requirement risks, and the risk that interest rates might rise. In addition, while TVA's bond rating is based primarily more on its federal ties that its financial position, TVA management has identified maintaining the AAA bond rating as a risk factor in its 2008 U.S. SEC Annual Form 10-K.

(Full Report)
 

Kingston Fossil Plant Ash Slide Interim Report

2008-12283-01

June 12, 2009

Tennessee Valley Authority (TVA) is engaged in responding to one of the largest spills in its history, the ash spill at Kingston Fossil Plant (KIF) in which 5.4 million cubic yards of ash poured onto adjacent land and into the Emory River. This report focuses on (1) TVA's initial emergency response, including implementation and utilization of the National Incident Management System (NIMS); (2) TVA’s actions to quickly respond to the media; and (3) reparations to the victims and restoration of the affected Roane County community. In summary, we found:

• TVA has not implemented NIMS in accordance with Homeland Security Presidential Directive (HSPD)-5 which hampered communications and delayed certain emergency response actions following the spill.
• TVA’s actions for responding quickly to media and public inquiry resulted in releases of inaccurate and inconsistent information and subsequent public criticism which caused reputational harm.
• TVA has responded effectively to victims in the affected area, however, failure to communicate the claims policy and decisions in a timely manner increased settlement expectations for some.

TVA management generally agreed with and is taking actions to address the recommendations. Specifically, management plans to: (1) fully implement NIMS, ensure required NIMS training is completed, and evaluate the implementation of best practices identified by the Roane County Emergency Management Director; (2) document the protocol and verification process for the release of media statements and maintain verification that the appropriate processes were followed; and (3) continue to work with the communities and local residents to improve the communications related to TVA's efforts with property acquisition and claims process.

(Full Report)
 

Contract for Turbine Generator Outage and Other Support Services

2008-11506

June 10, 2009

We audited the costs billed to TVA by a contractor for providing turbine generator outage services at TVA nuclear plants. Our audit included $57.4 million in payments TVA made to the contractor. We found the contractor overbilled or had not provided services to TVA totaling an estimated $281,023, including: (1) $171,150 of labor and per diem costs that were either unsupported or unallowable; (2) $6,729 of overbilled fixed price labor; and (3) $103,144 of engineering services that were not provided in accordance with the terms of the contract.

(Summary Only)
 

2008 Green Power Accreditation

2009-12590

June 01, 2009

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, 2008. The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS, including five identified exceptions and explanations.

(Summary Only)
 

Air Preheater Equipment Contract

2008-11721

May 28, 2009

We audited the costs billed to TVA by a contractor for the design, engineer, and delivery of air preheater equipment for TVA fossil plants. Our audit, which covered $23.2 million TVA had paid the contractor, found TVA had been overbilled at least $2,232,780.

The contract provided for all work, with the exception of a baseline project at Allen Fossil Plant, to be performed on a cost reimbursable basis. However, we found the contractor had overbilled TVA at least $2,025,739 on four additional fossil plant projects because it had billed fixed prices instead of using the required cost reimbursable terms. The actual overbilling may have been higher because our calculation of the overbilling used a maximum fee rate the contractor would have been eligible to receive. In addition, the contractor overbilled $207,041 for field technician services because incorrect billing rates had been used.

We recommended TVA management recover the overbilled costs from the contractor.

(Summary Only)
 

Distributor Review: Lewisburg Electric System

2008-12040

May 15, 2009

The OIG performed a review of Lewisburg Electric System (LES) which is a distributor for TVA power based in Lewisburg, Tennessee. Our review of LES found no material issues related to (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found a contract compliance issue regarding LES's execution of contracts with customers with demand greater than 50 kW.

In addition, we found that LES had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, LES reported cash of $7.5 million and planned capital expenditures of about $4.8 million which left cash reserves of about $2.7 million.

Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA has not (1) provided definitive guidance for distributors on what constitutes prudent expenditures and (2) defined criteria for determining when a distributor's cash reserves are excessive.

We recommended the Chief Financial Officer (CFO) take action to ensure LES complies with contract provisions for formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds and (2) develop criteria to be used in determining whether a distributor's cash reserves are excessive.

TVA and LES management generally agreed with and are taking actions to address the recommendations.

(Full Report)
 

Distributor Review: Monroe County Electric Power Association

2008-12007

May 13, 2009

The OIG performed a review of Monroe County Electric Power Association (Monroe) which is a distributor for TVA power based in Amory, Mississippi. Our review of Monroe found no material issues related to (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found improvements were needed regarding (1) Monroe's accounting for prepaid expenses to ensure conformity with FERC guidelines and (2) Monroe’s execution of contracts with customers with demand greater than 50 kW.

In addition, we found Monroe had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, Monroe reported about $2.9 million in cash and $4.9 million in the TVA Power Invoice Prepayment Program and planned capital expenditures of about $5 million which left cash reserves of about $2.7 million.

Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA (1) does not include cash paid in advance to TVA for future delivery of power in the calculation of the cash ratio for rate review purposes and has not defined criteria for determining when a distributor's cash reserves are excessive, (2) has not provided definitive guidance for distributors on what constitutes prudent expenditures, and (3) has not adequately defined how often meters should be tested by the distributors.

We recommended the Chief Financial Officer (CFO) take action to ensure Monroe complies with contract provisions regarding accounting practices and formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds, (2) review its calculation of the cash ratio for distributors with prepaid power accounts, (3) develop criteria to be used in determining whether a distributor's cash reserves are excessive, and (4) provide guidance on the frequency of meter testing.

TVA and Monroe management generally agreed with and are taking actions to address the recommendations.

(Full Report)
 

Maintain and Gain Transactions

2008-12003

May 15, 2009

This review was conducted to determine whether: (1) TVA gave anyone preferential treatment in the review and approval of Maintain and Gain transactions; and (2) the policies and procedures related to the design and execution of the Maintain and Gain process were adequate. We reviewed all Maintain and Gain transactions that had been approved since the inception of the program up to the date of this report and found:

• Certain actions by TVA employees and by others created the appearance of preferential treatment and thereby increased TVA's risk of reputational harm.
• TVA did not have a protocol in the Maintain and Gain process to ensure a transparent and independent review of applicants having known conflicts of interest.
• The Maintain and Gain program has been administered in an arbitrary manner and requires substantial improvement if it is to be retained by TVA. We noted that exceptions were granted in seven of the ten key steps required in a Maintain and Gain Transaction.
• TVA's failure to retain records of who filed applications and why those applications were rejected damages the integrity of the Maintain and Gain program.
• The Maintain and Gain program may undermine the TVA Board's 2006 Land Policy and its apparent goal of restricting residential development on TVA shorelines.

We recommended TVA:

• Eliminate the Maintain and Gain program and only consider changes to water access rights during the periodic update of the Shoreline Management Policy. Alternatively, if the Maintain and Gain program is retained, TVA should (1) evaluate the extent it may conflict with the Land Policy regarding residential development; (2) strengthen procedural guidelines to reduce the inconsistency in how matters are resolved; and (3) implement procedures to ensure adequate documentation of rejected and withdrawn applicants is maintained.
• Establish a clearly defined protocol which creates a procedure for identifying inherent conflicts of interest by those applying for any TVA benefit and includes: (1) a definition of inherent conflicts of interest broad enough to capture the majority of cases that involve conflicted parties soliciting something of value from TVA; (2) a training program for TVA employees to enable them to recognize and report conflicts; (3) a process to refer these cases to the Ethics and Compliance Officer, the Designated Agency Ethics Officer (DAEO) and the OIG to track, review, and report on whether any preferential treatment occurred; and (4) a notice provision to any conflicted party applying for a TVA benefit advising them that their request or application will be the subject of a formal review and public report.

The Chief Executive Officer provided comments on the draft report and agreed to implement our recommendations. Specifically, in response to our recommendations, management plans to: (1) recommend to the TVA Board that the Maintain and Gain program be terminated; (2) incorporate policy and process concerns addressed in the report in the design of any future water access rights programs that would be recommended to the Board, and if such a future program is needed, recommend any future Maintain and Gain activities be made public early and be subject to TVA Board approval to add public notice and transparency to the process; and (3) develop, in coordination with the Audit, Governance, and Ethics Committee of the TVA Board, a policy that will provide a means to identify any potential actual or apparent conflicts of interest or the appearance of exertion of undue influence on the part of persons applying for a TVA benefit.

(Redacted Report)
(Referral Report to the Committee on Standards of Official Conduct – Redacted)  

Worker's Compensation Program

2007-11474

March 2, 2009

Following are observations from the review of documentation for 30 claims:

• Of the 12 claims that were disputed, 2 of the dispute letters were not submitted within 30 days after the notice of injury, as required by federal code.
• One claim did not include the supervisor's signature on the form.
• In one instance, the claim was not submitted to the Office of Workers' Compensation Programs within ten business days, due to a supervisor not forwarding his/her completed portion of the form within the allotted eight days, as required by federal code and TVA policy, respectively.

We found prescribed services for TVA's Workers' Compensation (WC) department and assigned site personnel go beyond the Federal Employees' Compensation Act's WC requirements.  However, when we interviewed selected managers, nurses, TVA site WC contacts, and other staff at seven TVA site locations, we were told the WC program support could be improved by:  (1) increasing the expertise in the WC department, including medical knowledge of personnel; (2) improving education and training for personnel responsible for facilitating the WC process at TVA sites; (3) enhancing communications from the WC department; and (4) addressing the abundance of hearing loss claims.

(Redacted Report)
 

Medical Benefit Plan Administrator

2008-11674

February 24, 2009

We audited $211.6 million of costs billed to TVA by a contractor from January 1, 2006, through December 31, 2007, for the administration of TVA's medical benefit program.  Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions.  In summary, we found TVA had potentially been overbilled up to an estimated $473,024.  The overbilling included (1) $327,513 in potentially duplicate line item charges; (2) $71,518 for unallowable procedures and services; (3) $4,659 for claims that exceeded plan limits; (4) $61,840 of audit recoveries that had not been credited to TVA; and (5) $7,494 of miscalculated claim payments.

In addition, we found TVA had been billed an additional $1 million due to payment provisions the contractor had negotiated with some of the providers in its preferred provider organization network.  These provisions, referred to as stop-loss provisions, effectively offset discounts TVA would have otherwise received when providers' costs exceeded specified amounts.

(Summary Only)
 

Review of TVA's Vendor Debarment and Suspension Process

2008-11985

February 19, 2009

We reviewed TVA's process for ensuring it does not knowingly contract with vendors that have been: (1) debarred or suspended by the federal government and/or (2) found unsatisfactory within TVA. In summary, we determined:

• TVA does not have formal procedures for ensuring TVA does not knowingly contract with vendors that have been debarred or suspended by the federal government.  However, Procurement requires its Contract Managers/Procurement Agents to review the Excluded Parties Listing System (EPLS), which is the federal government's database of debarred and suspended vendors, before awarding contracts over $100,000.  Although we found TVA had not awarded contracts to vendors that were included on the EPLS during our review period (2005-2008), TVA's process was not always followed and/or documented.
• The Federal Acquisition Regulations (FAR) include certain requirements that if implemented by TVA could improve TVA's process and further ensure that TVA does not do business with contractors and subcontractors that are debarred or have committed a civil or criminal offense.
• TVA does not have a formal process for internally identifying vendors that have been found unsatisfactory within TVA.  The lack of such a process could result in TVA not being aware of problems it has had with vendors prior to awarding contracts to them.

We recommended TVA Procurement develop written procedures detailing its vendor debarment process.  In addition, TVA should improve its process by requiring more verification of the debarment status of contractors and subcontractors as prescribed by the FAR, including certifications and notifications by contractors regarding debarment and/or civil or criminal actions.  TVA should also develop a process for (1) identifying TVA vendors that should be on a "watchlist" based on certain serious offenses committed by the vendor and (2) reporting any significant misconduct by contractors to the federal government.

(Summary Only)
 

Process for Surplus and Disposal of Computer Equipment

2008-11714

February 11, 2009

We found TVA's process for the disposal of surplus computer equipment does not adequately protect TVA resources or track the disposition of surplus equipment.  Specifically, (1) the equipment inventory in HP Service Desk was not correctly updated when equipment was removed from service; (2) equipment transferred from Information Services (IS) to Technology Initiative (TI) was not tracked to prevent unnecessary storage, loss, or theft; (3) TI did not maintain an inventory of equipment received for disposal or reconcile equipment received with equipment that was put in surplus by IS, and (4) the disposition records maintained by TI do not account for the disposition of 6,631, or 63.9 percent, of the computers put in surplus by IS. (Redacted Report).
 

Review of TVA's Purchasing Card Program

2007-11481

January 20, 2009

We reviewed TVA's VISA purchasing card program to (1) identify and assess the operating effectiveness of controls over the program and (2) determine if they incorporate identified best practices.  The scope of the project covered all transactions from October 1, 2005, through December 31, 2007.  Our review determined:

• Key internal controls were not functioning as intended with regard to (1) the review of purchasing card transactions and their supporting documentation and (2) transaction limits.
• Certain purchases were made that were disallowed by TVA policy or questionable in nature.
• TVA's purchasing card program incorporates some best practices, but key best practices were absent.
• TVA employees were not reporting all instances of known or suspected waste, fraud, and abuse or violation of law to the OIG as required by Business Practice 2.

Management agreed with most findings and recommendations and has initiated or plans to initiate corrective action (Full Report).
 

Review of Ernst &Young LLP's Audit of TVA's Fiscal Year 2008 Financial Statements

2008-11528

December 16, 2008

TVA contracted with Ernst & Young LLP (E&Y) to audit TVA's balance sheet as of September 30, 2008, and the related statements of income, changes in proprietary capital, and cash flows for the year then ended.  In addition, the contract called for the review of TVA's fiscal year 2008 interim financial information filed on Form 10-Q with the Securities and Exchange Commission.  The contract required the work be performed in accordance with generally accepted government auditing standards.  We evaluated E&Y's work to determine compliance with these standards.  The objective of our review was not intended to enable us to express, and we did not express, an opinion on TVA's financial statements or on management's conclusions about the effectiveness of its system of internal control.  E&Y is responsible for the auditor reports dated December 12, 2008, and the conclusions expressed in those reports.  However, our review disclosed no instances where E&Y did not comply, in all material respects, with generally accepted government auditing standards (Full Report).
 

Review of the Contractor Tool Program for the Watts Bar Nuclear Plant Unit 2 Construction Project

2008-11911

December 11, 2008

The objective of our review was to assess the procedures and key control activities used to track and account for tools on the Watts Bar Nuclear Plant Unit 2 Construction Project (WBN U2 Project).  Our review of the WBN U2 Project tool program found (1) nothing to indicate significant discrepancies in the tool inventory at this time; (2) data entry errors in the Tool Hound system; (3) opportunities exist to improve controls, based on our review of the contractor's Small Tools and Small Capital Equipment Procedure; and (4) some non-compliances with the contractor's Small Tools and Small Capital Equipment Procedure.  We recommend the contractor (1) ensure accuracy of data entry in the Tool Hound system; (2) consider modifying the contractor's WBN U2 Project small tool procedure to include the additional control opportunities identified and the valuation criteria for bulk items; (3) ensure compliance with the contractor's Small Tools and Small Capital Equipment Procedure; and (4) enhance controls over inventory contained in unlocked sea/land containers.  Management agreed with our findings and has initiated or plans to initiate corrective action (Redacted Report).
 

PricewaterhouseCoopers LLP's Restatement Audit of Fiscal Years 2006 and 2007

2008-12076

December 11, 2008

TVA contracted with the independent certified public accounting firm of PricewaterhouseCoopers LLP (PwC) to audit revisions to the balance sheets and the related statements of income, changes in proprietary capital, and cash flows as of September 30, 2007 and 2006, for the purpose of restating TVA's previously issued financial statements.  The contract required the audit be done in accordance with generally accepted government auditing standards.  Our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards (Full Report).
 

Agreed-Upon Procedures Reperformed on Certain Changes to TVA Fiscal Year 2008 Performance Measures

2008-12062-01

December 5, 2008

We reperformed certain procedures due to changes in data previously reviewed by the OIG, the results of which were reported in our October 24, 2008, report under project No. 2008-12062.  In reperforming the procedures, we found the (1) actual year-to-date input for the revised fiscal year (FY) 2008 Non-Fuel Operations & Maintenance TVA-wide metric agreed with the underlying support provided by the Controller's organization on December 4, 2008, and (2) revised FY 2008 scorecard and weighted scorecard payout percentages were mathematically accurate (Summary Only).
 

Asbestos Abatement Contract Services

2008-11504

November 21, 2008

We audited $25.24 million of costs billed to TVA by a contractor for subcontract services between September 30, 2002, and December 31, 2007.  The subcontractors provided personnel to perform asbestos abatement and sampling, along with removal and installation of other insulation material at TVA nuclear plants and subsequently in support of the Browns Ferry Nuclear Plant Unit 1 Recovery Project.  In summary, we found that TVA had been overbilled $132,657 as a result of (1) craft labor costs that were not provided for or were in excess of TVA's Project Maintenance and Modification Agreement, (2) duplicate billings for some materials, and (3) inaccurate insurance cost adjustments.  We recommended TVA management recover the $132,657 in overbilled costs from the contractor (Summary Only).
 

Nuclear Engineering Services

2007-11078

November 21, 2008

We audited the costs billed to TVA by a contractor for providing professional engineering and technical support services associated with the restart of Browns Ferry Nuclear Plant (BFN) Unit 1.  Our audit, which included $110 million of payments TVA made to the contractor from June 2004 through October 2007, found the contractor had overbilled or not credited TVA an estimated $276,484 for (1) home office labor and related costs that should have been covered by the contractor's overhead rate, (2) certain miscellaneous labor costs and markups that were not allowable, (3) unspent employee recognition costs, (4) home office computer and facility charges for some employees who did not meet the contract eligibility requirements, and (5) overbilled provisional payroll taxes and insurance.  Additionally, we found that changes TVA made to the contract resulted in TVA paying $343,548 in excessive paid time off costs for certain contractor personnel assigned to the BFN Unit 1 project (Summary Only).
 

TVA Telework Initiatives

2008-11942

November 20, 2008

We reviewed TVA's efforts to implement telework as well as any planned telework initiatives.  Our review determined (1) Business Practice 20, Off-site Use of Business Equipment (BP 20), provides a framework for telework; however, we found little evidence of compliance with the policy, especially as related to required training and method of approval; (2) pockets of teleworkers exist throughout TVA; however, TVA has no system for tracking individuals who telework and the extent to which they telework; and (3) employees are approved to telework by being granted remote access to TVA systems instead of following the BP 20 approval process. 

We also reviewed TVA's Continuity of Operations Plan (COOP) and Pandemic Plan and determined both adequately included the use of telework in those programs.  However, the COOP does not require essential employees to take their laptop computers home in the evenings to ensure continuity of operations in the event they are unable to move to the alternative location during an emergency.

We recommended the Chief Administrative Officer and Executive Vice President of Administrative Services (CAO) (1) work with other TVA organizations to determine which jobs and functions in TVA are conducive to telework; (2) consider a pilot program that would assist in future decisions about telework and identify ways to use telework to facilitate COOP planning and responding to emergency situations such as pandemics or natural disasters; (3) implement a telework policy that provides a method for approving employees to telework, appropriate training to supervisors and all employees authorized to telework, a tracking system for individuals who telework, and effective communication of TVA's telework policy to TVA employees; (4) consider designating a Telework Managing Officer; (5) consider requiring that essential employees take their laptop computers home at the end of their workday in the event an emergency occurs and they are unable to move to the alternative location.

The CAO agreed to work with other TVA organizations to determine which jobs and functions in TVA are conducive to telework.  Upon completion of that assessment, the CAO will take appropriate actions regarding our other recommendations (Full Report).
 

Applied Agreed-Upon Procedures to TVA Fiscal Year 2008 Winning Performance Measures

2008-12062

October 24, 2008

We performed four agreed-upon procedures solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2008.  In summary, we found:

• The fiscal year 2008 Winning Performance goals were properly approved.  However, during our review, we noted the definition sheets describing the formulas for the three TVA incentivized measures were not approved by the Board.  We also found that although the PSO - Transmission System Services (TSS)'s performance measures were solely comprised of metrics from other scorecards that were approved on November 6, 2007, the approval of these metrics for measuring TSS's performance for purposes of the payout did not occur until September 8, 2008.
• Actual year-to-date inputs for the sampled metrics agreed with the respective supporting documentation.
• Actual inputs for the three incentivized TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units with one exception related to the equivalent availability factor metric. This one exception did not affect the payout.
• The payout percentages were mathematically accurate after noted exceptions were corrected.  

(Summary Only)
 

Contractor Qualifications - Contractor Employees Assigned to Watts Bar Nuclear Plant Unit 2 Construction Project

2008-11591

October 1, 2008

We reviewed the qualifications for contractor and subcontractor employees working on the Watts Bar Nuclear Plant Unit 2 (WBN U2) construction project to assess the hiring process and determine if those hired met minimal qualifications for their designated labor category (grades).  We determined:

• TVA's engineering, procurement, and construction contract did not include minimum requirements for the 20 specified labor categories; moreover, the contractor lacked corporate criteria specifying minimum requirements for filling these positions at WBN U2.  To establish the hiring requirements for positions to be filled for the WBN U2 project, the contractor relied on the job requisition process, resulting in varying and inconsistent minimum requirements for these positions.
• Requirements established through this requisitions process were sometimes not met.  For example, when we compared employee qualifications to requirements in the associated job requisitions, we found 8 of the 56 individuals reviewed, or 14.3 percent, did not meet the requirements outlined in the requisitions.  However, when questioned, the contractor provided explanation and asserted that all individuals were qualified for the work being performed.

We recommended the Vice President, WBN U2, Nuclear Generation, Development and Construction, in conjunction with the contractor Project Director (1) require that job requisitions include minimum requirements for each position and the requirements be reviewed and approved by the contractor's Human Resource personnel to ensure consistency among job classifications and eliminate errors and document the rationale for hiring any candidate not meeting the minimum requirements but who is deemed qualified for the position; (2) evaluate the qualifications of the employees not meeting the qualifications in the job requisitions to determine if they are qualified to perform the assigned work; and (3) take steps to ensure resumes are thoroughly reviewed, and identified discrepancies are resolved prior to individuals being hired.  (Summary Only)