OIG REPORTS

Due to risks associated with adopting unproven or immature technologies, the Office of the Inspector General conducted an evaluation to assess the Tennessee Valley Authority's (TVA) methods for evaluating new technologies. We determined TVA has not established consistent methods for evaluating new technologies. Specifically, we found TVA has not
(1) adopted a formal method for evaluating technology readiness or (2) managed technology readiness throughout projects. We also determined TVA has taken limited steps to address previously identified programmatic weaknesses related to Standard Programs and Processes and records management.

  Full Report

The Federal Information Security Modernization Act of 2014 (FISMA) requires each agency's Inspector General (IG) to conduct an annual independent evaluation to determine the effectiveness of the information security program (ISP) and practices of its respective agency. Our audit objective was to determine the effectiveness of Tennessee Valley Authority's (TVA) ISP and practices as defined by the Fiscal Year (FY) 2022 Core IG Metrics Implementation Analysis and Guidelines (see Appendix B). Our audit scope was limited to answering the core IG metrics.

The FISMA methodology considers metrics at a level 4 (managed and measurable) or higher to be at an effective level of security. Based on our analysis of the core IG metrics and associated maturity models, we found 12 of the 20 core IG metrics were at a level 1 (ad-hoc), level 2 (defined), or level 3 (consistently implemented); therefore, TVA's ISP was not operating in an effective manner as defined by the FY 2022 Core IG Metrics Implementation Analysis and Guidelines.

  Full Report

The Office of the Inspector General included an audit of the Tennessee Valley Authority's (TVA) Back to Business Credit Program (Program) in our annual audit plan due to reputational and financial risks associated with the Program. Our audit objective was to determine if adequate controls were in place to ensure Back to Business credits were provided to businesses in compliance with Program guidelines. Our audit scope was all $13.1 million in credits issued during the life of the Program (April 2020 through September 2021).

We found controls were adequate to ensure the Program credits were accurately calculated in accordance with Program guidance. However, we found some credits were not passed from the local power company to the customer. We also determined the Program did not have controls needed to more appropriately achieve the stated objective. Specifically, the Program did not include controls needed to (1) verify the reduced on-peak demand was due to a reduced level of operations as a result of COVID-19 and (2) specify how/when customers were considered back to prepandemic operating conditions.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for coal combustion residual program management services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 20-year contract.

In our opinion, the company's cost proposal was unsupported and overstated. The company informed us that it did not have financial statements or other actual historical cost documentation to support its proposed costs. Therefore, we could not completely verify (1) certain aspects of the company's proposal for a Gallatin Fossil Plant (GAF) ash pond closure and restoration project or (2) if the labor and labor markup rates included in the company's proposed rate attachments were fairly stated. However, based on our review of the company's estimation methodology and the limited supporting documentation provided by the company, we found:

• The company's proposal for an $892.8 million GAF project was overstated because the company's proposal included (1) inflated subcontract costs, (2) overstated noncraft labor cost, (3) overstated markup rates for the recovery of the company's indirect costs, and (4) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal. We estimated TVA could avoid $117.6 million on the proposed $892.8 million GAF project by negotiating appropriate reductions to the proposal.
• The company's proposed contract rate attachments included (1) craft labor rates that were overstated and did not conform to TVA's project labor agreement, (2) noncraft cost-reimbursable labor rates that included excessive burden, and (3) noncraft time and material rates that included excessive burden. We suggested TVA negotiate to revise the company's rate attachments to (1) comply with the project labor agreement and (2) eliminate excessive burden on noncraft cost-reimbursable and time and material labor rates.

(Summary Only)

The Office of the Inspector General conducted a review of Bull Run Fossil Plant (BRF) organization to identify factors that could impact BRF's organizational effectiveness. Additionally, the scope of this evaluation included identifying lessons learned for future coal plant closures. During the course of our evaluation, we identified positive interactions between coworkers and with various levels of plant management. In addition, TVA's communication of BRF's retirement plans, the support provided through Power Operations' long term workforce strategy, and having an on-site Human Resources representative were seen as positive. However, BRF employees expressed concerns related to: the ability to operate BRF until retirement due to longstanding deteriorated conditions, inadequate staffing, and increased safety risk. We also found opportunities exist to improve site-specific plant knowledge and fire brigade staffing.

  Full Report

Due to the risk of employee exposure to toxic vapors, gases, dust, or oxygen deficiency, the Tennessee Valley Authority (TVA) Office of the Inspector General (OIG) performed an evaluation of TVA's Respiratory Protection Program at nonnuclear facilities. The objective of this evaluation was to determine if selected respiratory protection procedures were being performed at nonnuclear facilities.

The OIG determined some respiratory protection procedures were not being performed as required. Specifically, we determined some (1) requirements were not being met for training, fit tests, facepiece seal protection, and respirator storage and (2) employees were delinquent on medical evaluation requirements.

  Full Report

The Office of the Inspector General conducted an evaluation to determine if the Tennessee Valley Authority (TVA) was accurately calculating and reporting its capacity to meet energy demand. We made recommendations for TVA management to: (1) improve or create new processes to define how capacity should be calculated, used, and reported, internally and externally, (2) correct reporting errors identified and implement controls to prevent future recurrence, and (3) continue to evaluate the risk posed by TVA's current system position and take actions as necessary to address. TVA management agreed to implement our recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for coal combustion residual (CCR) program management services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 20-year contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed:

• Gallatin Fossil Plant (GAF) project for $364.1 million included (1) craft labor rates not compliant with TVA's Project Labor Agreement (PLA), (2) overstated markup rates, and
  (3) excessive fee.
• Alternate GAF proposal for $361.5 million included overstated escalation on TVA's heavy equipment, in addition to the same overstated costs in the company's $364.1 million GAF proposal.
• Contract rate attachments included (1) overstated and incorrect labor and labor markup rates, (2) overstated equipment rates, and (3) overstated time and material (T&M) rates.

We estimated TVA could avoid either (1) $20.1 million on the proposed $364.1 million GAF project or (2) $28.6 million on the alternate proposed $361.5 million GAF project by negotiating appropriate reductions to the proposals. In addition, we suggest TVA negotiate to revise the company's rate attachments to (1) comply with the PLA and (2) appropriately reduce the labor markup rates, equipment rates, and T&M rates.

(Summary Only)

The Office of the Inspector General conducted an audit to determine the effectiveness of endpoint protection on Tennessee Valley Authority's (TVA) desktops and laptops. We found several areas of TVA's endpoint protection program to be generally effective; however, we identified two issues that should be addressed by TVA management to further increase the effectiveness. Specifically, we found (1) TVA does not require endpoint protection for all network connections and (2) gaps in TVA policy, procedures, and internal controls. TVA management agreed with our recommendations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Delta Dental of Tennessee (Delta Dental) for dental plan administrative services. Our audit objective was to determine if the costs billed to TVA were in compliance with the terms of Contract No. 12179. Our audit included approximately $15.6 million in claim costs and associated administrative fees billed to TVA during calendar years 2020 and 2021.

In summary, we determined the costs billed by Delta Dental generally complied with the contract, except for $14,618 in overbilled costs due to a duplicate billing. Delta Dental agreed with the overbilling and issued TVA a credit for the full amount on April 18, 2022.

(Summary Only)

The Office of the Inspector General conducted a review of the Communications and Public Relations (C&PR) organization to identify factors that could impact C&PR's organizational effectiveness. During the course of our evaluation, we identified behavioral and operational risks, some of which were recurring, that stemmed from alignment issues, which could negatively affect sustainable execution within C&PR. Specifically, these risks included (1) perceived lack of organizational direction, (2) perceived lack of empowerment in C&PR leadership, (3) concerns with the development of the organizational structure, (4) staffing and prioritization concerns, (5) role clarity concerns, (6) concerns with relationships within and outside of C&PR, and (7) organizational placement concerns.

  Full Report

The Tennessee Valley Authority (TVA) operates three nuclear plants capable of generating 7,800 megawatts of electricity. Groundwater contamination can result from routine nuclear plant activities such as wet storage of spent fuel, leaks from liquid waste pipelines and tanks, and leaks of contaminated cooling water. TVA Nuclear Power Group, Standard Programs and Processes 05.15, Fleet Groundwater Protection Program, establishes a long-term groundwater-monitoring program with the purpose of minimizing the potential for inadvertent releases to the environment from plant activities. Due to risks associated with potential groundwater contamination, we performed an evaluation to determine if TVA Nuclear has taken actions to address issues related to groundwater at nuclear plants, identified during fiscal years 2017 through 2021, in internal assessments, external assessments, consultant reports, and condition reports.

We determined TVA Nuclear has taken actions, or no further actions were needed, to address the majority of issues and/or recommendations made. However, two recommendations from 2015 have not been addressed and likely affected TVA's corporate insurance premiums.

  Full Report

The Office of the Inspector General audited TVA's information technology (IT) equipment inventory to determine if TVA had controls and processes in place to maintain an accurate and complete inventory of IT equipment. Due to the inventory inaccuracies and control weaknesses, we did not test for inventory completeness. Although we found access controls to IT inventory data were effective, we found TVA's controls and processes in place to maintain an accurate and complete inventory of IT equipment were ineffective. Specifically, we found IT inventory (1) records were not accurate, (2) lacked reconciliation processes, (3) lacked a deployment and tracking policy, and (4) policies and procedures were not reviewed and updated timely. TVA management agreed with our recommendations.

  Full Report

The Office of the Inspector General identified several instances where time was not accurately reported in the Personnel Qualification and Scheduling program (that is used to track employees' hours to avoid a violation of the Nuclear Fatigue Rule) and the time-reporting system. However, we were unable to determine if all Nuclear Maintenance employees' time was accurately reported because we could not account for time that employees were not badged into the protected areas (the area encompassed by physical barriers and to which access is controlled) of the plants. The inaccurate reporting resulted in a violation of the Nuclear Fatigue Rule, unnecessary paid time off for an employee, and overstated leave balances.

  Full Report

The Office of the Inspector General conducted an evaluation to determine (1) the effectiveness of the radiation protection program in limiting employee dosage and (2) if notifications were made when required. We determined the Tennessee Valley Authority's (TVA) radiation protection program was effective in limiting employee dosage levels during calendar years 2019 and 2020. Additionally, we determined the Nuclear Regulatory Commission and TVA personnel were notified, as required, when personnel dosage met regulatory milestones. However, we identified an opportunity for improvement related to performing dosimetry investigation reports.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Williams Plant Services, LLC (Williams) under Contract No. 10728 for managed task construction and modification work at TVA's nuclear facilities. The contract provided for TVA to compensate Williams for these services on either a time and materials or fixed price basis. Our objective was to determine if costs billed to TVA were in accordance with the contract's terms. Our audit scope included approximately $34.1 million in costs billed to TVA from January 1, 2019, through September 18, 2020.

In summary, we determined Williams overbilled TVA $549,911, including (1) $359,753 in unapproved subcontractor costs, (2) $30,802 in excessive and ineligible fee applied to subcontractor costs, (3) $107,080 in ineligible temporary living allowance and travel costs, (4) $29,840 in unsupported and ineligible labor costs, (5) $14,209 in ineligible material costs, and (6) $8,227 in credits not received by TVA (which have since been recovered by TVA).

In addition, we noted several opportunities to improve contract administration by TVA. Specifically, (1) TVA approved and implemented a contract rate attachment that contained incorrect craft labor rates, (2) TVA paid invoices under an incorrect contract, and (3) the contract contained inconsistent compensation terms for nonmanual labor.

(Summary Only)

As part of our annual audit plan, we performed an audit of Tennessee Valley Authority's (TVA) non-power dam control system cybersecurity. Our objective was to determine if the cybersecurity controls of TVA's non-power dam control system were operating effectively.

In summary, we found (1) no clear ownership of the non-power dam control system, (2) vulnerable versions of operating systems and control system software, (3) inappropriate logical and physical access, and (4) internal information technology controls were not operating effectively or had not been designed and implemented. Prior to completion of our audit, TVA clarified the ownership of the control system and took actions to address the inappropriate logical and physical access. We recommend the Senior Vice President, Resource Management and Operations Services, update the non power dam control system to address the identified vulnerabilities and information technology control weaknesses. TVA management agreed with our recommendation and provided information on planned actions.

  Full Report

The Office of the Inspector General conducted a review of the Browns Ferry Nuclear Plant Radiation Protection (BFN RP) organization to identify factors that could impact BFN RP's organizational effectiveness. During the course of our evaluation, we identified behavioral and operational factors that are negatively impacting BFN RP's effectiveness and its ability to meet its responsibilities and support Nuclear's vision and core principles. Most employees expressed having positive relationships with individuals in their own groups, and many indicated they trusted their coworkers to perform their jobs well. However, multiple negative behavioral factors were also expressed, including:

• Concerns regarding interactions between BFN RP groups.
• Concerns regarding management interactions.
• Perceptions of (1) unethical and (2) noninclusive behaviors by certain managers.
• Perceptions that BFN RP personnel cannot stop work and plant operations are placed before radiation safety.

In addition, we were informed about concerns related to outdated instrumentation and equipment, inadequate supplies, the briefing room environment, and budget and staffing constraints. We also identified a risk related to the oversight and monitoring of the nuclear safety culture within BFN RP that could impact BFN as a whole.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for transmission construction services. Our examination objective was to determine if the cost proposal was fairly stated for a planned 5-year, $50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the proposed general liability insurance markup rate was overstated compared to recent actual costs. We estimated TVA could avoid about $118,000 over the planned $50 million contract by negotiating a reduction to the general liability insurance markup rates to more accurately reflect the company's recent actual costs.

(Summary Only)

Our office, through a partnership with the Pandemic Response Accountability Committee, obtained data from the United States Small Business Administration (SBA) related to their Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program (PPP) loans. We scheduled this audit after identifying potential matches between the SBA data and TVA employees. Our audit objective was to determine if TVA's policies and procedures are effective in assuring outside employment of TVA employees is properly approved. Our audit scope was limited to TVA employees identified as having potential outside employment or business ownership through review of EIDL and PPP loan data received from the SBA.

We found TVA's policies and procedures are not effective in assuring outside employment of TVA employees is properly approved. Specifically, we found TVA employees are not consistently submitting their outside employment or business ownership on TVA Form 15570 prior to accepting outside employment or opening a business. In addition, we found TVA's (1) review for potential conflicts of interest and (2) application of 5 CFR § 7901 requirements could be improved. We also found (1) the TVA Forms 15570 on file were not updated as required and (2) roles and responsibilities in the outside employment approval process could be clarified.

  Full Report

The owner of Corrosion Monitoring Services (CMS), a TVA contractor, pleaded guilty to one felony count of Misprision of a Felony, one felony count of Obstruction of Justice and one felony count of Witness Tampering. The charges were related to an allegation that CMS purposefully damaged metal tubes used in an air heating and exchange system at TVA's former Paradise Fossil Plant in order to repair those tubes under the CMS contract with TVA.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Voith Hydro, Inc. (Voith) under Contract No. 9000, for hydro modernization, unit rehabilitation, and functional support services in support of TVA's hydro facilities, including Raccoon Mountain Pumped Storage Plant. The contract provided for TVA to compensate Voith for these services on either a fixed price, time and material, and/or target price estimate basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contract and (2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $119.6 million in costs TVA paid to Voith from August 20, 2014, through December 31, 2020. This included $118.2 million for fixed price projects and $1.4 million for time and material projects.

In summary, we determined Voith billed TVA (1) at least $2,435,353 for labor classifications that did not have a corresponding labor rate in the contract and (2) $12,606 in excessive labor rates due to ineligible rate adjustments. In addition, based on the limited fixed price information we reviewed, it did not appear TVA was paying excessive prices by compensating Voith on primarily a fixed price basis.

(Summary Only)

The Office of the Inspector General conducted a review of the Allen Integrated Site (Allen) to identify factors that could impact Allen's organizational effectiveness. During the course of our evaluation, we identified positive behavioral factors, including relationships with team members and business units outside Allen; however, we also identified behavioral concerns with two managers. In addition, we identified operational factors needing improvement related to (1) perceptions of ineffective work management, (2) fire alarm system repairs, and (3) site security and access concerns. Management is addressing some of these concerns by implementing a Gas Operations' initiative to address work management, overseeing fire alarm system repairs, and submitting documentation to upgrade site security.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for coal combustion residual (CCR) program management services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 20-year contract.

In our opinion, the company's proposed markup rates for recovery of indirect costs were fairly stated. However, the company's proposed costs for a $248.2 million CCR project were overstated by a net $1.6 million due to inaccuracies in craft pay and benefits. Subsequently, the company submitted a revised estimate of $246.6 million to correct the inaccuracies.

(Summary Only)

The Office of the Inspector General conducted an evaluation to determine if the Tennessee Valley Authority (TVA) was effectively managing acquisitions and disposals of real property. We determined TVA effectively managed the real property acquisitions and disposals for the sample of transactions we reviewed. Specifically, we determined sampled acquisition and disposal decisions were generally supported by the financial, environmental, and title reviews conducted as part of TVA's real property transaction process; however, we identified noncompliance with some parts of the standard programs and processes and user guides. We also identified opportunities for improvement related to information provided to the TVA Board of Directors and clarification within the standard programs and processes and user guides. Additionally, we identified issues related to TVA's survey process.

  Full Report

Due to an elevated number of human performance events in Gas Operations and Hydro Generation organizations in fiscal year 2020, we initiated an evaluation to determine if TVA was taking appropriate actions in response to human performance events.

We determined appropriate actions were taken in response to human performance events in Gas and Hydro. Specifically, we determined (1) actions were taken or planned to be taken in response to human performance events and (2) initiatives were created to improve human performance in the organizations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Jacobs Technology Inc. (Jacobs) under Contract No. 11163 for construction management services, including design, construction, and project support at various TVA facilities. Our audit objective was to determine if costs were billed in accordance with the contract's terms. Our audit scope included about $21.3 million in costs billed to TVA from July 20, 2017, through April 29, 2020. All of the costs billed by Jacobs during our audit period were for cost-reimbursable projects.

In summary, we determined Jacobs overbilled TVA $504,063, including (1) $322,596 in unsupported and ineligible temporary living allowances and travel costs, (2) $73,188 in labor costs, and (3) $108,279 in payroll tax and insurance costs for 2018 and 2019 because costs were not adjusted to actual costs at year end as required by the contract. In addition, Jacobs also informed us that it had not performed a payroll tax and insurance adjustment for calendar years 2017 and 2020. We also identified opportunities for TVA to improve contract administration by ensuring the contract does not include conflicting contract language.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for transmission construction services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $25 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, the proposed labor markup rates, for recovery of the company's indirect costs, were overstated compared to recent actual costs. We estimated TVA could avoid about $3.5 million over the planned $25 million contract by negotiating reduced markup rates to more accurately reflect the company's recent actual costs. In addition, we found the company's proposed (1) costs for the RFP's fixed price example projects were overstated by $417,189 and (2) equipment rates were not reflective of its actual equipment costs.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for transmission construction services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $100 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, the proposed markup rates on craft wages for recovery of the company's indirect costs were overstated compared to recent actual costs. We estimated TVA could avoid about $2.2 million over the planned $100 million contract by negotiating reduced markups to more accurately reflect the company's recent actual costs.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for transmission construction services. Our examination objective was to determine if the cost proposal was fairly stated for a planned 5-year, $25 million contract.

In our opinion, the company's cost proposal was overstated. We found the proposed labor markup rates, for recovery of indirect costs, were overstated compared to recent actual costs. We estimated TVA could avoid about $783,000 over the planned $25 million contract by negotiating revised labor markup rates to more accurately reflect the company's recent actual costs.

(Summary Only)

The Office of the Inspector General included an audit of the Tennessee Valley Authority's (TVA) maintenance of its owned gas pipelines in our annual audit plan due to pipeline issues identified at other utilities and potential risks to TVA. Our audit objective was to determine if TVA's maintenance of its owned gas pipelines is adequate.

We found TVA did not provide sufficient oversight of the two Contract Operations Providers and the Contract Engineering Provider. We found the lack of oversight resulted in inadequate maintenance in some areas and inconsistencies in reporting that hindered TVA's ability to track and correct the identified deficiencies. In addition, we found TVA's Gas Transmission Pipelines Policy (TVA Power Operations Standard Programs and Processes 09.120, Natural Gas Transmission Pipeline Operations) in place between July 2016 and October 2020 was limited and outdated on contractor oversight.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by World Wide Technology, LLC (WWT) under Contract No. 10786 for Cisco hardware, maintenance, services, and support. The contract provided for TVA to compensate WWT for products and services on either a time and materials or fixed price basis. Our audit objective was to determine if costs were billed in compliance with the contract's terms. Our audit scope included about $72.5 million in costs billed to TVA for the period of December 1, 2015, through December 31, 2020.

In summary, we determined WWT:

• Overbilled TVA $38,302 in labor service costs, including (1) $31,341 for unsupported labor hours, and (2) $6,961 in excessive hourly pay rates.
• Could not provide adequate support for the Cisco list prices used to apply contractual discounts for products and maintenance. Therefore, we could not determine if the majority of costs billed for products and maintenance agreements were in accordance with the contract terms.
• Overbilled TVA $4,051 because the contractual discounts were not applied correctly on the limited product costs we were able to review.

(Summary Only)

The Office of the Inspector General OIG audited the Tennessee Valley Authority's (TVA) use of remote application and desktop virtualization due to the risk of increased remote users during the COVID-19 pandemic and recent publicized remote access vulnerabilities. We found several areas where TVA was consistent with cybersecurity remote access best practices. However, we identified gaps in TVA's configuration settings, architectural design, and administrative procedures. We recommend the Vice President and Chief Information and Digital Officer, Technology & Information, review the identified gaps and remediate as appropriate. Specifics of the identified issues were omitted from this report due to their sensitive nature in relation to TVA's cybersecurity but were formally communicated to TVA management in a briefing on November 15, 2021.

  Full Report

The Office of the Inspector General conducted a review of Browns Ferry Nuclear Plant (BFN) Chemistry to identify factors that could impact BFN Chemistry's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on BFN Chemistry, including positive relationships between team members and most management. However, we also identified a minimal behavioral risk related to communication with first-line management. In addition, we identified minimal risks to operations that, if unaddressed, could hinder BFN Chemistry's effectiveness. These risks related to nonfunctioning equipment and perceptions of inadequate staffing.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Vega Corporation of Tennessee for general construction and modification services performed under Contract No. 14626. Our audit included approximately $8.76 million in costs billed to TVA from contract inception, November 11, 2019, through April 30, 2021. Our objective was to determine if Vega billed TVA in accordance with the contract's terms.

In summary, we determined (1) Vega overbilled TVA $4,070 in ineligible fee, and (2) TVA paid an additional $187,786 in labor costs because Vega used statutory payroll tax rates instead of effective payroll tax rates in the buildup of its craft labor billing rates. We also noted opportunities to improve contract administration by TVA. Specifically, we found the contract contained (1) language requiring subcontractor approval that does not match TVA's intent and (2) inconsistent language regarding markups on subcontractor costs.

(Summary Only)

The Office of the Inspector General conducted a review of the Southaven Combined Cycle (SCC) Plant to identify factors that could impact SCC's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on SCC. These were related to teamwork and interactions with others; however, we also identified risks related to employee and managerial behaviors that had a negative impact on SCC morale. In addition, we identified risks to operations that could hinder SCC's effectiveness. These were related to (1) ineffective work management, (2) inaccurate plant drawings, (3) inadequate staffing, and (4) perceived negative interactions with an internal TVA business partner.

  Full Report

The Office of the Inspector General (OIG) performed the procedures, which were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance/Executive Annual Incentive Plan (WP) Measures for fiscal year (FY) ending September 30, 2021. TVA management is responsible for the WP Measures data provided. In summary, procedures applied by the OIG found:

• The FY 2021 WP goals for the Enterprise measures were properly approved. There was one change form that affected one measure.
• The FY 2021 goals (target) for the corporate multiplier measures were properly approved.
• The actual FY to-date results for the Enterprise measures agreed with the underlying support, without exception.
• The actual FY to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY 2021 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 5, 2021, was mathematically accurate and agreed with the Office of the Inspector General's recalculation.

  Full Report

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2021 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

The Office of the Inspector General is required by the Federal Information Security Modernization Act of 2014 (FISMA) to conduct an annual independent evaluation that determines the effectiveness of the information security program (ISP) and practices of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's ISP and practices as defined by the FY 2021 IG FISMA Reporting Metrics Version 1.1. Our audit scope was limited to answering the FY 2021 IG FISMA metrics developed as a collaborative effort by the Office of Management and Budget, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council.

The FY 2021 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined within the IG FISMA metrics, we found TVA's ISP was operating in an effective manner.

  Full Report

We performed an audit of the Tennessee Valley Authority's (TVA) Internet perimeter. Our objective was to identify cybersecurity weaknesses in TVA's Internet perimeter through penetration testing. In summary, we identified some vulnerabilities in TVA's internet perimeter. Specifically, we (1) downloaded files related to TVA's disposal of coal ash that were marked as confidential, (2) accessed a Web site related to river operations that used weak authentication, and (3) found TVA's password complexity requirements on a TVA publicly available Web site.

We recommended TVA ensure (1) documents related to TVA's disposal of coal ash for public release are properly reviewed and TVA information classification markings removed,
(2) Web sites follow TVA policy for authentication, and (3) removal of TVA's password complexity rules from TVA's publicly accessible Web sites. TVA management provided actions they plan to take or have taken to address each of our recommendations.

  Full Report

The Office of the Inspector General included an audit of Tennessee Valley Authority's (TVA) corporate contributions in our annual audit plan due to the potential reputational risk associated with contributions that do not comply with TVA policies and procedures. Our audit objective was to determine if corporate contributions were made in compliance with TVA's Standard Programs and Processes (SPP) 36.001, Corporate Contributions (Contributions Policy).

We found 41 contributions totaling $296,582 made using miscellaneous vouchers rather than submitted through TVA's online request and approval system in violation of TVA's Contributions Policy. We also noted the Contributions Policy and TVA‑SPP‑13.092, Miscellaneous Vouchers, contradict one another. TVA‑SPP‑13.092, Miscellaneous Vouchers, states miscellaneous vouchers may be used for payment of contributions while the Contributions Policy states all contributions made by TVA must be processed through the Community Relations office to confirm consistent adherence to the approval requirements and minimize overlapping of contributions, including sponsorships.

We also found control weaknesses including inadequate segregation of duties, inadequate controls for contribution approvals, and a lack of ongoing technical support for the contributions request and approval system. Additionally, in-kind donations are not managed and tracked as outlined in the Contributions Policy.

  Full Report

In response to a referral from the Office of the Inspector General (OIG), Investigations, we audited a claim for missing gas cylinders submitted to the Tennessee Valley Authority (TVA) by Airgas USA, LLC (Airgas) under Contract Nos. 5436 and 5456. Under the contracts, Airgas was to manage inventory of industrial gases for TVA, including furnishing, selling, and delivering all bulk gases and related products and services to TVA. On February 2, 2021, Airgas submitted an $891,340 claim to TVA for missing gas cylinders resulting from inventory counts Airgas performed at TVA delivery locations in 2018. Our audit objective was to determine if Airgas' claim for missing gas cylinders complied with the contracts' terms and was accurate.

In summary, we determined Airgas' February 2, 2021, claim for $891,340 related to missing gas cylinders was not valid. Specifically, we found Airgas (1) did not comply with the contracts' criteria related to the frequency of inventory audits and loss of use allowances and (2) did not provide documentation supporting that the claimed missing gas cylinders were billed and delivered to TVA.

(Summary Only)

In response to requests from stakeholders, we scheduled an evaluation to determine if the Tennessee Valley Authority (TVA) complied with the 2016 Board Practice regarding memberships in external organizations.

We found no evidence TVA was out of compliance with the TVA Memberships in External Organizations Board Practice. We did not identify any evidence of direct lobbying or litigation on behalf of TVA; however, the external organizations do not administratively segregate TVA's funds, so we were unable to determine if the funds were used for lobbying or litigation. We also found all contracts or membership agreements contained required language limiting the use of TVA funds for prohibited activities such as litigation or lobbying; however, TVA does not have a contract or membership agreement with one external organization.

We also identified opportunities for improvement related to TVA's management of memberships in external organizations. Specifically, we determined TVA could (1) provide training of employees participating in committee or leadership roles in external organizations and (2) benefit from the coordination of all memberships in external organizations with the Office of the General Counsel to confirm all legal and ethical requirements are met.

  Full Report

The Office of the Inspector General conducted a review of the Lagoon Creek Combustion Turbine (LCCT) Plant to identify factors that could impact LCCT's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on LCCT; however, we also identified some behavioral risks associated with team conflicts. In addition, we identified risks to operations that, if unaddressed, could hinder LCCT's effectiveness. These were related to (1) perceptions of not having parts needed to perform job responsibilities and a lack of money for projects or equipment repairs and (2) training.

  Full Report

The Office of the Inspector General conducted a review of the Lagoon Creek Combined Cycle (LCCC) Plant to identify factors that could impact LCCC's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on LCCC including positive relationships between team members and most management. However, we also identified a behavioral risk related to communication with first-line management. In addition, we identified an operational risk related to training that could hinder LCCC's effectiveness. According to the LCCC manager-integrated combined cycle and combustion turbine site, actions are being taken to address these training concerns.

  Full Report

A TVA contractor's employee improperly received $146,359 in Temporary Living Allowance payments by claiming a house as his personal residence in which he did not actually live. Rather, he lived in a different dwelling, in a different state, and rented-out the house he claimed as his personal residence during his absence.

  Full Report

A contractor employee received temporary living allowances of $80,857.70 to which he was not entitled. Contrary to what the contract employee claimed on his TLA applications, he did not have a qualifying dependent living at the claimed residence and did not incur substantially all of the expenses for the property. Moreover, he presented a false lease in support of his application.

  Full Report

Patching is the process for updating products and systems. Patches correct security and functionality problems in software and firmware. We performed an audit of the Tennessee Valley Authority's (TVA) patching of Windows® desktops and laptops to determine if high-risk vulnerabilities on desktops and laptops were patched in accordance with TVA policy and best practices. We found (1) TVA policies and procedures aligned with best practices, (2) the majority of Windows® desktops and laptops managed by TVA's automated patching system were patched for high-risk vulnerabilities in accordance with TVA policy, and (3) TVA had mitigated vulnerabilities for Windows® desktops and laptops that had not received updates. However, although the majority of Windows® workstations were managed by TVA's automated patching system, we found some desktops and laptops were at potential risk of compromise.

  Full Report

We performed an audit of the Tennessee Valley Authority's (TVA) management of privileged accounts. Our objective was to determine if TVA's management of privileged accounts is following TVA policy and best practices. A privileged user has an account that is authorized for the performance of security-related functions that ordinary users cannot perform. Privileged account management can be defined as managing and logging account and data access by privileged users.

In summary, we found several controls of TVA's privileged account management to be generally effective, including (1) an accurate inventory of privileged network device accounts, (2) appropriate segregation of duties, (3) appropriate account lifecycle management for most privileged users, and (4) monitoring of privileged accounts. However, we also found
(1) improper usage of primary user accounts with privileged access, (2) one account with inappropriate privileged access, and (3) several gaps in TVA's Standard Programs and Processes when compared to best practices.

  Full Report

The Office of the Inspector General conducted a review of the Transmission Field Operations, North Maintenance organization to identify factors that could impact its organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on Transmission Field Operations - North Maintenance; however, we also identified needed improvements related to coworker interactions with a few employees. We also identified minimal risks to operations related to resource concerns, including inadequate staffing and equipment and/or tool needs.

  Full Report

We found several areas of the privacy program to be generally effective, including (1) completion of privacy impact assessments, (2) privacy related training taken by network users, (3) privacy considerations during the authority to operate process, (4) system categorization, (5) privacy incident response, (6) privacy-related contract terms and conditions, and
(7) desktop and laptop sanitization. However, we identified seven issues that should be addressed by TVA management to further increase the effectiveness of the privacy program. Specifically, we found:

1. Unsecured electronic restricted personally identifiable information on SharePoint and shared network drives.
2. Unsecured hard copy restricted personally identifiable information.
3. No end user notifications for e-mail security violations.
4. No technical controls for removable media.
5. We could not confirm that all desktops and laptops utilize encryption.
6. Privacy Act notices on TVA forms did not include all required elements.
7. Not all external Web sites included privacy policies. (Note: Prior to completion of our audit, TVA Technology and Innovation took action to address the external Web sites that were missing required privacy policies.)

We also found gaps between TVA's policies and procedures and applicable federal privacy regulations and guidance.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Black & Veatch Corporation (B&V) for engineering services under Contract No. 10820. Our audit objective was to determine if costs were billed in accordance with the terms and conditions of the contract. Our audit scope included about $42.46 million in costs billed to TVA from November 2, 2015, through February 13, 2020. In summary:

• We determined B&V overbilled TVA an estimated $5,771,839, including (1) an estimated $5,657,998 for unapproved OT costs for exempt labor categories, (2) $69,383 in travel and temporary living allowance costs, and (3) a net $44,458 for incorrect hourly billing rates.
• We noted several opportunities to improve contract administration by TVA. Specifically, we determined TVA paid an estimated $3.3 million more in labor costs by using fixed hourly labor rates instead of negotiating cost reimbursable compensation terms in its contract with B&V. We also found (1) invoices were not submitted timely, (2) B&V did not submit an electronic billing file to the TVA Office of the Inspector General in the format provided for in the contract, (3) site expenses were not provided for in the contract, and (4) the labor categories included in the contract's pricing schedule did not correspond to B&V's internal job titles.

(Summary Only)

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Mesa Associates, Inc. (Mesa) under Contract No. 13191 for engineering, design, and construction support services in support of TVA's dam safety, generation, and transmission work. The contract provided for TVA to compensate Mesa for these services on either a cost-reimbursable or fixed price basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contract and
(2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $57.5 million in costs billed to TVA from March 12, 2018, through August 31, 2020. This included $25.8 million for cost-reimbursable projects and $31.7 million for fixed price projects.

In summary, we determined:

• Mesa overbilled TVA $213,545 on cost-reimbursable projects, including (1) $147,045 in temporary living allowances and travel costs, (2) $34,298 in subcontractor costs,
  (3) $18,576 in labor costs, (4) a net $7,195 in performance fee payments, and (5) $6,431 in volume discounts not provided to TVA.
• The use of fixed price payment terms on projects caused TVA to pay at least $1.52 million more than it would have if cost-reimbursable payment terms had been used for those projects. Additionally, if TVA utilized cost-reimbursable pricing for the remaining spend on its current contract with Mesa (i.e., Contract No. 15396), we estimated TVA could potentially avoid up to $8.69 million in future costs.

(Summary Only)

As part of our annual audit plan, we audited the Tennessee Valley Authority's (TVA) utility-scale Solar Purchased Power Agreements (PPA). Our audit objectives were to determine if TVA has (1) approached Solar PPAs to better understand the industry and market trends being developed prior to entering into multiple agreements and (2) developed Solar PPAs to recognize positive financial value earlier in the term of the PPAs. The scope of our review was utility-scale solar PPAs in place as of December 31, 2020.

We found TVA had (1) taken a measured approach to solar PPAs to better understand the industry and market trends and (2) generally developed solar PPAs to recognize positive financial value or breakeven.

(Summary Only)

The Office of the Inspector General determined the Tennessee Valley Authority's (TVA) industrial hygiene (IH) planning and assessment process had weaknesses that resulted in some hazards not being identified and evaluated. Specifically, we identified the following IH process weaknesses: (1) TVA relied on limited information to identify health hazards;
(2) there was no formal evaluation of the risks posed by identified hazards; (3) IH plans did not prioritize hazards; and, (4) an incomplete monitoring process allowed for misalignment between plans and exposure assessments.

We also determined TVA is taking appropriate actions to address adverse conditions which were identified during assessments at gas plants; however, hazard exposures were not documented and employees were not notified as required. In addition, we identified opportunities for improvement related to handling of IH issues in the contractor population.

  Full Report

The Office of the Inspector General included an audit of contractor use of TVA's purchasing cards in its fiscal year 2021 Audit Plan, based on the significant amount of charges made using TVA purchasing cards assigned to contractors. The objective of the audit was to determine if adequate controls were in place to ensure purchases made by TVA contractors using a TVA purchasing card were (1) for TVA business purposes and not the use of another entity and (2) not being billed back to TVA.

We found controls were generally adequate to ensure purchases made by TVA contractors using a TVA purchasing card were for TVA business purposes and not the use of another entity. However we also determined (1) TVA does not have controls in place to ensure purchases made by contractor employees assigned a TVA purchasing card are not being billed back to TVA on invoices from the contractor, (2) required language to govern contractor's usage and liability for purchasing cards issued to TVA contractors is not included in contracts, and (3) over 50 percent of the transactions we tested were not reconciled by the cardholder in a timely manner, resulting in untimely approval by the approving official.

  Full Report

The Office of the Inspector General determined the Tennessee Valley Authority's (TVA) industrial hygiene (IH) planning and assessment process had weaknesses that resulted in some hazards not being identified and evaluated. Specifically, we identified the following IH process weaknesses: (1) TVA relied on limited information to identify health hazards;
(2) there was no formal evaluation of the risks posed by identified hazards; (3) IH plans did not prioritize hazards; and (4) incomplete monitoring efforts allowed misalignment between procedures, plans, and exposure assessments.

We also determined TVA took appropriate actions to address adverse conditions, which were identified during assessments at hydro plants; however, TVA did not maintain employee notification records as required by internal procedures. In addition, we identified opportunities for improvement related to clarifying responsibilities for notification and monitoring of contractor actions taken to address IH recommendations.

  Full Report

The Office of the Inspector General included an audit of TVA's Federal Sustainability Report and Implementation Plan (SRIP) in its FY 2021 Audit Plan, based on the reputational risk of disseminating inaccurate information to the public. The objective of the audit was to determine if information in TVA's SRIP has been validated prior to being disseminated to the public in accordance with any best practices.

We found TVA did not perform procedures to validate data used to calculate nine of the ten metrics reported in the FY 2020 SRIP. TVA validated data for the greenhouse gas emissions information included in the report, but at most, performed reviews for reasonableness for the remaining nine metrics reported and calculated by TVA's Environment and Energy Policy group or subject matter experts.

  Full Report

The Office of the Inspector General conducted a review of the Generation Services, Field Services organization to identify factors that could impact Field Services' organizational effectiveness. During the course of our evaluation, we identified many positive behaviors for engagement; however, we also identified needed improvements in behaviors in relation to first-line supervisors in three departments. We also identified risks to business operations, including experience, resource needs, such as funding, and staffing, and concerns related to reorganization efforts involving engineering. In addition, business partners discussed concerns, including areas for improvement related to support and collaboration.

  Full Report

The Office of the Inspector General determined some requirements of the Tennessee Valley Authority's procedures related to arc flash protection and engineering calculations were not performed. Specifically, (1) some arc flash hazard analyses were not performed, (2) arc flash hazard analyses were not periodically reviewed, (3) some arc flash hazard analyses were incomplete or inaccurate, and (4) some hazards were not accurately communicated on warning labels as required. In addition, we found arc flash hazard calculations were not formatted, approved, or maintained as required. We also determined personal protective equipment was maintained and most training was completed as required by the arc flash procedure; however, we identified a few individuals who had not completed the assigned curriculum. Lastly, we identified an opportunity for improvement related to developing a Transmission and Power Supply specific arc flash procedure. Based on issues identified during the course of our evaluation, Transmission and Power Supply performed an assessment of its arc flash program and developed an action plan to address identified gaps.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by The L.E. Myers Co. (LE Myers) under Contract No. 9070 for construction and modification services for TVA's Transmission and Power Supply Program. The contract provided for TVA to compensate LE Myers for these services on either a cost-reimbursable or fixed price basis. Our audit objective was to determine if costs were billed in accordance with the terms and conditions of Contract No. 9070. Our audit scope included about
$35.5 million in cost-reimbursable expenses billed to TVA from September 1, 2018, through December 31, 2019.

In summary, we determined LE Myers overbilled TVA $120,152, including (1) a net $93,695 in unsupported and incorrect craft labor charges, (2) $13,955 in unsupported travel costs, and (3) $12,502 in unsupported equipment costs. In addition, we found that (1) LE Myers did not submit an electronic billing file to the TVA Office of Inspector General in the format and frequency provided for in the contract's terms, and (2) TVA did not revise the contract's equipment rate schedule to include a piece of equipment approved for use by TVA's Contract Manager.

(Summary Only)

The Office of the Inspector General found the Tennessee Valley Authority's (TVA) industrial hygiene planning and assessment process had weaknesses that resulted in some hazards not being identified and evaluated. Specifically, we identified the following industrial hygiene process weaknesses: (1) TVA relied on limited information to identify health hazards;
(2) there was no formal evaluation of the risks posed by hazards identified; (3) industrial hygiene plans did not prioritize hazards for control; and (4) incomplete monitoring efforts, which allowed for misalignment between plans and exposure assessments as well as limited coverage for retiring plants.

We also found TVA did not take appropriate actions to address some adverse conditions identified during assessments. We determined actions were not taken to address four occurrences of elevated silica. We also determined some employees were not notified of hazard exposures or actions taken to address their exposures, as required by the Occupational Safety and Health Administration. In addition, we identified opportunities for improvement related to handling of industrial hygiene issues in the contractor population.

  Full Report

Due to an increase in transactions regarding real estate, we performed an evaluation to assess the Tennessee Valley Authority's (TVA) development and implementation of its strategic real estate plan. However, TVA does not formally have a strategic real estate plan; therefore, we reviewed the goals and objectives of the Strategic Real Estate and Governance (SREG) organization to determine if they were being achieved.

We determined SREG has met, or was in the process of meeting, their stated goals and objectives. For example, SREG has (1) improved the condition, safety, and utilization of TVA's real estate assets and (2) been working to eliminate noncore and underutilized buildings through regional consolidations. However, we identified several areas for improvement that could enable SREG to more effectively accomplish their mission of helping TVA manage real estate assets and align the portfolio with business need. Specifically, (1) SREG does not have an accurate and comprehensive list of all real property, (2) SREG is not always included in, or knowledgeable of, key business decisions that impact real estate, and (3) TVA does not have a centralized real estate function.

  Full Report

The Office of the Inspector General conducted a review of the Sequoyah Nuclear Plant Chemistry/Environmental (SQN Chemistry) organization to identify factors that could impact SQN Chemistry's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on SQN Chemistry. These included relationships with most management. However, we also identified behavioral risks related to accountability, relationships within and outside Chemistry, low morale, and ethics. In addition, we identified risks to operations that have hindered SQN Chemistry's effectiveness. These risks were related to the physical work environment, monitoring effluents and collecting required samples, and inaccurate sample documentation.

  Full Report

The Office of the Inspector General conducted a review of the John Sevier Combined Cycle (JSCC) Plant to identify factors that could impact JSCC's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on JSCC. These included positive relationships between team members and management; however, we also identified minimal behavioral risks associated with communication and accountability. In addition, we identified minimal risks to operations that, if unaddressed, could hinder JSCC's effectiveness. These were related to resource needs, such as problems obtaining parts and materials needed to perform jobs, as well as a desire for additional training, including instrument mechanic and instrumentation training.

  Full Report

Due to the importance of switching and clearances being performed safely to avoid injuries and to minimize the possibility of unscheduled outages or equipment damage, we performed an evaluation to determine if switching and clearances, required training, and audits were performed in compliance with Transmission and Power Supply's switching and clearance procedures. We determined the selected procedural requirements for requesting and tracking of switching and clearances were generally performed in accordance with procedures. We could not assess most procedural requirements related to preparation and performance of switching orders because field personnel performing the work do not always submit the completed switching order. However, we identified several instances where switching order steps were not performed in sequence as required. We also determined employees who performed key functions received required training; however, tracking of training could be improved. In addition, while clearance audits were completed by the appropriate personnel within the required time frames, their effectiveness could be increased.

  Full Report

The Office of the Inspector General conducted a review of the Commercial Energy Solutions Fuels and Hedging (F&H) organization to identify factors that could impact F&H's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on F&H. These included relationships with team members and most management. However, we also identified a behavioral risk related to relationships with a manager in one group. In addition, we identified risks to operations that could hinder F&H's effectiveness. These risks were related to inaccurate coal burn forecasts and interactions with business partners.

  Full Report

Due to concerns identified during Evaluation 2020-15743, Sequoyah Nuclear Plant Radiation Protection's Organizational Effectiveness (report issued December 10, 2020), we performed an evaluation of TVA Nuclear's handling of potentially contaminated liquids at its nuclear sites. The scope of our evaluation was limited to TVA Nuclear's process for releasing liquids from Radiologically Controlled Areas (RCA) for unrestricted use. We determined potentially contaminated liquids were released from RCAs at each nuclear site. This occurred because all applicable analyses were not performed on some liquids prior to release. In addition, we identified opportunities for improvement related to (1) TVA Nuclear's processes for tritium analysis prior to the release of liquids for unrestricted use and (2) documentation issues at each nuclear site, including the incomplete submittal of records, incomplete maintenance processes, and inaccurate logs.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Stantec Consulting Services, Inc. (Stantec) to provide coal combustion residual engineering services under Contract No. 13051. The contract provided for TVA to compensate Stantec for work on either a cost reimbursable, time and material (T&M), unit rate, or fixed price basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contract and
(2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $55.3 million in costs billed to TVA from January 5, 2018, through February 29, 2020, of which over 99.9 percent was billed using T&M compensation terms. In summary, we determined:

• Stantec overbilled TVA $93,916, including (1) $73,099 for mileage rates not specified in the contract and (2) $20,817 for ineligible travel costs.
• The use of T&M terms on projects caused TVA to pay at least $1.65 million more than it would have if cost reimbursable payment terms had been used for those projects. Additionally, if TVA utilized cost reimbursable pricing for the remaining contract spend, they could potentially avoid $1.01 million in future costs.

(Summary Only)

The investigation substantiated that a TVA employee negotiated employment with a contractor for whom he approved invoices; however, he did so with the knowledge and apparent support of TVA management. After becoming an employee of the contractor, he continued to approve invoices for the contractor (now his employer) as he had done while employed by TVA. While working for the Contractor, the subject potentially had direct access to the sensitive business information of vendors in direct competition with the employing contractor. The employee did not consult TVA Ethics for guidance on this matter while still employed by TVA.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Siemens Energy, Inc. (Siemens) under Contract No. 10092. This contract was a long-term service agreement for the Ackerman Combined Cycle Plant located in Ackerman, Mississippi. Under the contract, Siemens was to provide program management services; scheduled outage services; and supply any program parts, nonprogram parts, miscellaneous hardware, or services as requested by TVA. Our audit objective was to determine if the costs were billed to TVA in accordance with the contract's terms. The audit scope included $68,055,969 in costs TVA paid to Siemens from April 14, 2015, through February 29, 2020.

In summary, we determined Siemens overbilled TVA $201,829 due to ineligible and unsupported time and material costs. Specifically, we found Siemens billed TVA, (1) $124,501 for ineligible per diem costs, (2) $30,523 in unsupported tool costs, (3) $18,342 for ineligible noncraft labor costs, (4) an estimated $17,425 for ineligible craft labor costs, and (5) $11,038 in other ineligible costs.

In addition, we identified $500,580 in costs billed to and paid by TVA under Contract No. 10092 that should have been billed under another contract TVA has with Siemens. We also identified opportunities to improve contract administration by TVA. Specifically, we found (1) the contract limits TVA's ability to control cost, and (2) TVA did not maintain adequate documentation to support credits taken by TVA.

(Summary Only)

Contractor approved temporary living allowance (TLA) for contract employee based on a claim of permanent residence when the residence claimed was actually owned by the contract employee's father and rented at a low monthly rate that was paid sporadically. The contract between TVA and the contractor explicitly forbids the approval of TLA when the arrangement for the residence claimed is not part of an "arm's length" transaction. The contractor was aware of its employee's rental arrangement with his father and, yet, approved the payment of TLA which was subsequently billed to TVA.

  Full Report

We audited $137.7 million of costs billed to the Tennessee Valley Authority by Framatome Inc. under Contract No. 8786 to determine if costs billed to TVA were in compliance with contract's terms. We determined the costs billed by Framatome Inc. generally complied with the contract except for $80,862.

(Summary Only)

The Office of the Inspector General conducted a review of the Johnsonville Combustion Turbine (JCT) organization to identify factors that could impact JCT's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on JCT. These included leadership actions and positive relationships with team members. However, we also identified minimal risks to operations that, if unaddressed, could hinder JCT's effectiveness. These were related to resource needs, such as specific training and budgetary needs for plant maintenance.

  Full Report

A TVA manager was accused of improperly providing employees with gifts. While no federal ethics standards were implicated, it was determined TVA Standard Programs and Processes 11.418, Employee Recognition and Acknowledgment (TVA SPP-11.418), was not followed.

  Full Report

We audited $212.4 million of costs billed to the Tennessee Valley Authority (TVA) by G·UB·MK Constructors (GUBMK) under Contract No. 11514 to determine if costs billed to TVA were in compliance with contract's terms. We determined the costs billed by GUBMK generally complied with the contract except for $22,545.

(Summary Only)

The Office of the Inspector General conducted a review of the Commercial Energy Solutions Pricing, Structuring, Analysis/Contracts (P&C) organization to identify factors that could impact P&Cs organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on P&C. These included positive interactions with management and team members. However, we also identified behavioral risks in two groups related to accountability and reporting concerns or offering a differing opinion with management. In addition, we identified risks to operations that could hinder P&C's effectiveness. These risks were related to effective collaboration with business partners and resource needs in the organization.

  Full Report

The Office of the Inspector General conducted a review of the Commercial Energy Solutions Energy Services and Programs (ES&P) organization to identify factors that could impact ES&Ps organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on ES&P. These included relationships with team members and most management. However, we also identified a behavioral risk related to relationships with management in one group. In addition, we identified risks to operations that could hinder ES&P's effectiveness. These risks were related to interactions with business partners, frequency of program changes, and resource concerns in two groups.

  Full Report

The Office of the Inspector General is required by the Federal Information Security Modernization Act of 2014 (FISMA) to conduct an annual independent evaluation that determines the effectiveness of the information security program (ISP) and practices of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's ISP and agency practices for ensuring compliance with FISMA and applicable standards, including guidelines issued by Office of Management and Budget and National Institute of Standards and Technology. Our audit scope was limited to answering the FY 2020 IG FISMA metrics developed as a collaborative effort by the Office of Management and Budget, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council.

The FY 2020 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined with the IG FISMA metrics, we found TVA's ISP was operating in an effective manner.

  Full Report

In March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak a global pandemic. The Tennessee Valley Authority (TVA) began taking steps to keep employees and their families' safe, while also ensuring the agency could fulfill its mission of service. Due to the ongoing pandemic and its impact on TVA's workforce related to mandatory telework and staffing, we initiated an evaluation to assess TVA's response to COVID-19. The objective of our evaluation was to assess TVA's response to COVID-19. Our scope included actions taken by TVA related to staffing, employee safety, telework, and lessons learned.

We determined most actions taken by TVA in response to COVID-19 related to staffing, employee safety, and telework were reasonable. Specifically, (1) TVA's policies align with the Centers for Disease Control and Prevention and federal guidelines, (2) TVA took actions to document and communicate lessons learned, (3) feedback from employees and management was positive regarding changes made in response to COVID-19 on employees and their work. However, we identified potentially misleading marketing language used to promote unproven technology to combat COVID-19. In addition, we identified some opportunities for improvement related to extended telework, mask usage at TVA facilities, and information management practices. Additionally, we identified some required elements were not present in the continuity of operations plan for TVA's River Forecast Center.

  Full Report

The Office of the Inspector General conducted a review of the Commercial Energy Solutions Origination and Renewables (O&R) organization to identify factors that could impact O&R's organizational effectiveness. During the course of our evaluation, we identified behaviors that had a positive impact on O&R. These included interactions with team members and leadership. While O&R met targets for a majority of their metrics and furthered initiatives within the organization, we also identified risks to business operations and achievement of future O&R initiatives. These included educational needs, such as the need for training and the lack of documented processes and procedures, technology needs, and insufficient staffing for the future within and outside O&R. In addition, business partners discussed areas for improvement, including collaboration and O&R strategy.

  Full Report

The Tennessee Valley Authority (TVA) Board of Directors requested we review and assess TVA's compliance with the requirements of Executive Order 13950, Combating Race and Sex Stereotyping, in the form of a report submitted to the United States Office of Management and Budget. Our review found TVA had complied with those requirements of the Executive Order applicable to TVA.

  Full Report

The Office of the Inspector General conducted a review of the Sequoyah Nuclear Plant (SQN) Radiation Protection (RP) organization to identify factors that could impact SQN RP's organizational effectiveness. While we identified certain behavioral attributes that had a positive impact on SQN RP, we also identified behavioral risks that could have a negative impact SQN RP's effectiveness. Specifically, these risks related to (1) relationships between individuals and (2) interactions with certain management. In addition, while we identified certain positive operational factors, we also identified operational risks which could hinder SQN RP's ability to execute its responsibilities and support Nuclear's vision and core principles. These risks related to (1) sampling for tritium and (2) training.

  Full Report

The Tennessee Valley Authority's (TVA) Generation Projects and Fleet Services organization supports the execution of TVA's strategic asset plan and outage plans through projects and services, including capital projects for the Power Operations (PO) organization to support equipment reliability at TVA's coal, gas, and hydro plants.

Due to the importance of effective project management to TVA's mission and potential issues identified during Organizational Effectiveness evaluations, we performed an evaluation of project turnover to PO. The objective of our evaluation was to determine if TVA is effectively managing the turnover of projects to PO. The scope of our evaluation included capital projects for PO's generation assets managed by the Generation Projects group. We limited our evaluation to the implementation and closure activities related to the turnover of those projects to PO.

We determined TVA is not effectively managing the turnover of projects to PO because the project turnover processes were not aligned and the inconsistencies led to project issues related to (1) turnover and customer acceptance, (2) completion of the design change notice, and (3) project closure. In addition, we identified opportunities for improvement related to (1) time frames for completion of the design change notice process and (2) project ownership.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $10 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed labor markup rates, for recovery of its indirect costs, were overstated compared to recent actual costs. We estimated TVA could save about $167,000 over the planned $10 million contract spend by negotiating reduced labor markup rates to more accurately reflect the company's recent actual costs. In addition, we suggest TVA negotiate the removal of the company's proposed rate for work performed at TVA facilities since the company (1) does not normally calculate a rate for field employees and (2) does not anticipate using any field employees.
• The company's proposed performance fee was overstated based on the request for proposal's (RFP) fee limits. During our examination, TVA successfully negotiated the fee percentage to comply with the RFP's fee limits. We estimated TVA's actions could save about $371,000 over the planned $10 million contract.
• The company's proposed labor rate ranges were not reflective of the actual salary costs for the company's employees.

(Summary Only)

We audited the Tennessee Valley Authority's (TVA) purchasing card (P-Card) usage to determine if personnel complied with TVA's P-Card policies and procedures. Our audit scope included approximately $79.8 million in transactions occurring from October 1, 2017, through September 30, 2019.

Our audit found multiple instances where TVA personnel did not comply with requirements in TVA's P-Card policies and procedures. Specifically, we found (1) some approving officials were not performing their review duties properly, (2) split transactions occurred, (3) disallowed and questionable (nonbusiness expense) transactions occurred, (4) only
25 percent of TVA's cardholders and approving officials completed the required annual P-Card training at least once, (5) periodic audits of P-Card transactions by Supply Chain were not performed, and (6) certain potentially fraudulent transactions by one cardholder had not been identified due to inadequate reviews of the cardholder statements. OIG Investigations subsequently found evidence the cardholder had used the P-Card to make several monthly rental payments to the apartment complex where the cardholder lived. In addition to those areas of noncompliance listed above, we found P-Cards were being used without determining if sources the Supply Chain and Financial Services Standard Programs and Processes rank ahead of the P Card in its hierarchy were available.

We made 12 recommendations to TVA management to strengthen controls and help improve compliance with the P-Card policies by (1) implementing additional procedures and monitoring activities and (2) clarifying and updating the policies and related training. TVA management provided actions they plan to take to address each of our recommendations.

  Full Report

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2020 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $35 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the (1) proposed total labor markup rate, for recovery of the company's indirect costs, was overstated based on its most recent actual costs, (2) labor markup rates included profit, and (3) proposed performance fee was overstated based on the request for proposal's (RFP) fee limits. We estimated TVA could avoid about $2.9 million over the planned $35 million contract by negotiating (1) reduced total labor markup rates to more accurately reflect the company's recent actual costs, (2) removal of the profit included in the labor markup rates, and (3) a reduced performance fee to comply with the RFP's fee limits. In addition, we found the company did not comply with the RFP's requirement related to labor rate ranges.

(Summary Only)

Following the 2008 ash spill at Kingston Fossil Plant, TVA's Office of Inspector General, in conjunction with Marshall Miller & Associates (engineering consultant), performed an inspection that determined there was poor maintenance of coal combustion residual storage facilities, such as not addressing erosion, standing water, and piping issues. Additionally, the inspection found there was no formalized training for personnel who inspected the dikes.

Due to past issues identified related to maintenance of coal combustion residual (CCR) storage facilities, we performed an evaluation of required maintenance at TVA's CCR storage facilities. The objective of the evaluation was to determine if TVA performed required maintenance of CCR storage facilities. The scope of the evaluation was maintenance needs identified during required inspections in fiscal years 2018 and 2019 at Bull Run, John Sevier, and Paradise Fossil Plants.

We determined, in general, TVA performed required inspections and completed maintenance to address issues identified during the inspections. However, we determined some inspection reports had incorrect or missing information. We also identified opportunities for improvement related to policies for maintenance and inspection of coal CCR storage facilities, inspection plan requirements, and training requirements.

  Full Report

The Office of the Inspector General (OIG) performed procedures that were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance/Executive Annual Incentive Plan (WP) Measures for fiscal year (FY) ending September 30, 2020. The WP Measures data provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2020 WP goals for the Enterprise measures were properly approved. There was one change form, approved on February 28, 2020, that affected one measure.
• The FY 2020 goals (target) for the corporate multiplier measures were properly approved.
• The actual FY to-date results for the Enterprise measures agreed with the underlying support, without exception.
• The actual FY to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY 2020 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 3, 2020, was mathematically accurate and agreed with the OIG's recalculation.

  Full Report

This investigation addressed an allegation that an employee violated federal ethics laws by obtaining outside employment with a TVA contractor while still employed with TVA. The investigation revealed that the employee obtained outside employment only after TVA eliminated his position and he began a 90-severance period during which TVA told him he could pursue employment with any outside company. Furthermore, there was no evidence the employee attempted to influence any official action at TVA during this period.

The employee did not comply with several legal and regulatory requirements such as filing a statement notifying the Designated Agency Ethics Official (DAEO) of his negotiation for outside employment. Additionally, the employee did not file a recusal statement, obtain a written waiver for outside employment or qualify for a regulatory exemption from these requirements. The evidence shows the employee worked solely with TVA Human Resources (HR) during the termination process and did not receive advice from the DAEO regarding these requirements.

The OIG recommends that TVA HR consult with TVA's DAEO to ensure TVA employees receive detailed guidance regarding outside employment and post-employment issues.

  Full Report

We audited the Tennessee Valley Authority's (TVA) travel expenses reimbursed within 50 miles of an official station to determine if they complied with Federal Travel Regulation and TVA policies and procedures. Our audit scope included approximately $500,000 of travel expenses within 50 miles of a TVA employee's official duty station occurring from October 1, 2018, through March 26, 2020.

We found that (1) TVA's approval process did not ensure expenses for travel within 50 miles of an official station complied with TVA's travel policy, (2) TVA does not have documented procedures to ensure flat-rate-travel reimbursements are being verified appropriately or reimbursed properly, (3) TVA's human resources system had incorrect official stations shown for 25 of 74 employees included in our samples, and (4) TVA's travel policy provides limited guidance addressing the assignment and review of official stations.

We made four recommendations to TVA management to strengthen controls around travel expenses reimbursed within 50 miles of an official station. TVA management provided actions they plan to take to address each of our recommendations.

  Full Report

We audited TVA's onboarding actions completed for all active IT contractors as of March 26, 2020, including background investigations and cybersecurity awareness training requirements to determine if IT contractors are granted logical access in accordance with TVA policy. TVA Information Technology and TVA Police require contractors have various levels of background investigations completed for logical access to different classifications of information. We found that (1) TVA policy does not align between business units, (2) the majority of Tier 1 IT contractor suitability background investigations were not in accordance with TVA policy, and (3) the majority of IT contractor higher level background investigations were not in accordance with TVA policy. TVA management agreed with the recommendations.

  Full Report

We included an audit of the Tennessee Valley Authority's (TVA) plans for an active shooter incident in our annual audit plan due to the potential risk of an active shooter incident occurring. Our audit objective was to determine if TVA has adequate plans in place to prevent, prepare for, and manage active shooter incidents. The audit scope included all program documentation and records that support TVA's plans to prevent, prepare for, and manage active shooter incidents as of May 13, 2020.

We compared TVA's procedures around preventing, preparing for, and managing active shooter incidents to best practices recommended by the Department of Homeland Security (DHS). DHS best practices include four steps (Connect, Plan, Train, and Report) to apply in advance of an incident or attack. We found TVA has plans in place to prevent, prepare for, and manage active shooter incidents that include steps to address the connecting and planning phases of DHS recommendations to prepare for active shooter incidents. However, we found the training and reporting steps need improvement. Specifically, we found TVA's Active Threat Awareness program training is not mandatory and less than 10 percent of TVA's employees have taken the training. In addition, portions of best practices related to active threat awareness are included in at least ten TVA Standard Programs and Processes rather than a single document and are not easily accessible by employees. TVA management agreed with our findings and recommendations.

  Full Report

We audited the Tennessee Valley Authority's (TVA) business meeting and hospitality expenses to determine if they complied with TVA's Business Meetings and Hospitality policy and any other applicable TVA guidance. Our audit scope included approximately $6.5 million in business meeting and hospitality expenses occurring from October 1, 2018, through September 30, 2019.

Our audit found TVA's approval process did not ensure expenses complied with the Business Meetings and Hospitality Policy. Specifically, we found expenses were approved for
(1) reimbursement and/or payment without the required information and supporting documentation included with the expense voucher, (2) questionable team-building expenditures, and (3) prohibited alcohol expenditures. We also found a lack of guidance for compliance with TVA's Food Services Policy. Additionally, we found the process for approving large meeting expenses and guidance for the classification of meeting-related expenses could be improved.

We made five recommendations to TVA management to strengthen controls around business meetings and hospitality by (1) developing additional guidance to ensure compliance with the Business Meetings and Hospitality Policy and Food Services Policy, and (2) reinforcing the existing Food Services Policy. TVA management provided actions they plan to take to address each of our recommendations.

  Full Report

The Office of the Inspector General conducted a review of the Watts Bar Nuclear Plant (WBN) Radiation Protection (RP) organization to identify factors that could impact WBN RP's organizational effectiveness. Our report identified behaviors that had a positive impact on WBN RP. However, we also identified a behavior that could negatively affect WBN RP. Specifically, we identified a behavioral risk related to accountability that, if left unaddressed, could impact WBN RP's effectiveness and its continued ability to meet its responsibilities in support of WBN's mission. We also identified operational positives regarding WBN RP's working relationship with outside departments and having enough resources to do the work.

  Full Report

We determined significant amounts of overtime were worked by employees at all six of TVA's coal plants. Specifically, the overtime worked at these plants was the equivalent of
165 full-time employees. In addition, we determined some individual employees worked significant amounts of overtime. For example, we found 37 instances during fiscals years 2018 and 2019 where employees worked over 1,000 hours of overtime and 1 employee who worked over 2,300 hours of overtime in a single year. We also determined TVA may not be accurately capturing the effects of fatigue because (1) fatigue assessments are no longer required when significant overtime is worked and (2) fatigue data is not trended with health and safety data in TVA's medical case management system. Additionally, employees expressed concerns regarding the adverse impact of understaffing on safe operation of coal plants.

  Full Report

We determined significant amounts of overtime were worked by employees at some gas plants. Specifically, we determined 69 percent (221,517 hours) of the 318,903 hours of overtime was performed at 7 of the 17 plants. The overtime worked at these 7 plants was the equivalent of 51 full-time employees. We also determined some employees worked significant amounts of overtime. For example, we found 51 instances during fiscal years 2018 and 2019 where employees worked over 1,000 hours of overtime and 2 of these employees had nearly 2,000 hours of overtime in a single year. Additionally, we determined the Tennessee Valley Authority (TVA) may not be accurately capturing the effects of fatigue because (1) fatigue assessments are no longer required when significant overtime is worked and (2) fatigue data is not trended with health and safety data in TVA's medical case management system.

  Full Report

We audited the Tennessee Valley Authority's (TVA) Economic Development (ED) loan program to determine if TVA ED loans were executed and administered in accordance with TVA policies and procedures. Our audit scope included 59 loans with outstanding balances of approximately $47.5 million as of December 31, 2019.

We found that TVA ED loans were generally executed and administered in accordance with TVA policies and procedures. However, we found instances where loans were originated subsequent to the expiration date of (1) credit analyses, and/or (2) loan commitment periods. We also found that loan program guidance could be improved by incorporating the ED loan program guidelines into TVA Standard Programs and Processes 24.015, Economic Development Loan Programs.

We made two recommendations to TVA management to (1) ensure credit analyses and/or loan commitments are current when new loans are issued and (2) update TVA Standard Programs and Processes 24.015, Economic Development Loan Programs to include ED loan program guidelines.

  Full Report

The Office of the Inspector General conducted a review of the Treasury organization to identify factors that could impact Treasury's organizational effectiveness. Our report identified behaviors that had a positive impact on Treasury. These included interactions with team members and leadership. We also identified risks to operations that, although minimal, could impede Treasury's effectiveness if unaddressed. While interviews with Treasury personnel indicated effective performance of job responsibilities, we identified risks, including (1) uncertainty in business model changes for one Treasury department and (2) risks related to effective service to business partners.

  Full Report

As part of our annual audit plan, we performed an audit to determine the effectiveness of the Tennessee Valley Authority's (TVA) process for managing heavy equipment provided to contractors through TVA's Equipment Support Services (ESS) group. ESS provides heavy equipment and other equipment support services to business units across TVA and charges specific projects for the equipment which is provided. ESS's customers include (1) TVA organizations obtaining services directly or (2) contractors performing work for the TVA organizations. In summary, we determined TVA was not effectively managing contractors' use of equipment provided by ESS. Specifically, we found:

• ESS provides equipment to contractors on TVA projects that have cost reimbursable payment terms. Although ESS does not bill the contractors for the equipment (i.e., ESS charges a TVA project, not the contractor), certain contractors bill TVA for the ESS equipment even though their contract with TVA provides that TVA can only be billed for actual equipment costs. Even though the contractors subsequently provide credits or refunds to TVA for the equipment, it is administratively difficult for TVA to ensure it receives reimbursement for all the costs billed by the contractor.
• ESS provides equipment to certain contractors on TVA projects that have fixed price or fixed unit rate payment terms. However, TVA's Standard Programs and Processes (SPP) do not provide guidelines or processes for TVA to determine the cost effectiveness of providing ESS equipment on fixed price/fixed unit rate projects or to ensure TVA receives the appropriate reductions on the fixed price/fixed unit rates.

  Full Report

The Office of the Inspector General conducted a review of the Enterprise Planning (EP) organization to identify factors that could impact EP's organizational effectiveness. We identified behaviors that positively affected EP. These included leadership actions, relationships with team members, recognition programs, and a positive ethical culture. We also identified a risk to operations that, although minimal, if left unaddressed, could hinder EP's effectiveness. This risk was related to effective collaboration with business partners.

  Full Report

This investigation was initiated after OIG auditors identified irregular transactions paid for with a TVA Purchasing Card. More specifically, the auditors discovered the Purchasing Card was used by a cardholder to make payments to an apartment complex. The subsequent investigation substantiated that the employee used the card to make several monthly rental payments to the apartment complex where she lived. To address this situation and prevent similar improper usage of the Purchasing Card in the future, the OIG made several recommendations.

The OIG recommended TVA do the following: (1) Take action to recover from the employee the outstanding balance of the unauthorized transactions, (2) consider disciplinary action against the employee, (3) ensure that all cardholders and approvers in Transmission and Power Supply are current on annual Purchase Card training, and (4) take measures to ensure approving officials are notified when Purchasing Card statements are not reconciled monthly and to suspend cards when there is repeated noncompliance with this requirement.

  Full Report

The Office of the Inspector General conducted a review of the Watts Bar Nuclear Plant (WBN) Chemistry/Environmental (Chemistry) organization to identify factors that could impact WBN Chemistry's organizational effectiveness. Our report identified behavioral risks that could have a negative impact on WBN Chemistry's effectiveness, including those related to (1) interactions with certain management and (2) relationships between employees. We also identified operational risks that could hinder WBN Chemistry's ability to execute its responsibilities and support Nuclear's vision and core principles. These risks were comprised of (1) perceptions of inadequate qualified and/or experienced technicians and turnover in Nuclear Chemistry and (2) concerns with the technician training program. In addition, based on feedback received from other WBN organizations, we corroborated concerns about WBN Chemistry's staffing and personnel knowledge.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined a cost proposal for engineering, design, and construction support services. Our examination objective was to determine if the cost proposal was fairly stated for a planned 5-year, $300 million contract.

In our opinion, the cost proposal was overstated. Specifically, we found the proposed labor markup rates, for recovery of indirect costs, were overstated compared to recent actual costs. We estimated TVA could save about $4 million over the planned $300 million contract spend by negotiating reduced labor markup rates to more accurately reflect recent actual costs.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $20.5 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the proposed total labor markup rate, for recovery of the company's indirect costs, was overstated compared to recent actual costs. In addition, we found the company's proposed costs for the request for proposal's (RFP) example projects contained a cost markup not provided for by the RFP's draft contract. We estimated TVA could avoid about $2.24 million over the planned $20.5 million contract by negotiating a reduced total labor markup rate to more accurately reflect the company's recent actual costs.

(Summary Only)

In the National Historic Preservation Act of 1966, Congress established a comprehensive program to preserve the historical and cultural foundations of the nation as a living part of community life. Section 106 of the Act requires federal agencies to consider the effects of projects they carry out, approve, or fund on historic properties. The Tennessee Valley Authority's Cultural Compliance group performs historic preservation reviews (called Section 106 reviews) to assess (1) whether or not historic properties are present, (2) adverse effects of projects on historic properties, and (3) how to mitigate the adverse effects. Due to concerns raised about the efficiency of historic preservation reviews, we performed an evaluation to determine if the process for performing historic preservation reviews was efficient.

We determined Section 106 reviews were not consistently tracked resulting in a lack of data to determine the time and costs of the reviews. However, we were able to identify inefficiencies in the Section 106 process. Specifically, we determined the process had inefficiencies regarding (1) prioritization of projects, (2) incorporation of Cultural Compliance in planning, (3) communication between organizations, (4) workload of Cultural Compliance personnel, (5) reliance on contractors, and (6) tracking of cultural resources. We made recommendations to the Vice President, Environment, to address inefficiencies in Section 106 reviews.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Thalle Construction Company, Inc. (Thalle) for construction and modification services for civil projects and coal combustion product management under Contract No. 10061. The contract provided for TVA to compensate Thalle for work on either a cost reimbursable, target cost estimate (TCE), or fixed price basis. Our audit objectives were to determine if (1) costs were billed in compliance with the terms and conditions of the contract and (2) tasks were issued using the most cost efficient pricing methodology. Our scope included about $16.2 million in costs billed to TVA from May 20, 2015, through December 20, 2018. This included about $14.7 million for fixed price projects, $1.3 million for TCE projects, and $186,000 for cost reimbursable projects. In summary, we determined:

• Thalle overbilled TVA $78,414 on a TCE project, including (1) $24,716 for ineligible costs billed and (2) $53,698 in overstated TCE cost savings.
• Thalle overbilled TVA $70,751 in equipment costs on cost reimbursable projects, including (1) $54,755 in overbilled TVA Equipment Support Services equipment rental costs and (2) $15,996 in overbilled costs for Thalle owned equipment.
• The use of fixed price or unit rate payment terms on projects caused TVA to pay at least $2.1 million more than it would have if cost reimbursable payment terms had been used for those projects. Additionally, we determined the unit rate payment terms used by TVA to compensate Thalle were not provided for in the contract's terms and conditions.

We also noted several opportunities to improve contract administration by TVA.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $200 million contract.

In our opinion, the company's cost proposal was fairly stated. However, we found the company's proposed labor rate ranges were not reflective of the actual salary costs for company employees. Specifically, we found the company had actual salary rates (1) lower than the minimum labor rates proposed for some categories and (2) higher than the maximum labor rates proposed for some labor categories.

(Summary Only)

The Office of the Inspector General audited TVA's management of Mac® desktops and laptops to determine if Mac® desktop and laptop patching and configuration management followed TVA policy. In summary, we found (1) TVA is at potential risk for compromise of Mac® desktops and laptops due to inaccurate inventory, (2) TVA was not patching Mac® systems in the designated time frames in TVA policy, and (3) TVA did not have a Mac® baseline as required by TVA policy. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $200 million contract.

In our opinion, the company's cost proposal included labor markup rates for the recovery of indirect costs that were misstated. We estimated TVA could save $7.44 million over the planned $200 million contract by negotiating revisions to the labor markup rates to more accurately reflect the company's recent actual costs. In addition, we found the proposed labor rate ranges were not reflective of the actual salary costs of the company.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $90 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the methodology the company used to calculate its proposed labor markup rates was not reflective of the divisions that would be performing the anticipated scopes of work. We estimated TVA could avoid about $5.17 million over the planned $90 million contract by negotiating reductions to the labor markup rates to more accurately reflect the costs from the company divisions who would be performing work under the potential contract.

(Summary Only)

The Office of the Inspector General conducted a review of the Watts Bar Nuclear Plant (WBN) Site Security (SS) organization to identify factors that could impact WBN SS's organizational effectiveness. Our report identified strengths that positively affected WBN SS related to (1) organizational alignment, (2) positive interactions within WBN SS, (3) first-line management support, and (4) positive ethical culture. We also identified risks that could impact the effectiveness of WBN SS to achieve its responsibilities in support of the Nuclear vision and TVA mission. These risks included (1) communication deficiencies, (2) safety concerns, (3) perceptions of inadequate staffing, (4) reporting of performance data, and (5) ineffective relationships with support organizations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $45 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the (1) proposed costs for the request for proposal's (RFP) example projects contained math errors, were not priced in accordance with the RFP requirements, and overstated travel expenses; (2) proposed total labor markup rate, for recovery of the company's indirect costs, was overstated compared to recent actual costs; (3) proposal did not include reduced labor markup rates for employees working in the field and nonbenefited workers; and
(4) proposed maximum wage rates were overstated.

We estimated TVA could avoid about $3.08 million over the planned $45 million contract by (1) ensuring the company's project estimates and invoices are reviewed for accuracy and comply with contract pricing criteria, (2) negotiating a reduced total labor markup rate based on the company's recent actual costs, (3) including labor markup rates for employees performing work in the field and nonbenefited workers, and (4) requiring the company to revise its wage range maximums.

(Summary Only)

Due to the risk of personnel injury from arc flash hazards, we performed an evaluation to determine if (1) TVA's arc flash procedures were being performed as required, (2) required personal protective equipment (PPE) was available and properly maintained, and (3) required training was completed.

We determined some requirements of TVA's arc flash procedure were not being performed. Specifically, we determined (1) some arc flash hazard analyses were not complete, reviewed timely, updated, or verified and submitted for record; (2) some identified arc flash hazards were not communicated accurately to workers; and (3) arc flash hazards were not consistently documented.

In addition, we determined arc flash training needs improvement. Specifically, we determined (1) not all personnel assigned arc flash training had completed the training curriculum, (2) TVA's identified population of individuals required to have arc flash training was incomplete and not a reliable indicator as to who is required by the Occupational Safety and Health Administration to receive the training, and (3) TVA does not require retraining at the frequency suggested by industry guidance. Also, while PPE was generally available and in good condition, PPE management practices could be improved.

  Full Report

Due to the risk of personnel injury from arc flash hazards at nuclear plants, we performed an evaluation to determine if (1) TVA's arc flash procedures were being performed as required, (2) required personal protective equipment was available and properly maintained, and (3) required training was completed.

We found some requirements of TVA's arc flash procedures were not being performed. Specifically, (1) arc flash hazard analyses were incomplete, not reflective of current plant operating conditions, and not reviewed timely; (2) identified hazards were not communicated accurately to workers; (3) plants had not adequately evaluated and implemented controls to reduce exposure to high hazard incident energies; and (4) hazards and mitigations were not routinely documented.

In addition, we determined arc flash training needs improvement. TVA's identified population of individuals required to have arc flash training had completed initial training; however, the trainee population was incomplete and not a reliable indicator as to who is required by the Occupational Safety and Health Administration to receive the training. TVA has also not implemented retraining at the frequency required by its procedures. Also, while personal protective equipment was generally available and in good condition, its management could be improved with an inventory listing and preventive maintenance.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Trans Ash, Inc. (Trans Ash) for construction support services provided under Contract No. 10059. The contract provided that one or more compensation methods may be utilized to complete the work-cost reimbursable, target cost estimate, or fixed price. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contract and (2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $34.4 million in costs billed to TVA from May 20, 2015, through November 30, 2018. This included $20.9 million for cost reimbursable projects and $13.5 million for fixed price projects.

In summary, we determined:

• Trans Ash overbilled TVA $1,592,128 on cost reimbursable projects, including (1) $1,312,051 in unapproved subcontractor costs, (2) $32,895 in ineligible fees associated with subcontractor costs, (3) $156,403 in labor and related costs, (4) $42,929 resulting from the use of lump sum pricing when the purchase order provided for a cost reimbursable compensation methodology, (5) $42,000 in temporary living costs, and (6) $5,850 in equipment costs.
• Trans Ash billed TVA for construction equipment rented from TVA's Equipment Support Services (ESS) group using the Trans Ash equipment rental rates included in the contract's rate schedule instead of billing TVA for the equipment rentals as a direct pass through cost, as required by the contract's terms and conditions. However, due to the process used by TVA to bill Trans Ash for ESS equipment rented, we could not determine the cost impact, if any, of Trans Ash billing ESS equipment using the contract's equipment rental rate schedule.
• The use of fixed price or unit rate payment terms on projects caused TVA to pay at least $1.6 million more than it would have if cost reimbursable payment terms had been used for those projects. Additionally, we determined the unit rate payment terms used by TVA to compensate Trans Ash were not provided for in the contract's terms and conditions.

We also noted several opportunities to improve contract administration by TVA. Specifically, we determined TVA paid an additional $137,190 in noncraft labor costs due to conflicting contract language. In addition, we found (1) TVA could not locate any of the exhibits to the contract, (2) Trans Ash did not submit an electronic billing file to the TVA Office of Inspector General (OIG) in the format and frequency provided for in the contract's terms, and (3) the contract's Order of Precedence clause included inconsistent guidance on which documents took precedence in the event of a conflict.

(Summary Only)

The Office of the Inspector General determined that the Tennessee Valley Authority's (TVA) implementation of a grid access charge was revenue neutral because it resulted in an immaterial change in revenue to TVA. We determined TVA collected about $2 million less in revenue from the local power companies that implemented the grid access charge in fiscal year 2019.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Morsey Constructors, LLC (Morsey) for general construction and modification services performed under Contract No. 9275. Our audit included approximately $8.3 million in costs billed to TVA during calendar years 2014 through 2018. Our objective was to determine if Morsey billed TVA in accordance with the contract's terms.

In summary, we determined Morsey overbilled TVA up to $3,819,541, including (1) from $1,543,520 to $3,698,483 in subcontractor costs that had not been preapproved by TVA,
(2) $100,354 in overbilled equipment costs, (3) $36,945 in unsupported and ineligible travel costs, and (4) a net underbilling of $16,241 because Morsey billed incorrect craft and noncraft time and materials billing rates. In addition, we determined TVA paid an additional $134,810 in labor costs because Morsey used statutory payroll tax rates instead of effective payroll tax rates in the build up of its craft and noncraft labor billing rates.

(Summary Only)

The Office of the Inspector General conducted a review of the Financial Operations and Performance (FO&P) organization to identify factors that could impact FO&P's organizational effectiveness. Our report identified behaviors that positively affected FO&P. These included leadership actions and other drivers of engagement, such as positive relationships with team members and the use of an employee-driven recognition program. We also identified risks to operations that, although minimal, if left unaddressed, could hinder FO&P's effectiveness. These included (1) risks to adequate information sharing among FO&P departments and effective customer service and (2) perceived risks to achievement of FO&P's initiatives and operations.

  Full Report

This investigation addressed an allegation that a contract employee and his employer submitted mileage reimbursement expenses in the amount of $23,431.82 that were not allowed under their contract with the Tennessee Valley Authority (TVA). These travel expenses were submitted for the employee's travel to and from TVA's Watts Bar Nuclear Site between February 2017 and April 2019. The evidence substantiated that these expenses were not reimbursable under the contract.

The OIG recommends that (1) TVA re-educate the contractor on when mileage reimbursement is permitted under the contract, and (2) resolve the misinterpretation of the contract terminology pertaining to mileage reimbursement between the Nuclear Projects and Supply Chain groups.

  Full Report

This investigation addressed an allegation that a contract employee and his employer submitted mileage reimbursement expenses in the amount of $34,173.15 that were not allowed under their contract with the Tennessee Valley Authority (TVA). These travel expenses were submitted for the employee's travel to and from TVA's Sequoyah Nuclear Site between August 2016 and June 2019. The evidence substantiates that these expenses were not reimbursable under the contract.

The OIG recommends that (1) TVA re-educate the contractor on when mileage reimbursement is permitted under the contract, and (2) resolve the misinterpretation of the contract terminology pertaining to mileage reimbursement between TVA's Nuclear Projects and Supply Chain groups.

  Full Report

This investigation was initiated after concerns were reported to the Office of the Inspector General that the duties of a managed-task contract employee working at TVA placed him in a position to direct TVA contracts to his company. While it was determined that, as a contractor, criminal conflict of interest statutes did not apply to this contract employee, the OIG made several recommendations to address this situation.

The OIG recommended TVA do the following: (1) review the duties and responsibilities of the contract employee and ensure compliance with the Organizational Conflict of Interest terms of the contract; (2) require contractors acting in contract manager roles and/or involved with contracting decisions be required to disclose any actual or potential conflict of interest, similar to OGE Form 450, "Confidential Financial Disclosure Report;" and (3) ensure contract employees do not review or have access to information that could provide the contractor with an unfair competitive advantage.

  Full Report

The Office of the Inspector General conducted a review of Hydro Generation (Hydro) to identify operational and cultural strengths and risks that could impact the organizational effectiveness of Hydro as a whole. Our review was based on the results of our prior evaluations in the five Hydro areas and additional interviews and data analyses conducted in this evaluation. Our report identified strengths within Hydro related to (1) organizational alignment, (2) positive interactions within and outside of Hydro, (3) effective leadership, and
(4) positive ethical culture. However, we also identified risks that could impact Hydro's ability to meet its responsibilities in support of PO's vision. These were comprised of risks related to (1) lack of effective accountability by management, (2) inadequate staffing, (3) training needs, and (4) other resources, including adequacy of equipment, infrastructure, supplies, and/or workspace conditions. In addition, we requested feedback from personnel in other TVA organizations that have regular interactions with Hydro personnel. Based on feedback that was received, we identified concerns related to reliability, collaboration/coordination of work, and staffing that could have a negative impact on Hydro's ability to execute PO's vision.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by National Emergency Assistance Inc., (NEA) under Contract
No. 11992. NEA provided assistance to state and local governments under the authority of the Disaster Relief and Emergency Assistance Act. Our audit included approximately
$27.5 million in costs paid by TVA from October 25, 2016, to September 24, 2019. Our audit objective was to determine if the costs were billed in accordance with the terms and conditions of the contract.

In summary, we determined NEA overbilled TVA $417,327, including (1) $224,420 in labor costs not provided in the contract and (2) $197,907 for ineligible travel expenses. In addition, we noted the contract language needs clarification regarding how TVA intends to reimburse NEA for holiday pay.

(Summary Only)

The Office of the Inspector General audited TVA's Insider Threat Program (ITP) to determine if TVA had a program established to address insider threats that was consistent with best practices. We found several areas where TVA's ITP was consistent with best practices. Additionally, we found TVA had designated a senior official charged with overseeing classified information sharing and safeguarding efforts of the agency. Although TVA had not yet implemented its planned ITP, we determined TVA's program will be at a proactive maturity level upon its planned implementation. We identified best practices that were not currently included in the developed ITP related to monitoring and awareness training. TVA management agreed with our recommendations.

  Full Report

As part of our annual audit plan, we audited the allocation of labor expenses in the Tennessee Valley Authority's (TVA) Information Technology (IT) organization. Our audit objective was to determine if financial transactions for labor charged to Operations and Maintenance and Capital general ledger accounts under the IT organization during fiscal year 2018 received the proper accounting treatment.

We were unable to determine if financial transactions for labor charged to Operations and Maintenance and Capital general ledger accounts under the IT organization during fiscal year 2018 received the proper accounting treatment. TVA's IT had informal processes in place to compare forecast to actual project costs on a monthly and quarterly basis to ensure labor charges received the proper accounting treatment. While the description of these variance review processes appeared adequate, we found (1) they were not documented, and (2) limited evidence was provided to show the described processes were followed. TVA management agreed with our recommendations.

  Full Report

The Office of the Inspector General audited TVA's backup verification of mission essential data to determine if TVA's backups were being performed in accordance with business requirements and industry best practice. In summary, we determined that TVA's backups of mission essential data included industry best practice in their business requirements. However, we found three business requirements were not being met. Specifically, we found (1) TVA was not using the enterprise authentication solution as required by their common control catalog, (2) test restores were not performed for essential backup and infrastructure components, and (3) backup data in transit was not encrypted. TVA management agreed with our findings and recommendations.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to Tennessee Valley Authority (TVA) by BlueCross BlueShield of Tennessee, Inc. (BCBST) under Contract
No. 11022 for medical administrative services. Our objective was to determine if the costs billed to TVA under Contract No. 11022 for medical administrative services were in accordance with the contract's terms. The audit covered claim costs and associated fees totaling $262,707,081 billed to TVA during calendar years (CY) 2017 and 2018.

In summary, we determined BCBST overbilled TVA an estimated $88,163, including (1) a net $36,991 related to shared savings for which BCBST has reimbursed TVA a net $18,166, (2) $21,259 for claims that exceeded chiropractic plan limits, (3) an estimated $17,503 in excess costs due to established patients being billed as new patients, and (4) $12,410 in credits not received by TVA.

In addition, we found TVA paid from $369,116 to $836,232 more for administrative fees and various services, such as provider audits and other shared saving services, than it would have under TVA's prior contract with BCBST. The additional payments could have occurred because TVA was not aware of a BCBST underwriting guideline regarding the effect of shared savings on administrative fees.

(Summary Only)

The Office of the Inspector General included an audit of TVA's Maximo vendor master file in our annual audit plan due to the risk of improper payments associated with the large amount of payments processed annually using Maximo data. Our audit objective was to determine if TVA's Maximo vendor master file is properly maintained according to best practices and Supply Chain Standard Programs and Processes 04.014, Supplier Maintenance. Our audit scope included the data in TVA's Maximo vendor master file as of November 20, 2019.

In summary, we found no significant instances of noncompliance with TVA's Standard Programs and Processes, but did note that best practices were not consistently followed for maintenance of the vendor master file. Specifically, we found (1) Maximo does not log changes to the vendor master file, (2) instances where vendor addresses match employee addresses, (3) duplicate vendors, (4) vendors are not deactivated in a timely manner, (5) no minimum requirements for vendor record data, and (6) vendors with no physical address.

  Full Report

Due to the importance of identifying and correcting safety issues, we performed an evaluation to determine if corrective actions were being implemented to address observations identified through the TVA Observation Program (TOP). We found corrective actions were generally being implemented to address observations identified through TOP. In addition, we found Local Health and Safety Committees were generally taking action to address negative trends in at-risk observations. However, we identified opportunities for improvement related to (1) at-risk observations that should not have been included as part of TOP, (2) documentation of corrective actions in SafetyNet, and (3) closure of some at-risk observations in SafetyNet.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we audited Thalle Construction Company, Inc.'s (Thalle) project change request (PCR) No. 017 issued to Purchase Order (PO) No. 3260693 under Contract No. 10061. TVA issued PO No. 3260693 to Thalle on September 21, 2017, using a target cost estimate (TCE) pricing methodology to provide supervision, labor, equipment, and materials for the Bull Run Fossil Site, Process Water Basin.

TCE pricing provides that compensation would be cost based with the maximum amount of total compensation, including fee, not to exceed the TCE established for the work. Additionally, if the project's actual cost exceeded the TCE by more than 3 percent, the amount of overrun would be shared 50 percent by TVA and 50 percent by the contractor. Conversely, if the project's actual cost is more than 3 percent below the TCE, the savings would be shared 75 percent for TVA and 25 percent for the contractor.

During March 2019, TVA reduced Thalle's statement of work (SOW) on the PO and required Thalle to complete all services by April 26, 2019. Thalle submitted PCR-017 on November 6, 2019, which provided a revised TCE totaling $5,077,957 based on the reduced SOW. Our audit objective was to determine the validity of Thalle's PCR-017.

In summary, we determined Thalle's revised TCE in PCR-017 was overstated:

• $975,988 due to (1) incorrect deductions for the reduced SOW, (2) ineligible and unsupported additions to the TCE, and (3) overstated general and administrative (G&A) markup and fee used in the original TCE.
• $39,061 for unallowable performance fee paid on the costs that exceeded the TCE.

In addition, based on our cursory review of payments made under PO No. 3260693, we determined Thalle overbilled TVA $58,612 in ineligible G&A costs and fee paid on TVA provided equipment. As a result, we determined Thalle owes TVA $524,403 including (1) $465,791 for its applicable share of the TCE cost overrun and (2) $58,612 in ineligible G&A and fee paid on TVA provided equipment.

(Summary Only)

Working in industrial environments is inherently dangerous and steps must be taken to ensure the safety of personnel performing work on energized equipment. The Tennessee Valley Authority's clearance procedures establish standardized clearance requirements to ensure equipment is isolated from its energy source and rendered nonoperative before performing work on machines or equipment where the unexpected energizing, start up, or release of stored energy could occur and cause injury or property damage. Due to the importance of the clearance procedure in preventing injury and/or property damage while equipment is being serviced, we performed an evaluation of the nuclear clearance process.

We determined the clearance procedure was being performed for work requiring clearances to safely control hazardous energy and training was completed as required. However, we determined (1) some clearances were not issued in accordance with all procedural requirements, and (2) audits performed were not in compliance with the clearance procedure. We also identified an opportunity for improvement related to the alignment of clearance procedures.

  Full Report

The Office of the Inspector General audited the effectiveness of TVA's phishing training provided to TVA users and determined that it was ineffective. In addition, we found TVA does not have formal procedures for conducting periodic phishing exercises, follow-up training for users who failed the periodic exercises, or consequences for users who fail to take the required phishing training. TVA management agreed with our findings and recommendations.

  Full Report

The Office of the Inspector General audited the effectiveness of the Tennessee Valley Authority's (TVA) implementation of a new identity and access management (IAM) solution. We found the TVA project team has effectively implemented the IAM program and related projects. TVA expanded the IAM program to include additional user access management tools and processes, which included privileged identity management. We identified documentation concerns regarding privileged identity management that were (1) communicated to the project management team during the audit and (2) addressed by TVA management prior to completion of rollout.

  Full Report

Due to the importance of having critical spare parts available to reduce the amount of recovery time after events that may affect the transmission system, we conducted an evaluation to determine if Transmission is effectively managing critical spare parts. Transmission manages its critical spare parts as storm restoration material.

We determined storm restoration material could be managed more effectively. Specifically, we found (1) discrepancies between storeroom inventory counts and data in TVA's work management system, (2) storm restoration materials were not properly identified, and (3) storm restoration material reorder points were incorrect. Additionally, Transmission's Web site contained out-of-date and incomplete data.

  Full Report

The Federal Information Security Modernization Act of 2014 (FISMA) requires each agency's Inspector General (IG) to conduct an annual independent evaluation to determine the effectiveness of the information security program (ISP) and practices of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's ISP and agency practices for ensuring compliance with FISMA and applicable standards, including guidelines issued by Office of Management and Budget and National Institute of Standards and Technology. Our audit scope was limited to answering the FY 2019 IG FISMA metrics developed as a collaborative effort by the Office of Management and Budget, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council.

The FY 2019 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined with the IG FISMA metrics, we found three of the five functions fell below the targeted level 4; therefore, TVA's ISP was not operating in an effective manner. We made eight specific recommendations to TVA management to make improvements in the ISP.

  Full Report

The Office of the Inspector General conducted a review of the Hydro Generation, Central Region (Hydro Central) to identify strengths and risks that could impact Hydro Central's organizational effectiveness. Our report identified strengths that positively affected the day-to-day activities of Hydro Central personnel. These strengths included (1) organizational alignment, (2) positive interactions within and outside of Hydro Central, (3) effective leadership, and (4) positive ethical culture. However, we also identified risks that could hinder Hydro Central's effective execution and its continued ability to meet its responsibilities in support of the Power Operations mission. These were comprised of risks related to
(1) employee behaviors inconsistent with TVA values in two plant groups, (2) safety concerns due to asset and equipment conditions, and (3) workforce training and staffing.

  Full Report

Nuclear Power Group Standard Programs and Processes 03.21, Fatigue Rule and Work Hour Limits, includes rules regarding required average minimum days off for covered individuals, as well as overtime rules for how many hours can be worked in specific time periods. Our review of sampled employee and contract employee work hours and badging records for October 1, 2017, through June 30, 2019, identified no violations of nuclear fatigue rule minimum days off or overtime rules. However, we identified an area of deficiency related to Watts Bar's performance of fatigue assessments. Additionally, we identified opportunities for improvement related to nuclear fatigue rule work-hour tracking and documentation.

  Full Report

The Office of the Inspector General conducted a review of Hydro Generation, Raccoon Mountain (Hydro RM) to identify operational and cultural strengths and risks that could impact Hydro RM's organizational effectiveness. Our report identified strengths within Hydro RM related to (1) organizational alignment, (2) positive interactions within and outside of Hydro RM, (3) effective leadership, and (4) positive ethical culture. However, we also identified risks that could impact Hydro RM's ability to meet its responsibilities in support of PO's mission. These were comprised of risks related to (1) an employee's behaviors that are inconsistent with TVA's Values, (2) inadequate staffing, and (3) outage execution and management.

  Full Report

We identified nine contractor employees who were H-1B visa nonimmigrants between January 31, 2017, and January 31, 2019. We determined the nine contractor employees we identified as being H-1B nonimmigrants met selected criteria of the visa regulations. However, we could not confirm the actual number of H-1B visa nonimmigrants or foreign nationals who worked at TVA during the scope of our evaluation because the data in citizenship and visa fields in TVA's Human Resources system was determined to be unreliable. Additionally, we identified an opportunity for improvement related to verifying documentation supporting nonimmigrant employment eligibility of contractor employees.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Enercon Services, Inc. (Enercon) for engineering services under Contract No. 7757. The contract provided for TVA to compensate Enercon for work on either a cost reimbursable or fixed price basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contract and (2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about
$48.1 million in costs paid by TVA from September 9, 2013, to June 30, 2018.

In summary, we determined:

• Enercon did not provide $94,936 in volume rebates due TVA. In addition, Enercon overbilled TVA $31,792 on cost reimbursable projects, including (1) $24,594 in unsupported travel costs and (2) $7,198 in excessive performance fee payments.
• The use of fixed price payment terms on a sample of 18 projects totaling $1.34 million caused TVA to pay at least $122,996 (10.11 percent) more than it would have if cost reimbursable payment terms had been used for those projects.

We also noted issues with TVA's contract administration, including inadequate oversight of the (1) fee evaluation process and (2) process for evaluating fixed price proposals. Additionally, TVA may have missed the opportunity to receive $22,089 in volume rebates due to a September 2016 contract change with an effective date that benefitted Enercon.

Summary Only

The Office of the Inspector General conducted a review of the Hydro Dispatch Control Center (HDCC) to identify operational and cultural strengths and risks that could impact HDCC's organizational effectiveness. Our report identified strengths within HDCC related to (1) organizational alignment, (2) positive interactions within and outside of HDCC,
(3) effective leadership, and (4) positive ethical culture. However, we also identified risks that could impact HDCC's ability to meet its responsibilities in support of Power Operations' mission. These were comprised of risks including (1) perceptions of lack of effective accountability and (2) execution-related concerns related to inadequate night shift staffing and workspace issues in the System Operations Center.

  Full Report

We performed an audit of costs billed to the Tennessee Valley Authority (TVA) by a company for the supply of natural gas to TVA's combined cycle or combustion turbine generation plants. Our audit included approximately $205 million in costs billed to TVA for gas delivered from June 1, 2017, to May 31, 2019. Our audit objectives were to determine if (1) the costs billed to TVA were in accordance with the contract's terms and conditions, (2) TVA's analysis to support current contract pricing was reasonable, and (3) the contract's current pricing methodology is reasonable for a potential extension when the pricing agreement expires.

In summary, we determined the company billed TVA in accordance with the contract terms. In addition, we determined the analysis and assumptions used by TVA in entering into an agreement with the company to purchase 75,000 dekatherms per day of natural gas from April 1, 2017, through March 31, 2021, were reasonable and resulted in significant discounts and savings to TVA. Furthermore, we determined the contract's current pricing methodology is reasonable for a planned 3-year extension, and, if TVA is able to negotiate similar contract pricing, we estimated it could save about $849,000 compared to estimated future market prices.

Summary Only

We performed an audit of craft labor costs billed to the Tennessee Valley Authority (TVA) by Day & Zimmermann NPS, Inc. (DZ) under Contract No. 11515. Under the contract, DZ was to provide the services of qualified craft, noncraft, or staff augmented personnel to perform modification, outage, supplemental maintenance, or technical support at TVA Nuclear Power Group generating sites. Our audit included approximately $19.2 million in craft labor costs billed to TVA for work performed at Watts Bar Nuclear Plant from June 1, 2018, to November 30, 2018. Our audit objective was to determine if craft labor costs billed to TVA at Watts Bar Nuclear Plant were in compliance with Contract No. 11515.

In summary, we determined DZ billed TVA in accordance with the contract terms. However, we found craft employees are allowed up to 15 minutes of walkout time before the end of their assigned shift and are paid for the time as if they had worked until the end of the shift. Although this appears to be a standard and accepted practice by TVA and DZ, the practice of allowing walkout time is not documented in the contract, TVA's Project Maintenance and Modification Agreement, or any other TVA Project Labor Agreement. Additionally, it is not clear if DZ's practice (1) meets the intent of TVA's (unwritten) policy on craft end of shift walkout time or (2) is managed effectively.

Summary Only

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2019 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

The Office of the Inspector General (OIG) performed procedures that were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance/Executive Annual Incentive Plan (WP) Measures for fiscal year (FY) ending September 30, 2019. The WP Measures data provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2019 WP goals for the enterprise measures were properly approved. One change form was approved on November 9, 2018, and clarified the definition sheet methodology for calculating the goals for one of the measures. However, this change form did not impact the overall measure, weight, and goals of that measure. Another change form was approved on January 22, 2019, and affected one measure.
• The FY 2019 goals (target) for the corporate multiplier measures were properly approved.
• The actual FY to-date results for the enterprise measures agreed with the underlying support, without exception.
• The actual FY to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY 2019 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 6, 2019, was mathematically accurate and agreed with the OIG's recalculation.

  Full Report

The Office of the Inspector General (OIG) contracted with ATC Group Services LLC (ATC) to conduct a review of groundwater monitoring activities at Shawnee Fossil Plant to determine the quality of the program and adherence to regulatory standards. ATC stated that in their opinion, monitoring activities performed at Shawnee Fossil Plant are in adherence with guidelines for the Environmental Protection Agency. Furthermore, ATC stated the work performed appears to be of high quality and does not likely result in any discrepancies for the program. However, ATC identified an omission from a plan that did not impact groundwater monitoring. TVA management completed actions to address the omission.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Sequoyah Nuclear Plant (SQN) Site Security (Evaluation 2018-15550, issued September 24, 2018) to identify strengths and risks that could affect SQN Site Security's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. In response to that report, Tennessee Valley Authority management provided their management decision. The objective of this follow-up evaluation was to assess actions taken to address the concerns identified in our initial organizational effectiveness evaluation. In summary, we determined TVA management has taken actions to address the risks.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Human Resources (Evaluation Report 2016-15445-05, issued September 26, 2017) to identify operational and cultural strengths and areas for improvement that could impact Human Resources' organizational effectiveness. Our report identified several operational and cultural areas for improvement and included recommendations for addressing those areas. The objective of this follow-up review was to assess actions taken to address the concerns identified in our initial organizational effectiveness evaluation for one of Human Resources three departments - Employee Health. In summary, we determined actions have been taken to address the previously identified concerns.

  Full Report

The Office of the Inspector General previously conducted a review of Human Resources (Evaluation Report 2016-15445-05, issued September 26, 2017) to identify operational and cultural strengths and areas for improvement that could impact Human Resources' organizational effectiveness. Our report identified several operational and cultural areas for improvement and included recommendations for addressing those areas. In response, we received Human Resources' management decision on December 4, 2017. The objective of this follow-up review was to assess actions taken to address concerns identified in the initial organizational effectiveness evaluation. In summary, we determined actions taken by Human Resources appear to have addressed the areas for improvement identified during our initial organizational effectiveness review.

  Full Report

At the request of the Tennessee Valley Authority (TVA), we performed an audit of costs paid by TVA to AECOM Energy and Construction, Inc. (AECOM) for engineering services under Contract No. 8273. The contract provided for TVA to compensate AECOM for work on either a cost reimbursable or fixed price basis. Our audit objective was to determine if the costs were billed in accordance with the terms and conditions of the contract. Our audit scope included about $21.6 million in costs paid by TVA from January 1, 2016, to April 30, 2018.

In summary, we determined AECOM overbilled TVA $287,346, including (1) $235,437 in labor costs, (2) $27,010 in subcontractor costs, (3) $11,742 in fee, (4) $9,682 in travel costs,
(5) $2,050 in materials costs, and (6) $1,425 in fixed price costs. Additionally, we noted issues with TVA's contract administration including (1) inadequate oversight of the fee evaluation process, (2) markup rates not included in the contract, and (3) activity on closed purchase orders.

Summary Only

In 2016, TVA implemented an individual performance multiplier (IPM) that allows managers to adjust employees' annual Short-Term Incentive lump-sum payouts based on performance. Since alignment between the multiplier and performance are important to the success of the initiative, we scheduled an evaluation of TVA's IPM. Our objective was to determine if IPMs were in alignment with performance ratings.

We reviewed 5,235 adjustable payouts made in fiscal years 2017 and 2018, and found most of the IPM adjustments were in alignment with overall performance ratings. However,
59 adjustments made in fiscal years 2017 and 2018 fell outside the recommended ranges established in the IPM guideline. We determined some of these happened because the IPM process uses rounded overall performance ratings instead of actual calculated performance ratings.

  Full Report

Based on the importance of the System Operations Center to the transmission system, we performed an evaluation of the site-selection process to determine if the selected site
(1) met regulatory requirements and established criteria and (2) provided financial or operational benefits over other potential locations considered.

We determined the site selected for the System Operations Center met established criteria and regulatory requirements. However, we could not determine if the site selected provided financial or operational benefits over other potential locations considered. We identified several issues in the site-selection process, including (1) inaccurate analysis,
(2) cost considerations that were high level and not documented, and (3) duplicate parcels. As a result, we determined 4 of the final 6 sites were incorrectly considered for selection by TVA because they did not meet one or more of TVA's established criteria. Additionally, we identified 1 site that was prematurely eliminated from consideration that should have been included in TVA's final site selection evaluation.

  Full Report

The Office of the Inspector General audited TVA's Hydro Generation's cybersecurity controls. We found TVA had (1) a potential single point of failure that could affect TVA's ability to operate effectively in the event of a disaster, (2) not configured network devices in a consistent manner, and (3) not maintained updated network documentation. TVA management provided their planned actions to address the recommendations.

  Full Report

The Office of the Inspector General conducted a review of Shawnee Fossil Plant (SHF) to identify operational and cultural strengths and areas for improvement that could impact SHF's organizational effectiveness. Our report identified strengths that positively affected the day-to-day activities of SHF personnel. These strengths related to (1) organizational alignment, (2) teamwork within working groups and with other SHF departments, (3) effective leadership, (4) positive ethical culture, and (5) resources necessary for job execution. However, we also identified a risk related to inadequate asset maintenance activities that could impact SHF's effectiveness and its continued ability to meet its responsibilities in support of Power Operations' mission.

  Full Report

Due to the risk of incorrectly dispositioning nuclear outage materials, we initiated an evaluation of nuclear outage material management. Our objective was to determine if TVA is managing designated outage material following an outage to maximize use and minimize cost.

We determined TVA generally managed designated outage materials to maximize use and minimize cost. Specifically, we found (1) no instances where TVA missed material redeployment opportunities for designated outage materials and (2) all outage items designated for surplus and subsequently repurchased were warranted. However, we identified opportunities for improvement related to documentation for material returns and a TVA inventory database control.

  Full Report

We audited the Tennessee Valley Authority's (TVA) employee recognition expenditures to determine if they complied with TVA policies and procedures. Our audit scope included approximately $2.6 million in TVA employee recognition expenditures occurring from October 1, 2016, through September 30, 2018.

Our audit found that employee recognition expenditures generally were not made in compliance with TVA policies and procedures. Specifically, we found (1) a lack of appropriate preapprovals, (2) strategic business unit-sponsored employee recognition expenditures not associated with an approved program, (3) transactions for items not allowable as employee recognition, and (4) split transactions. We also found employee recognition transactions that could pose reputational risks to TVA. Further, we found that oversight of employee recognition programs needs improvement, including monitoring of all employee recognition expenditures. Finally, we found that gift card award programs were not properly administered.

We made fifteen recommendations to TVA management to (1) update the governing TVA Standard Programs and Processes and (2) enhance oversight of employee recognition transactions. TVA management agreed with our recommendations and provided actions they plan to take to address each of them.

  Full Report

The Office of the Inspector General (OIG) previously conducted an evaluation of Sourcing (Evaluation 2017-15514, August 17, 2018) to identify strengths and risks that could affect Sourcing's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. In response to a draft of that report, Tennessee Valley Authority (TVA) management provided their management decision. Prior to the commencement of this evaluation, the recommendations related to alignment risks, employee advancement, and collaboration within Sourcing were closed. The objective of this follow-up evaluation was to assess management's actions to address the two remaining risks, related to leadership and workload. In summary, we determined TVA management has taken actions to address the remaining risks.

  Full Report

Due to potential risks associated with employee separations where some Tennessee Valley Authority (TVA) employees ceased active work prior to their last official day of employment, we included an audit of timely access removal as part of our annual audit plan. Our audit objective was to determine if physical and logical access is removed when employees cease active work prior to retirement or other termination. Our scope included TVA employees whose employment ended during calendar year 2018 who ceased active work prior to retirement or other termination. In summary, we found (1) TVA's policies and procedures do not provide guidance for supervisors/managers regarding removal of an employee's logical or physical access if they stop active work prior to separation, and (2) employee's physical and logical access is not consistently removed on a timely basis when employees cease active work prior to retirement or other separation.

  Full Report

We audited the Tennessee Valley Authority's (TVA) executive travel expenses to determine if they complied with Federal Travel Regulation (FTR) and TVA's policies and procedures. Our audit scope included approximately $1.8 million in TVA executive travel expenses occurring from October 1, 2016, through July 31, 2018.

Our audit found several instances where TVA executives did not comply with the FTR and/or TVA policies for travel, business meetings, and hospitality including (1) overpaid meal and incidental expenses per diem, (2) excessive meal costs incurred while in travel status, (3) the use of "car services" instead of less expensive modes of transportation in certain locations, (4) foreign travel expenses that did not comply with the FTR and TVA policies, (5) lodging that was not always in compliance with the FTR and TVA policies, and (6) some travel costs that were not reported to the TVA Board of Directors. Additionally, we found domestic airfare was generally in compliance with the FTR, but an area for improvement was identified.

In summary, the actions by some TVA executives indicate a "Tone at the Top" that could send a message to TVA employees that management is not committed to the TVA Code of Conduct and compliance with the FTR and TVA policies and procedures. We made 14 recommendations to TVA management to strengthen controls around executive travel by reinforcing the existing TVA travel policy and developing additional guidance to ensure compliance with the FTR. TVA management provided actions they plan to take to address each of our recommendations.

  Full Report

The Office of the Inspector General audited TVA's transmission system's Internet security. We (1) identified vulnerabilities that increase TVA's risk of successful cyberattacks,
(2) found a gap in how TVA's cybersecurity monitoring system detects cyberattacks against the transmission system, and (3) found TVA had not configured network devices in a consistent manner. TVA management remediated or mitigated all identified vulnerabilities and agreed with our remaining findings and recommendations.

  Full Report

The Office of the Inspector General conducted a review of the Hydro Generation, North Eastern Region (Hydro NE) to identify operational and cultural strengths and risks that could impact Hydro NE's organizational effectiveness. Our report identified strengths within Hydro NE related to (1) organizational alignment, (2) positive interactions within and outside of Hydro NE, (3) first-line leadership, and (4) positive ethical culture. However, we also identified risks that could impact Hydro NE's ability to meet its responsibilities in support of Power Operations' mission. These included risks related to perceptions of (1) inadequate staffing and (2) lack of accountability.

  Full Report

The Office of the Inspector General (OIG) contracted with ATC Group Services LLC (ATC), to conduct a review of groundwater monitoring activities at the Kingston Fossil Plant Peninsula Disposal Unit to determine the quality of the program and adherence to regulatory standards. ATC stated that in their opinion, monitoring activities performed at TVA Kingston Fossil Plant Peninsula Disposal Unit are in adherence with guidelines for the Environmental Protection Agency and the Tennessee Department of Environment and Conservation. Furthermore, ATC stated the work performed appears to be of high quality and does not likely result in any discrepancies for the program.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Sargent & Lundy, L.L.C. (S&L) for engineering services under Contract Nos. 8444 and 12285. The contracts provided for TVA to compensate S&L for work on either a cost reimbursable or fixed price basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contracts and (2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $119.3 million in costs billed to TVA from July 19, 2014, through December 30, 2017. This included $21.0 million for cost reimbursable projects and $98.3 for fixed price projects. In summary, we determined:

• S&L overbilled TVA $46,828 on cost reimbursable projects including (1) $43,080 in labor burden and other direct costs and (2) $3,748 in volume rebates (of which a credit of $2,236 was subsequently provided to TVA).
• The use of fixed price payment terms on projects caused TVA to pay at least $11.5 million more than it would have if cost reimbursable payment terms had been used for those projects.

We also noted issues with TVA's contract administration including inadequate oversight of the (1) fee evaluation process and (2) process for evaluating fixed price proposals. Additionally, TVA may have missed the opportunity to receive $121,083 in volume rebates due to certain contractual language that benefited S&L.

(Summary Only)

The Office of the Inspector General conducted a review of the Hydro Generation, South Western Region (Hydro SW) to identify operational and cultural strengths and risks that could impact Hydro SW's organizational effectiveness. Our report identified strengths within Hydro SW related to (1) organizational alignment, (2) positive interactions within and outside of Hydro SW, (3) effective leadership, and (4) positive ethical culture. However, we also identified risks that could hinder Hydro SW's effective execution and its continued ability to meet its responsibilities in support of the PO mission. These were comprised of risks related to (1) inadequate resources including training, materials, and staffing and
(2) perceptions of upper management support including spending and lack of hydro experience.

  Full Report

The Office of the Inspector General conducted a review of TVA's Nuclear Security organization to identify operational and cultural strengths and risks that could impact organizational effectiveness. Our report identified strengths within Nuclear Security related to (1) organizational alignment, (2) teamwork, (3) ethical culture, and (4) front-line management support. However, we identified risks that could impact the effectiveness of Nuclear Security to achieve its responsibilities in support of the Nuclear vision. These included (1) alignment risks related to the achievement of the Nuclear vision and (2) risks to effective execution of responsibilities.

  Full Report

Nuclear Power Group Standard Programs and Processes 03.21, Fatigue Rule and Work Hour Limits, includes rules regarding required average minimum days off for covered individuals, as well as overtime rules for how many hours can be worked in specific time periods. Our review of sampled employee and contract employee work hours and badging records for fiscal years 2017 and 2018 identified no violations of nuclear fatigue rule (NFR) minimum days off or overtime rules. However, we identified areas of deficiencies with Brown Ferry's performance of (1) fatigue assessments and (2) NFR compliance reviews. Additionally, we identified areas for improvement related to NFR work-schedule tracking.

  Full Report

We evaluated the process TVA uses to verify the accuracy of payments made to the Department of Labor (DOL) for workers compensation benefits. We determined TVA did not have a formal process to verify the accuracy of payments made for schedule awards. Although TVA's Sarbanes-Oxley Act (SOX) controls verified certain aspects of the DOL billings, the SOX controls did not include steps to verify the accuracy of the elements in award of compensation letters and, as a result, some errors were not identified. Additionally, we found TVA was not performing a SOX control related to providing a summary of workers' compensation charges to the applicable organizations for review.

  Full Report

The Office of the Inspector General audited TVA's compliance with Office of Management and Budget's (OMB) memorandum (M) 15-13, Policy to Require Secure Connections across Federal Websites and Web Services, and Department of Homeland Security's (DHS) binding operational directive (BOD) 18-01, Enhance E mail and Web Security, regarding Web site and e-mail security practices. We determined that TVA was not in compliance with OMB M-15-13 and DHS BOD-18-01. In addition, we found TVA's Web site inventory was incomplete. TVA management agreed with our findings and recommendations.

  Full Report

The Tennessee Valley Authority's (TVA) drawing program is designed and maintained to document the configuration of TVA's systems, structures, and components. Drawings are utilized for a variety of reasons, including plant operation, maintenance activities, troubleshooting, and to establish clearance boundaries for isolating equipment so that work can be performed safely. Modifications to configuration should be captured through TVA's Design Change Notice (DCN) process to ensure configuration control is maintained and drawings are updated to reflect the changes. Due to the importance of accurate drawings to plant personnel safety, we initiated an evaluation of Coal Operations' DCN process. Our objective was to determine if the DCN process was being followed for modifications made to coal plant drawings.

We determined that when the DCN process was utilized, DCNs were generally in compliance with procedural requirements and drawings appeared to have been updated accordingly. However, we determined the DCN process was not always followed for modifications made to coal plant drawings. Specifically, we found (1) modified drawings onsite that had not been updated through DCNs; (2) hand-illustrated drawings utilized in lieu of approved, computer-generated drawings; (3) outdated drawings potentially referenced in the course of work; and (4) reluctance at the sites to initiate the DCN process. Additionally, we identified opportunities for improvement related to (1) training, (2) drawing descriptions, (3) communication of DCN status and drawing availability, and (4) outdated standard programs and processes and intergroup agreements.

  Full Report

The Office of the Inspector General conducted a review of the Transmission Operations, Reliability, and Supervisory Control and Data Acquisition (TORS) organization to identify operational and cultural strengths and risks that could impact TORS' organizational effectiveness. Our report identified strengths within TORS related to (1) organizational alignment for the majority of TORS' personnel, (2) teamwork within departments, and (3) leadership of first-line supervisors. However, we identified risks related to (1) organizational reporting issues, (2) engagement risks related to career development opportunities and a perceived lack of accountability, and (3) execution risks related to perceptions of inadequate staffing and outage scheduling challenges. During our evaluation, management took action that addressed certain risks related to career development opportunities, inadequate staffing, and outage scheduling concerns.

  Full Report

Due to the importance of maintaining equipment in good operating condition and concerns raised during past Office of the Inspector General reviews, we conducted an evaluation to determine if (1) Coal Operations fully implemented the work management process improvements recommended by Reliability Management Group (RMG) and (2) performance metrics indicated the changes had improved work management.

We were unable to determine if Coal Operations fully implemented work management process improvements recommended by RMG because there were no formal recommendations made for coal plants. While RMG did not provide recommendations to TVA for coal plants, we reviewed work management metrics and determined that one metric improved while RMG was onsite while others had mixed results. However, performance declined in the 6 months after RMG left at several sites.

  Full Report

The Office of the Inspector General conducted a review of the Information Technology (IT) Corporate Solutions organization to identify operational and cultural strengths and risks that could impact IT Corporate Solutions' organizational effectiveness. Our report identified strengths related to (1) organizational alignment in two departments, (2) positive interactions with management in one department, and (3) teamwork within and outside of Corporate Solutions' departments. However, we also identified risks related to (1) risks to effective organizational alignment to IT strategy, (2) engagement issues with management in two departments, and (3) risks to effective execution of the mission related to lack of customer focus and resource issues.

  Full Report

Based upon concerns regarding the reliability of data in Maximo, we conducted an evaluation of inventory data in Maximo to determine if (1) data entered into key inventory fields in Maximo was valid and (2) key inventory fields were utilized consistently.

We found most key inventory fields were utilized; however, some of the key fields contained invalid data. Specifically, we determined there was invalid data in fields related to
(1) quality assurance levels, (2) inventory status, (3) item descriptions, (4) units of measure, and (5) sites.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Materials and Transportation Management (M&TM) (Evaluation 2016-15586, July 27, 2017) to identify strengths and risks that could affect M&TM's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. We subsequently completed a follow-up evaluation (Evaluation 2018-15578, September 28, 2018) that assessed management's actions to address risks from our initial organizational effectiveness evaluation. Our follow-up evaluation determined management had taken actions to address most of the risks outlined in our initial evaluation. However, three recommendations remained unresolved, including (1) one manager's behavior and teamwork at one location,
(2) instances where goals were not SMART, and
(3) cross functional risks related to business units. The objective of this follow-up evaluation was to assess management's actions to address the remaining risks from our initial organizational effectiveness evaluation. In summary, we determined TVA management has taken actions to address the three remaining risks outlined in our initial organizational effectiveness evaluation.

  Full Report

Due to the importance of having qualified personnel in safety-sensitive positions, we initiated an evaluation to determine if minimum job requirements for safety-sensitive positions in Power Operations were met at the time of promotion or hire.

We reviewed minimum job requirements for 56 of 141 employees who were hired, rehired, or promoted to safety-sensitive positions in Power Operations during fiscal years 2017 and 2018. We determined some employees did not meet minimum job requirements for safety-sensitive positions upon hire or promotion. Specifically, we determined 4 employees did not meet one or more of the job requirements related to certifications or experience. In addition, we determined 11 employees in safety-sensitive positions did not meet minimum training requirements listed on the job descriptions to be completed after they were promoted. We also identified an opportunity for improvement regarding documentation of required training.

  Full Report

Due to the importance of an effective response in the event of an emergency, we conducted an evaluation to determine if (1) emergency response plans at gas plants were up to date and (2) required systems were available and functional.

We found 10 of 17 emergency response plans for gas plants were not reviewed on a timely basis based on TVA's requirement for an annual review, and all contained inaccurate contact information. We also found some systems required in emergency response plans were not available or functional. Specifically, we observed availability or functionality issues with at least two of four emergency alerting and notification systems tested at all six gas plants visited.

  Full Report

The Office of the Inspector General audited TVA's information systems categorization process to determine if TVA's information systems categorization process was effective and in compliance with Federal Information Processing Standards Publication 199 and National Institute of Standards and Technology Special Publication (NIST SP) 800-60. We determined that portions of TVA's process were effective. However, we found gaps with implementing NIST SP 800-60 guidance. TVA management agreed with our findings and recommendations.

  Full Report

Due to the importance of an effective response in the event of an emergency, we conducted an evaluation to determine if (1) emergency response plans at coal plants were up to date and (2) required systems were available and functional.

We found the majority of emergency plans for active and retired coal plants were not reviewed on a timely basis or were not up to date. Specifically, we found (1) three of six emergency plans for active coal plants were not reviewed timely based on TVA's requirement for an annual review, and all six contained inaccurate contact information; (2) two of four emergency plans for retired coal plants were not reviewed timely and plans were not executable because of changed plant conditions; and (3) 14 of 15 emergency action plans required for coal combustion residuals storage facilities were not reviewed on a timely basis. We also found some systems required in emergency response plans were not functional. Specifically, we observed functional issues with emergency alerting and notification systems at two of the three plants we visited.

  Full Report

We reviewed training for Nuclear Security, Emergency Preparedness, and Fire Brigade to determine if required nuclear training was being taken by TVA personnel. We reviewed training completion records for a sample of employees assigned to fire brigade, nuclear security, and emergency preparedness roles and found not all required training was completed. Specifically, we found (1) 1 of 54 employees did not complete the required emergency preparedness training, and (2) 3 of the 91 employees who perform fire brigade functions were missing a quarterly training. In addition, we determined some employees who perform the nuclear security and emergency preparedness functions exceeded the time frames for completing training established in TVA procedures. Additionally, we identified opportunities for improvement regarding the (1) establishment, assignment, and tracking of training requirements and (2) logs used to document fire brigade member assignments.

  Full Report

The Office of the Inspector General audited TVA's documentation related to vendor selection in TVA's project to replace the current human resource system with a cloud-based human capital management solution. We found TVA had not identified project risks related to ongoing changes in the federal government's strategy for the use of cloud services. In addition, we were unable to verify whether sufficient security architecture reviews were completed to mitigate one of the identified project risks due to the lack of documentation. TVA management agreed with the audit findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$10 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposal included overstated noncraft labor markup rates as compared to its most recent actual costs. In addition, the company's proposed contract rate attachments included (1) labor classifications that were not consistent with the company's actual job titles and (2) unnecessary attachments for craft labor and equipment costs.

We estimated TVA could avoid about $381,000 by negotiating reductions to the noncraft labor markup rates to more accurately reflect the company's recent actual costs. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to (1) more accurately reflect the company's actual labor classifications and (2) remove the unnecessary attachments for craft labor and equipment.

(Summary Only)

The Office of the Inspector General conducted an organizational effectiveness review of Paradise Fossil Plant (PAF) to identify operational and cultural strengths and risks that could impact PAF's organizational effectiveness. Our report identified strengths related to (1) organizational alignment, (2) teamwork within and between PAF departments, and
(3) leadership of first-line supervisors. However, we also identified risks that could impact the effectiveness of PAF to achieve its responsibilities in support of Power Operation's mission. These risks related to (1) diminished trust in leadership at PAF and TVA senior management levels; (2) a weak safety climate; and (3) lack of adequate training.

  Full Report

As part of our annual audit plan, we audited the tool controls at Sequoyah Nuclear Plant (SQN). Our audit objective was to determine if SQN is in compliance with the Tennessee Valley Authority's (TVA) Nuclear Power Group Business Practice 226 (BP-226), Tool and Equipment Accountability.

In summary, we determined SQN is not in compliance with BP-226. Specifically, we found (1) issues and returns of tools and equipment are not made in TVA's Tool Management System, and periodic random inventories are not performed; (2) tool room access is not adequately controlled; and (3) a new tool tracking system TVA is planning to use cannot accommodate rigging requirements. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$10 million contract.

In our opinion, the company's cost proposal was understated. Specifically, we found the company's proposed costs for a Bull Run Fossil Plant (BRF) project included (1) markup rates that were misstated and (2) overstated materials, travel, and equipment costs. We also found the company's proposed rate attachments included (1) a contractor owned equipment attachment containing equipment that the company anticipates will be leased or rented from third parties, (2) fee on cost reimbursable work that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), and (3) excessive time and material (T&M) billing rates for most labor classifications because the rates were based on the company's maximum pay rates.

We suggest TVA negotiate appropriate adjustments to the BRF unit rates to more accurately reflect the company's actual costs. In addition, we suggest TVA negotiate (1) revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual equipment usage, (2) a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) T&M billing rates based on the wage ranges' midpoint pay rates.

(Summary Only)

The Office of the Inspector General audited TVA's internal controls in place to prevent, detect, and report unauthorized access and disclosure of human resource (HR) system Personally Identifiable Information (PII). We found TVA has weaknesses in its internal controls to prevent and detect unauthorized access and disclosure of HR system PII. TVA management agreed with our recommendations for improving the internal controls.

  Full Report

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by GE Mobile Water, Inc. (GE) for providing water processing services, chemicals, and other related products and services under Contract No. 75130. Our audit included approximately $40.898 million in costs billed to TVA from January 1, 2014, to
April 30, 2018. Our audit objective was to determine if GE billed TVA in accordance with the contract terms.

In summary, we determined GE generally billed TVA in accordance with the contract terms. However, we found (1) GE did not maintain adequate documentation of the index it used to calculate the fees billed to TVA and (2) the contract terms regarding document retention could be strengthened.

(Summary Only)

The Federal Information Security Modernization Act of 2014 (FISMA) requires each agency's Inspector General (IG) to conduct an annual independent evaluation to determine the effectiveness of the information security program (ISP) and practices of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's (TVA) ISP and agency practices for ensuring compliance with FISMA and applicable standards, including guidelines issued by Office of Management and Budget (OMB) and National Institute of Standards and Technology. Our audit scope was limited to answering the FY2018 IG FISMA metrics developed as a collaborative effort by the OMB, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council. The FY2018 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined within the FY2018 IG FISMA metrics, we found TVA's ISP was operating in an effective manner.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the labor and labor markup rates included in a contract TVA has with a contractor. Our examination objective was to determine if the contract's labor and labor markup rates were fairly stated for the five-year, $100 million contract.

In our opinion, the contract's labor markup rates were overstated. We estimated TVA could save $1.4 million by negotiating reductions to the labor markup rates to more accurately reflect the contractor's recent historical costs. In addition, we found the contract's labor rate ranges are not reflective of the actual salary costs of the contractor's employees.

(Summary Only)

We performed an evaluation to determine whether demolition and decontamination activities at Widows Creek Fossil Plant (WCF) (1) adhered to safety principles found in the TVA Decommissioning, Deactivation, Decontamination, and Demolition (D4) Program Guide and (2) complied with selected safety criteria established in Brandenburg's Health and Safety Plan (HASP) for WCF. We determined TVA and Brandenburg met selected safety requirements established in TVA's D4 Program Guide and Brandenburg's HASP for WCF. However, during our site visit, we noted safety hazards related to an eyewash station and personal protective equipment that were immediately addressed.

  Full Report

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2018 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

The Office of the Inspector General audited TVA's controls in place to prevent, detect, and respond to ransomware incidents. In summary, we found TVA management generally has appropriate controls in place to prevent, detect, and respond to a ransomware incident. However, for one selected system, we found inappropriate administrative access. To strengthen access controls, TVA currently has an ongoing project to identify, track, and monitor administrative accounts, which is expected to be complete in 2020. In addition, we found improvements were needed in the Ransomware Incident Action Plan. TVA's Cybersecurity updated the Ransomware Incident Action Plan during our audit.

  Full Report

The Office of Inspector General (OIG) performed procedures that were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance/Executive Annual Incentive Plan (WP) Measures for fiscal year (FY) ended September 30, 2018. The WP Measures data provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY2018 WP goals for the enterprise measures were properly approved. There were four change forms that clarified the definition sheet formulas for three separate measures. However, these change forms did not impact the measures, weights, and goals of the Enterprise measures.
• The FY2018 goals (target) for the corporate multiplier measures were properly approved.
• The actual FY to-date results for the enterprise measures agreed with the underlying support.
• The actual FY to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY2018 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 5, 2018, was mathematically accurate and agreed with the OIG's recalculation.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$25 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant (CUF) project and proposed unit rates for a Bull Run Fossil Plant (BRF) project included overstated (1) material costs, (2) general and administrative (G&A) rates, (3) labor costs, (4) equipment costs, and (5) temporary living allowance (TLA) costs. In addition, the company included a fee rate for the CUF project that exceeded the maximum allowable fee rate in TVA's request for proposal. We also found the company's proposed rate attachments included (1) incorrect craft labor rates, (2) incorrect application of the markup rates, and (3) noncraft wage ranges that did not reflect the company's current wage ranges. In addition, the company's proposal did not include (1) separate labor rate attachments for nonmanual employees who receive union benefits and (2) three noncraft labor categories that were included in the CUF and BRF proposals.

We estimated TVA could avoid about $1.66 million on the planned $25 million contract by (1) negotiating appropriate reductions to material costs, G&A rates, labor costs, equipment costs, and TLA costs; (2) limiting the company's fee rate on the CUF project to the RFP's maximum allowable rate; and (3) negotiating appropriate reductions to unit rates in the BRF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and costs.

(Summary Only)

In March 2018, we completed Audit 2017-15470, TVA's Fixed-Wing Aircraft. As a result of the audit findings and public interest, we initiated an audit to determine if similar issues existed with TVA's helicopter usage. Our audit objective was to determine whether TVA's use of its helicopter fleet is consistent with TVA policies and any applicable federal laws and regulations. Our audit scope included all helicopter flights from October 1, 2014, through December 31, 2017.

We found TVA did not comply with the Federal Travel Regulation (FTR) and TVA policies and procedures regarding use of TVA helicopters for passenger transportation flights. Specifically, we found (1) cost comparison analyses prior to use of the helicopters were not documented, (2) business justifications prior to use of the helicopters were not documented, and (3) authorizations prior to use of the helicopters were not documented. Failure to follow the FTR and TVA policy (1) prevents TVA from ensuring travel costs are managed effectively and (2) may cause reputational risks for TVA with regard to wasteful use (or perceived wasteful use) of the TVA helicopters.

Additionally, TVA's Standard Programs and Processes for Use of TVA Helicopters, does not address (1) documentation requirements for the various types of helicopter flights,
(2) procedures necessary to evidence compliance with the FTR, and (3) the organization responsible for documenting the flights for audit purposes. We also noted passenger names are typically listed on flight sheets for passenger transportation flights but are not listed on flight sheets for transmission line or right-of-way work, aerial photography, and other similar jobs. Finally, all flight sheets listed the times of arrival and departure for multiple landings but it was unclear which passengers, if any, boarded and exited the helicopter at each location.

  Full Report

The Office of the Inspector General conducted an organizational effectiveness review of Gallatin Fossil Plant (GAF) to identify operational and cultural strengths and risks that could impact GAF's organizational effectiveness. Our report identified strengths related to (1) organizational alignment, (2) teamwork within departments, and (3) support of first-line supervisors. However, we also identified issues that could pose risks to GAF's effectiveness and its continued ability to meet its responsibilities. These issues related to (1) ineffective leadership and (2) safety concerns. Specifically, employees expressed concerns about (1) lack of collaboration between departments, (2) perception of inadequate staffing levels,
(3) GAF specific training, (4) GAF's dual unit operator strategy, and (5) equipment. During our evaluation, actions were taken by TVA management to address the identified safety risks.

  Full Report

We included an audit of loan obligations and receivables relating to the Tennessee Valley Authority's (TVA) EnergyRight® Solutions loan program in our annual audit plan after a review of TVA's financial statements indicated a significant outstanding receivables balance. As of September 30, 2017, TVA's loan obligations under the program were approximately $144.1 million, and the related loans receivable balance (net of discounts) was approximately $125.2 million.

Our audit objectives were to (1) determine whether loans were issued in accordance with TVA policies and procedures, (2) confirm loan balances to verify the receivables, and
(3) determine the extent to which loans were charged-off as bad debt and evaluate compliance with TVA's policies and procedures. We found loans were generally issued in compliance with TVA's policies and procedures. However, we were unable to confirm individual loan balances to verify the TVA receivable amount because neither TVA nor Regions (the bank servicing the loans) track individual loan balances. In addition, we found (1) loan write-offs were generally not made in accordance with the program guidelines,
(2) summary-level, loan-program balances reported to TVA by local power companies did not agree to those provided by Regions, (3) local power company loan documentation retention needs improvement, and (4) installation inspections are not required.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Materials and Transportation Management (M&TM) (Evaluation 2016-15586 issued July 27, 2017) to identify strengths and risks that could affect M&TM's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address risks included in our initial organizational effectiveness evaluation. In summary, we determined management has taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation, and management actions appear reasonable to address the remaining risks. However, three recommendations remain unresolved, including (1) one manager's behavior and teamwork at one location, (2) instances where goals were not SMART, and (3) cross functional risks related to business units.

  Full Report

The Office of the Inspector General conducted an evaluation of the Human Resources (HR) organization (Evaluation Report 2016-15445-05 issued September 26, 2017) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address the risks included in our initial evaluation for one of HR's three departments-Employee Health (EH). We determined EH has taken actions to address some of the risks outlined in our initial evaluation. However, two of the five recommendations from the original evaluation remain unresolved, including (1) the medical case management process and (2) inclusion concerns.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company proposed:

• Unit rates for a Bull Run Fossil Plant (BRF) project included overstated (1) equipment costs, (2) material costs, (3) indirect costs, and (4) labor costs. In addition, the BRF proposal contained various calculation errors that understated some of the company's costs.
• Costs for a Cumberland Fossil Plant (CUF) project included (1) overstated subcontractor costs, (2) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal, and (3) understated labor costs.
• Costs for a Paradise Fossil Plant (PAF) project included (1) overstated noncraft labor costs; (2) overstated labor burden markup rates (payroll taxes, insurance, and fringe benefits); and (3) excessive fee.
• Rate attachments (1) included incorrect craft labor rates, (2) did not include some of the craft labor classifications the company used in the BRF proposal, (3) included noncraft wage ranges that did not reflect the company's current wage ranges, and (4) did not include an information technology markup rate that the company included in its proposals for the PAF and CUF projects.

We estimated TVA could avoid about $17.63 million on the planned $50 million contract by negotiating appropriate reductions to (1) unit rates in the BRF proposal;
(2) subcontractor, fee, and labor costs in the CUF proposal; and (3) labor costs, labor burden markup rates, and fee in the PAF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

The Office of the Inspector General previously conducted an evaluation of the Human Resources (HR) organization (Evaluation Report 2016-15445-05 issued September 26, 2017) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address the risks included in our initial organizational effectiveness evaluation. We determined HR has taken actions to address some of the risks outlined in our initial organizational effectiveness evaluation. However, issues related to (1) differences between the Human Resource generalist (HRG) and senior HRG roles; (2) execution risks, including the HRG transition to a more strategic role, employee feedback mechanism, and role clarity; and (3) ethical and inclusion concerns remain unresolved.

  Full Report

The Office of the Inspector General conducted a review of the Paradise Combined Cycle Plant (PCC) to identify operational and cultural strengths and risks that could impact PCC's organizational effectiveness. We identified strengths that positively affected the day-to-day activities of PCC's personnel and performance including, (1) organizational alignment,
(2) teamwork, and (3) management support. However, we also identified issues that could pose risks to PCC's effectiveness and its continued ability to meet its responsibilities, including achievement of Gas Operations' initiatives in training and management communication.

  Full Report

Tennessee Valley Authority business units are expected to find, analyze, and fix conditions that affect personnel safety, asset reliability, adverse trends, or other conditions that do not meet expectations. Condition reports (CR) are created to record how problems are found, analyzed, and solved. Due to the importance of finding, analyzing, and resolving concerns identified at coal plants, we conducted an evaluation of CRs at TVA coal plants to determine if (1) Coal Operations generated CRs for reported safety, environmental, and operational incidents; and (2) actions taken to address coal CRs were timely and effective.

We found that CRs were originated for all environmental incidents; however, some safety and operational incidents did not result in CRs being originated as required by the procedure. We also found that not all actions taken to address CRs were timely, and some CR originators perceived that actions taken were not effective. In addition, we found opportunities for improvement related to (1) classification of CRs by significance level, (2) documentation of actions taken to address CRs, and (3) discrepancies in the Standard Programs and Processes that govern this process.

  Full Report

Due to the importance of the clearance procedure to plant personnel safety, and in response to recent fatalities resulting from clearance violations, we initiated a review of TVA's coal operations' clearance procedure. We determined the clearance procedure was being performed for work requiring clearances. However, the effectiveness of the clearance process is limited because (1) some clearances were not in compliance with the clearance procedure, (2) required training had not been completed by all personnel holding or working on clearances, and (3) audits performed were not in compliance with the procedure. We also identified opportunities for improvement related to procedure clarification and training.

  Full Report

Due to concerns with the high number of hearing loss claims filed by employees, we performed an evaluation of the actions taken to minimize TVA's financial exposure for hearing loss claims. We determined some Hearing Conservation Program requirements were not met, including: (1) personal noise monitoring and noise surveys in nuclear and (2) annual audiograms and training. Additionally, we identified opportunities for improvement related to (1) hearing loss claims documentation provided to DOL, (2) management statements provided to DOL, and (3) documentation of disciplinary actions for hearing protection violations. In addition, we determined that TVA did not verify the accuracy of the amounts billed by DOL.

  Full Report

We evaluated Nuclear Oversight to determine if the work environment was conducive to raising concerns without fear of retaliation. We found the work environment within Nuclear Oversight is not always conducive to raising concerns without fear of retaliation. Specifically, while all Nuclear Oversight employees indicated that they would report nuclear safety or quality problems and concerns, some expressed fear of retaliation for raising issues. We also found some aspects of the work environment within Nuclear Oversight have improved or stayed about the same, while others have declined since our previous evaluation. TVA has also taken steps to address employee concerns regarding how the use of rotational positions might negatively affect the independent performance of nuclear oversight roles. However, some employees continued to express concerns regarding rotational positions.

  Full Report

The Office of the Inspector General conducted a review of Sequoyah Nuclear Plant's (SQN) Site Security (SS) organization to identify operational and cultural strengths and risks that could impact SQN SS's organizational effectiveness. Our report identified strengths within SQN SS related to (1) organizational alignment, (2) teamwork, and (3) frontline management support. However, we also identified risks that could impact the effectiveness of SQN SS to achieve its responsibilities in support of the Nuclear mission. These risks included (1) ineffective senior management support related to communication, accountability, behaviors, and resources; and (2) perceptions of unethical actions.

  Full Report

The Office of the Inspector General audited the controls for key Sarbanes-Oxley (SOX) spreadsheets to determine if the controls are sufficiently defined, appropriately designed, and operating effectively. The audit's scope was information technology general controls for the SOX critical spreadsheets within TVA. We identified several issues that could provide a stronger control environment for critical spreadsheets. Specifically, we found (1) shared passwords used to modify critical spreadsheets are not appropriately managed, (2) one spreadsheet was accessible using a shared account with no known business need, (3) TVA's SOX Control Environment group's inventory controls over critical spreadsheets are ineffective, (4) critical spreadsheets are not documented consistently in SOX control narratives maintained by TVA's SOX Control Environment group, (5) naming convention controls are not being enforced which limits TVA's ability to quickly assess if critical spreadsheets are properly stored for access control and backup purposes, and (6) TVA's SOX Control Environment group's spreadsheet policy could be strengthened by adding controls for user training, baselining, templates, and testing. TVA management agreed with our findings and recommendations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by CLEAResult East Operating, LLC (CR) for providing services to assist TVA in the Valley-wide implementation of its energy efficiency programs under Contract Nos. 5586 and 6632. Our audit included approximately $45.9 million in costs paid by TVA between April 1, 2014, and March 31, 2016. Our audit objective was to determine if the costs billed to TVA were in compliance with the terms and conditions of Contract Nos. 5586 and 6632.

In summary, we determined CR overbilled TVA $191,867, including (1) $158,812 in subcontractor costs, (2) $2,766 in unsupported labor costs, (3) $27,750 for ineligible sales tax costs, and (4) $2,539 in travel costs. In addition, we noted CR billed TVA approximately $1.15 million for holiday and paid time off (PTO) hours under Contract No. 5586 in which TVA did not (1) obtain any assurance CR's PTO costs were not also included in the hourly billing rates or (2) limit the amount of PTO CR could bill under the contract.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual (CCR) program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$25 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed costs for a Cumberland Fossil Plant (CUF) project included overstated (1) material costs, (2) bond costs, (3) equipment costs, and (4) labor burden rates. In addition, the company included a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP).
• The company's proposed rate attachments included (1) incorrect labor billing rates, (2) noncraft wage ranges that did not reflect the company's current wage ranges, and
  (3) fee on cost reimbursable work that exceeded the maximum allowable fee in TVA's RFP. In addition, the company's proposed methodology for recovering overhead and general and administrative (G&A) costs differed from the RFP's draft contract terms.

We estimated TVA could avoid $1.96 million on the planned $25 million contract by (1) negotiating appropriate reductions to material costs, bond costs, equipment costs, and labor burden rates; and (2) limiting the company's fee rate to the RFP's maximum allowable rates. In addition, we suggest TVA (1) negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and costs, (2) negotiate a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) modify the contract terms to reflect the company's intended methodology for recovering overhead and G&A costs.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the labor and labor markup rates included in a contract TVA has with a contractor. Our examination objective was to determine if the contract's labor and labor markup rates were fairly stated for a planned 5-year contract extension.

In our opinion, the contract's labor and labor markup rates were fairly stated. However, we found the contract's current labor rate ranges are not reflective of the actual costs of the contractor's employees. We suggest that TVA request the contractor submit revised labor rate ranges that are more reflective of the actual minimum and maximum salary cost for each labor classification and incorporate these labor rate ranges into the contract.

(Summary Only)

The Office of the Inspector General reviewed TVA's three operating system baselines and how they are applied to the tools used to deploy and manage TVA systems. In summary, we found TVA management aligned two of the three server operating system baselines with the identified best practices and had documentation to support any deviations. However, we found one of the three operating system baselines did not fully align with the identified best practices and was not completely applied to the tools used to deploy and manage TVA server configurations. TVA management agreed with the audit findings and recommendation.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the labor and labor markup rates included in a contract TVA has with a contractor. Our examination objective was to determine if the contract's labor and labor markup rates were fairly stated for a planned 5-year contract extension.

In our opinion, the contract's labor and labor markup rates were fairly stated. Specifically, the contract's labor markup rates were supported by the contractor's actual historical costs, and the contractor's proposal to update the contract's wage ranges was reasonable.

(Summary Only)

The Office of the Inspector General conducted a review of Supply Chain's Sourcing organization to identify operational and cultural strengths and risks that could impact Sourcing's organizational effectiveness. Our report identified strengths within Sourcing related to (1) teamwork, (2) direct management support for 3 of 4 departments, (3) perceptions of an ethical culture, and (4) customer support. However, we also identified issues that, if left unresolved, could increase the risk that Sourcing will be unable to effectively meet its objective in the future. These risks related to (1) alignment, (2) the selection process, (3) management behaviors, and (4) work management.

  Full Report

The Office of the Inspector General audited the network architecture of a nuclear facility to determine if the network architecture and assets in use to support a specific nuclear plant's business and operational functions are compliant with TVA policies, procedures and identified best practices. In summary, we found TVA management used proven best practices in the design of the corporate physical and wireless networks and the control network. However, we found cabling that was not following manufacturer's guidelines and several control network device configurations deviated from TVA baselines and industry best practices. TVA management agreed with our findings and recommendations.

  Full Report

We evaluated TVA's administration of Coal Quality Adjustment Reports (CQAR) to determine if the Coal Quality Adjustment Reports were accurately calculated in accordance with the contract terms. We determined CQARs were not always calculated in accordance with the applicable contractual terms, and as a result, TVA did not accurately adjust the payments made to some coal vendors. The miscalculations were due to incorrect (1) rounding of moisture, ash, and British thermal units (BTU) quality adjustment rates and
(2) weighted averages used for moisture, ash, and sulfur calculations. We estimated the incorrect calculations resulted in net underpayments to coal vendors totaling $103,576.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if a company's cost proposal was fairly stated for a planned
$50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed costs for a Cumberland Fossil Plant project included overstated (1) overhead/general and administrative rates, (2) equipment costs, (3) labor burden rates, and (4) temporary living allowance costs. In addition, the company's Cumberland Fossil Plant proposal included (1) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal and (2) understated bond costs.
• The company's proposed rate attachments included (1) noncraft wage ranges that did not reflect the company's current wage ranges, (2) incorrect and missing labor billing rates, (3) excessive time and material rates, and (4) excessive equipment rental rates.

We estimated TVA could avoid $5.57 million on the planned $50 million contract by (1) negotiating appropriate reductions to the company's proposed overhead/general and administrative rates, equipment costs, labor burden rates, and temporary living allowance costs; (2) limiting the company's fee rate to the request for proposal's maximum allowable rate; and (3) negotiating appropriate revisions to the company's bond costs to reflect its actual bond costs. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and costs.

(Summary Only)

The Tennessee Valley Authority estimates the dispatch costs for coal and gas on a combination of elements including fuel pricing, physical operating characteristics, estimates of variable operating and maintenance costs, and other variables. Since heat rates are one of the primary physical characteristics used in the calculation of dispatch costs, we performed an evaluation to determine if inputs used in the development of heat rate curves were calculated accurately. The scope of our review was limited to the July 2017 heat rate updates for coal and combined cycle (CC) plants.

We determined some of the inputs used for the July 2017 heat rate curves were not calculated correctly. Specifically, we determined the hourly heat rates were incorrect for four of the five CC plants. We did not determine the impact of any inaccurate calculations. We were unable to verify the accuracy of the data used to calculate coal hourly reference heat rates due to inconsistencies in system settings or data not being available. However, we did determine the hourly reference heat rates were not calculated for 6 hours at one of the eight coal plants.

  Full Report

We included an audit of the Tennessee Valley Authority's (TVA) capital projects post projects economic assessment process in our annual audit plan because of the capital-intensive nature of the electric utility industry. TVA spent $2.076 billion on capital expenditures in fiscal year (FY) 2017 and anticipates capital expenditures of $1.974, $1.885, and
$1.706 billion, respectively, in FYs 2018, 2019, and 2020.

Our audit objective was to determine if TVA adequately monitors the actual return on investment of capital projects compared to those submitted during the budgeting and project review processes. We found TVA is not adequately monitoring actual return on investment of capital projects. Specifically, TVA Standard Programs and Processes requiring the assessments do not provide adequate guidance. We also found the required post-project benefits assessments were generally not being performed as only 1 assessment was performed in FYs 2015 through 2017 out of 22 projects completed. In addition, we found the estimated benefits in the project justification for the 1 assessment performed were not valid. Accordingly, the post-project assessment's basis for comparison was not valid.

  Full Report

We included an audit of the Tennessee Valley Authority's (TVA) economic development (ED) grants in our annual audit plan based on findings from our 2013 audit of TVA's Valley Investment Initiative, where we found TVA's oversight of that program could be improved. Currently, there are two main grant programs utilized-Performance Grant Program and InvestPrep Program. Our audit objectives were to determine if TVA has (1) adequate processes and procedures in place for awarding ED grants and (2) established performance metrics to determine if grant program objectives are met. The scope of the audit included ED grants active between June 1, 2015, and May 31, 2017.

We found (1) TVA has adequate processes in place for awarding ED grants but does not have a Standard Program and Process for InvestPrep grants, (2) ED has not included InvestPrep grants in any compliance review program, and (3) the ED organization has not established specific performance metrics to determine if grant program objectives are met.

  Full Report

We recently completed an audit of TVA's use of fixed-wing aircraft (FWA). Subsequent to issuance of our report (on March 29, 2018), we received a concern that TVA-owned FWA flew to Oxford, Mississippi, home of TVA's Board Chair, at least 76 times between January 2013 and February 2018. The concern stated "These trips to Oxford may represent additional occurrences of fraud and/or abuse, which deserve investigation by OIG. At the least, the Oxford trips are likely an inefficient use of TVA resources, which resulted in a significant number of flight legs where the aircraft [was] empty of passengers."

We performed a limited scope review of flights to and from Oxford, Mississippi, for the period January 9, 2013, through February 9, 2018, and determined none of the flights were for non-TVA business purposes. We did not look at the cost effectiveness of these flights because our previous audit determined one of the weaknesses of TVA's FWA program was that cost comparison analyses prior to use of FWA were not performed.

  Full Report

The Office of the Inspector General conducted a review of Supply Chain's Strategy and Performance (S&P) organization to identify operational and cultural strengths and risks that could impact S&P's organizational effectiveness. Our report identified strengths within S&P related to (1) organizational alignment, (2) teamwork within departments, and
(3) management support of employees. We did not identify any significant risks.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Environmental Permitting and Compliance (EP&C) (Evaluation Report 2016-15366 issued September 28, 2016) and identified strengths and risks along with recommendations for addressing those risks. We conducted a follow-up evaluation (Evaluation Report 2017-15497 issued September 28, 2017) and determined that EP&C had taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation; however, concerns with two managers' behaviors remained unresolved. The objective of this follow-up evaluation was to assess management's actions to address the remaining risks from our initial and follow-up EP&C organizational effectiveness evaluations. We determined EP&C has taken actions to address the remaining risks outlined in our initial organizational effectiveness evaluation. Specifically, EP&C (1) addressed the risks associated with management behaviors and (2) developed a metric to measure adherence to agreed schedules with business partners.

  Full Report

The Office of the Inspector General conducted a review to determine if TVA's privacy program is effective and in compliance with applicable regulations, guidance, policies, and procedures. We found several areas of the privacy program to be generally effective, including (1) controls protecting privacy information on TVA-owned mobile devices, (2) privacy training taken by network users, (3) regular reviews of the privacy program by TVA management, (4) encryption controls protecting data in privacy systems, and (5) appropriate use and protection of reports in privacy systems. However, we identified several issues that should be addressed by TVA management to further increase the effectiveness of the privacy program. We also found gaps between TVA's policies and procedures governing the privacy program and applicable federal privacy regulations and guidance. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$200 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed costs for a Cumberland Fossil Plant (CUF) project included overstated (1) equipment costs, (2) subcontract costs, (3) material costs, and (4) general and administrative (G&A) rate. In addition, we found the company's CUF proposal included (1) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), (2) unallowable contingency costs, and (3) understated noncraft labor costs.
• The company's proposed rate attachments included (1) incorrect craft labor rates, (2) noncraft wages that were not in compliance with the RFP's requirements, (3) fee on cost reimbursable work that exceeded the maximum allowable fee in TVA's RFP, and (4) hourly overhead markup rates for project direct costs for which the company could not provide support.

We estimated TVA could avoid about $27.6 million on the planned $200 million contract by (1) negotiating the appropriate reductions to the company's proposed equipment costs, subcontract costs, material costs, and G&A rate; (2) limiting the company's fee rate to the RFP's maximum allowable rate; (3) eliminating contingency costs on the CUF project and future cost reimbursable projects; and (4) negotiating changes to the company's proposed labor costs to more accurately reflect its actual labor rates. In addition, we suggest TVA
(1) revise the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges, (2) negotiate a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) remove the overhead markup rates from the rate attachments and require the company to bill actual direct project costs as incurred.

(Summary Only)

As a follow-up to an audit of a contractor where the Tennessee Valley Authority (TVA) missed early payment discount opportunities of $1,029,965, we audited TVA's management of early payment discounts on vendor invoices. Early payment discounts are offered by some contractors for payments made prior to the due dates on invoices. Our audit objective was to determine if early payment discounts are appropriately managed by TVA. Our scope included invoices from Supply Chain contracts and purchase orders with greater than
$1 million in spending in any one fiscal year from October 1, 2014, through July 31, 2017.

We found TVA's management of early payment discounts needs improvement. TVA missed early payment discount opportunities of $932,340 out of $4,879,957 in early payment discounts available during our audit period. We also found early payment discount terms were generally entered accurately into TVA's Maximo system utilized to process and approve invoices. However, we noted a few exceptions where Maximo's payment terms did not accurately reflect the contractual payment terms.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Williams Plant Services, LLC (WPS) for providing indirect support services for Watts Bar Nuclear Plant Unit 2 start-up. Our audit included $104.3 million in costs paid by TVA between January 1, 2013, and August 31, 2015. Our audit objective was to determine if the costs WPS billed to TVA were in accordance with the terms of Contract No. 5487. In summary, we found WPS overbilled TVA $4,376,936 as follows:

• $3,458,285 in labor costs were overbilled due to the use of labor classifications not provided for in the contract.
• $430,322 in labor costs were overbilled, including (1) $42,921 in excessive nonmanual labor wage rates, (2) $17,417 in overbilled nonmanual labor markups, (3) $353,804 in ineligible craft labor overtime costs, and (4) $16,180 in unsupported labor costs and excessive craft labor costs due to misclassifications.
• $435,624 for ineligible and unsupported temporary living allowances and travel costs.
• $52,705 for ineligible material and fitness for duty costs.

In addition, we found WPS did not provide labor classifications for $20,458,040 in nonmanual employee labor costs when it billed TVA. Accordingly, TVA could not validate if the labor classifications were eligible for reimbursement or determine if the wage rates that were billed were within the ranges specified in the contract for each labor category.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual (CCR) program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project included (1) misapplication of overhead/general and administrative (G&A) markup rates, (2) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), and (3) overstated material, equipment, travel, labor and labor burden costs. We also found the company's proposed rate attachments included (1) incorrect craft labor rates, (2) noncraft wage ranges that did not reflect the company's current wage ranges, (3) incorrect noncraft billing rates, (4) a contractor owned equipment rate schedule containing equipment that the company anticipates will be leased or rented from third parties, and (5) fee on cost reimbursable work that exceeded the maximum allowable fee rate in TVA's RFP.

We estimated TVA could avoid about $4.7 million on the planned $50 million contract by (1) limiting the company's application of overhead/G&A to total direct costs, (2) limiting the company's fee rate to the RFP's maximum allowable rate, and (3) negotiating appropriate cost reductions to the company's proposed material, equipment, travel, labor, and labor burden costs. In addition, we suggest TVA negotiate (1) revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and equipment usage, and (2) a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP.

(Summary Only)

The Office of the Inspector General conducted an evaluation of Lagoon Creek Combined Cycle Plant (LCCC) to identify strengths and risks that could impact LCCC's organizational effectiveness. Our evaluation identified strengths related to (1) teamwork, (2) a supportive plant manager, and (3) organizational alignment. However, we also identified issues that could pose risks to LCCC's effectiveness and its continued ability to meet its responsibilities. Specifically, some employees expressed concerns related to expired certifications because of lack of training to maintain those certifications, and their lack of in-depth knowledge regarding the operating systems at LCCC. In addition, several employees stated that communication could be improved to better share information across groups.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we performed an audit of costs billed to TVA by ThyssenKrupp Elevator Americas (TKE) for providing elevator maintenance and repair services under Contract No. 8527. Our audit included approximately $2.83 million in costs billed to TVA from October 7, 2014, to December 31, 2016. Our audit objective was to determine if TKE billed TVA in compliance with the contract's terms and conditions.

In summary, we determined TKE overbilled TVA $439,620 in elevator service costs, including (1) $184,477 in ineligible modernization costs; (2) $170,900 in unsupported and overbilled repair costs; (3) $68,515 in overbilled preventative maintenance costs, in which a credit of $1,036 has been provided to TVA; and (4) $15,728 in overbilled callback service costs. Additionally, we noted several opportunities to improve contract administration by TVA. Specifically, we found (1) stand-alone purchase orders that should have been referenced to Contract No. 8527, (2) missing Maintenance Control Program documentation, (3) costs administratively paid under another contract that should have been administratively paid under Contract No. 8527, and (4) missed early payment discount opportunities.

(Summary Only)

The Office of the Inspector General conducted a review of Browns Ferry Nuclear Plant (BFN) Site Security to identify operational and cultural strengths and risks that could impact BFN Site Security's organizational effectiveness. Our report identified strengths within BFN Site Security related to (1) organizational alignment, (2) teamwork within departments, and (3) direct management support of employees. However, we also identified risks related to (1) ineffective leadership above first-line leaders due to inadequate communication, lack of individual accountability, insufficient management support, and noninclusive behaviors; (2) lack of collaboration between departments within BFN Site Security; (3) ineffective work management processes; and (4) perceptions of unethical behaviors.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Restoration Services, Inc. (RSI) for project control services for TVA's Generation Construction under Contract No. 6122. Our audit included approximately $12.5 million in costs billed to TVA from January 1, 2015, to June 30, 2017. Our audit objective was to determine if RSI billed TVA in accordance with the contract's terms.

In summary, we determined RSI overbilled TVA $109,504, including (1) $85,565 for ineligible and unsupported temporary living allowance costs and (2) $23,939 for unapproved and ineligible travel costs. In addition, RSI billed TVA $104,308 in fringe benefit costs it had not incurred because the contract did not provide a reduced fringe benefit markup rate for RSI employees who did not receive medical benefits.

(Summary Only)

The Office of the Inspector General conducted an evaluation of Lagoon Creek Combustion Turbine Plant (LCCT) to identify strengths and risks that could impact LCCT's organizational effectiveness. Our evaluation identified strengths related to (1) teamwork and (2) organizational alignment. However, we also identified issues that could pose risks to LCCT's effectiveness and its continued ability to meet its responsibilities. These issues related to (1) low morale caused by a lack of accountability and (2) perceptions of unethical behavior.

  Full Report

The Tennessee Valley Authority (TVA) purchased two new fixed-wing aircraft (FWA) through sole source contracts in May 2015 for $17.7 million. We audited TVA's FWA to determine (1) whether TVA's decision to purchase these aircraft was reasonable compared to aircraft used by other utilities, (2) how the cost and use of the aircraft compared to that of other utilities and industry standards, and (3) whether the use of the aircraft is consistent with applicable federal laws and regulations.

We determined the number of FWA in TVA's fleet is generally comparable to the number of FWA maintained by eight of its peers. However, we determined (1) TVA's stated justifications for sole sourcing the purchase of the aircraft were not supported and did not include any analyses of historical usage to determine TVA's FWA needs, and (2) the purchase of a jet instead of a second turboprop has not been cost effective. Additionally, (1) TVA may not have complied with Title 31, United States Code, Section 1344(a)(1), Passenger Carrier Use, and (2) TVA did not comply with various federal regulations and TVA policies and procedures regarding use of the aircraft.

Failure to follow the federal laws and regulations (1) prevents TVA from being able to accurately determine the need for owning aircraft, (2) prevents TVA from ensuring travel costs are managed effectively, and (3) may cause reputational risks for TVA with regard to misuse (or perceived misuse) of the aircraft. We made ten recommendations to TVA management to improve (1) controls around the purchase of any future aircraft, (2) use of the FWA, and (3) compliance with all applicable laws and regulations.

  Full Report

We evaluated TVA's management of employee medical work restrictions and accommodations to determine if they were effectively managed. We determined there were gaps in the management of employee medical work restrictions and accommodations which resulted in the process being ineffective. Specifically, (1) the medical case management process was not consistently followed, including (a) restrictions and accommodations were not managed in accordance with the medical case management process, (b) time limits of work assignment forms and follow-ups were not consistently met, and (c) the monthly constraint review process was not consistently performed; and (2) some line managers were unaware of the restrictions placed on their employees. We also identified other areas for improvement related to Medgate system limitations and training.

  Full Report

We evaluated TVA's fuel cost adjustment (FCA) calculations to determine whether TVA was using the appropriate data to calculate the FCA. We determined TVA was not using the appropriate sales data to calculate the FCA due to (1) inaccurate unbilled energy sales, (2) the misclassification of sales made to small direct-served customers, and (3) inaccurate hourly energy loads. In addition to the errors identified, we also determined the FCA process could be improved to reduce the risk of errors in the FCA. Specifically, the FCA process is reliant on many hand offs, manual calculations, queries, and complex spreadsheets. Further heightening the risk of error, we found TVA's FCA process was not documented.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$200 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project, proposed unit rates for a Bull Run Fossil Plant (BRF) project, and proposed costs for a Paradise Fossil Plant (PAF) project included overstated (1) labor markup and overhead/general and administrative rates, (2) material costs, (3) equipment costs, (4) labor costs, and (5) subcontractor costs. In addition, the company included (1) unsupported costs in the BRF project and (2) excessive project oversight costs in the PAF project. We also found the company's proposed rate attachments included (1) incorrect craft labor rates and (2) noncraft wage ranges that were not reflective of the company's actual wage ranges.

We estimated TVA could avoid $19.07 million on the planned $200 million contract by negotiating appropriate reductions to (1) labor markup and overhead/general and administrative rates, material costs, equipment costs, labor costs, and subcontractor costs; (2) unit rates in the BRF proposal; and (3) project oversight costs in the PAF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project and proposed unit rates for a Bull Run Fossil Plant project included overstated (1) labor markup rates, (2) labor costs, (3) material costs, (4) equipment costs, (5) subcontract costs, and (6) other direct costs. In addition, the company's proposed contract rate attachment for employees who receive no benefits was not representative of the company's actual benefit structure

We estimated TVA could avoid about $5.2 million on the planned $50 million contract by negotiating appropriate reductions to (1) labor markup rates, labor costs, material costs, equipment costs, subcontract costs, and other direct costs in the Cumberland Fossil Plant proposal and (2) unit rates in the Bull Run Fossil Plant proposal. In addition, we suggest TVA require the company (1) eliminate the rate attachment for field temporary or local hires with no benefits and (2) submit a rate attachment for employees with limited benefits to more accurately reflect the company's benefit structure.

(Summary Only)

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving employee concerns at Browns Ferry Nuclear Plant. We determined reinforcement is needed on the importance of addressing CAP condition reports (CRs) in an effective and timely manner. Specifically, we determined some CRs classified as CAP were not resolved effectively because (1) a corrective action did not adequately address a condition, and (2) some actions were not completed by scheduled finish dates. In addition, we identified a CR that was inappropriately closed because a corrective action stated an employee completed a training course that was never taken.

We also identified areas for improvement related to (1) the classification of CRs, (2) CAP education and training, and (3) the routing of anonymous CRs to appropriate personnel.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter to Watts Bar Nuclear Plant as a result of an investigation that concluded that a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without a fear of retaliation. In response to the Chilled Work Environment Letter, TVA assessed the actions taken in response to a Confirmatory Order (CO) issued in 2009 and determined that not all of the actions had been implemented effectively. As a result of the ineffective implementation, we initiated a review of the process TVA used to address the 2009 CO.

We concluded there was a weakness in the approach that TVA followed for addressing the 2009 CO. TVA did not have a formal process or procedure directly related to how a CO issued by the NRC should be addressed. TVA's approach did not assign accountability or provide oversight to govern the implementation and continued execution for on-going actions. A potential contributing cause was TVA's intent to address the underlying issue only and not to prevent recurrence.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant (CUF) project and proposed unit rates for a Bull Run Fossil Plant (BRF) project included overstated equipment costs, labor costs, temporary living allowance costs, and material costs. In addition, the company included (1) unallowable contingency costs for the CUF project, (2) a fee rate for the CUF project that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), and (3) unsupported costs in the BRF project. We also found the company's proposed rate attachments for (1) noncraft labor, craft labor, and contractor-owned equipment contained errors, and (2) fee on cost reimbursable work exceeded the maximum allowable fee rate in TVA's RFP.

We estimated TVA could avoid $1.97 million on the planned $50 million contract by (1) negotiating appropriate reductions to equipment, labor, temporary living allowance, and material costs; (2) eliminating contingency costs from the company's CUF project and future cost reimbursable projects; (3) limiting the company's fee rate on the CUF project to the RFP's maximum allowable rate; (4) eliminating unsupported costs from the BRF proposal; and (5) negotiating appropriate reductions to the unit rates in the BRF proposal. In addition, we suggest TVA require revisions to the company's contract rate attachments.

(Summary Only)

The Office of the Inspector General conducted a review of the Chief Human Resource Office's (CHRO) organization to identify operational and cultural strengths and risks that could impact CHRO's organizational effectiveness. Our report identified strengths within CHRO related to (1) organizational alignment, (2) development of the CHRO strategy, and
(3) management support within the business units. However, we also identified risks related to (1) collaboration across the CHRO, (2) relationship and inclusion issues, (3) potential for noncompliance with the Tennessee Valley Authority's code of conduct, and (4) the potential for ineffective CHRO measurements.

  Full Report

The Federal Information Security Modernization Act of 2014 (FISMA) requires each agency's Inspector General (IG) to conduct an annual independent evaluation to determine the effectiveness of the information security program (ISP) and practice of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's (TVA) strategy and the progress of TVA's ISP and agency practices for ensuring compliance with FISMA and applicable standards, including guidelines issued by the Office of Management and Budget and the National Institute of Standards and Technology. Our audit scope was limited to answering the fiscal year (FY) 2017 IG metrics developed as a collaborative effort by Office of Management and Budget, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council. The FY2017 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined within the FY2017 IG FISMA metrics, we found TVA's ISP was operating in an effective manner.

  Full Report

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving employee concerns at Sequoyah Nuclear Plant. We determined the Sequoyah CAP was generally effective in resolving employee concerns during calendar years 2015 and 2016. Specifically, we determined condition reports (CRs) classified as CAP were addressed effectively and in a timely manner. However, we identified areas for improvement related to (1) the classification of CRs, (2) routing and documentation of anonymous CRs, and (3) CAP training.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project and proposed unit rates for a Bull Run Fossil Plant project included overstated (1) equipment costs, (2) material costs, (3) workers' compensation insurance costs, and (4) travel costs.

We estimated TVA could avoid about $3.75 million on the planned $100 million contract by negotiating appropriate reductions to (1) equipment, materials, workers' compensation, and travel costs in the Cumberland Fossil Plant proposal and (2) unit rates in the Bull Run Fossil Plant proposal.

(Summary Only)

The Tennessee Valley Authority's (TVA) Interruptible Power (IP) program implemented new products in October 2015 as part of the product redesign of TVA's demand response portfolio. We initiated this audit in response to concerns forwarded to our office regarding (1) the amount of credits provided through TVA's interruptible products and (2) whether or not these products were a cost effective way for TVA to obtain power. Our audit objective was to determine if the monetary value obtained by TVA during fiscal years 2016 and 2017 was more than the cost of providing these interruptible pricing products to customers. Our audit included interruptible product credits issued and other financial data related to interruption events for participating commercial and industrial customers from October 1, 2015, through March 31, 2017, which totaled $78.5 million.

In summary, we found the monetary value obtained by TVA during fiscal years 2016 and 2017 was more than the cost of providing the interruptible pricing products introduced in October 2015 to participating commercial and industrial customers. However, we also found documentation related to the interruptible valuation is not maintained in a central location. We recommended TVA's Vice President, Pricing and Contracts, maintain all supporting documentation related to the annual interruptible valuation in a central location. TVA management agreed with the audit findings and recommendation in this report and plans to take corrective action.

(Summary Only)

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation (Bechtel) for providing engineering, procurement, construction, and related services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2 under Contract No. 65419. Our audit included about
$502 million in craft labor costs billed to TVA from January 1, 2010, to June 30, 2015. Our audit objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions.

In summary, we determined Bechtel overbilled TVA $6,828,935. Specifically, Bechtel overbilled:

• $3,826,970 in ineligible craft labor and related costs, which included (1) $3,584,707 for ineligible overtime and double time costs billed, (2) $195,850 for ineligible personnel history questionnaire incentive payments, and (3) $46,413 for ineligible and/or unsupported meal allowances.
• $2,932,151 for ineligible and excessive craft labor costs for material handling.
• $60,808 in overbilled craft labor due to using an incorrect rate for the craft labor Helmets to Hardhats contribution.
• $9,006 in other unsupported and ineligible craft labor costs.

(Summary Only)

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2017 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving anonymous condition reports (CRs) at Watts Bar Nuclear Plant. We determined TVA took actions to address the anonymous CAP CRs in a timely manner. Specifically, we found for 22 of the 25 CAP CRs tested, the actions were completed within a reasonable time frame. The remaining 3 CAP CRs were appropriately closed to another CR that was previously initiated for the same concern and is scheduled for completion in
May 2018. However, we identified an opportunity for improvement related to (1) routing of handwritten, anonymous CRs and (2) documenting that CRs are routed to the appropriate personnel.

  Full Report

The Office of Inspector General (OIG) performed procedures which were requested and agreed to by TVA management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for fiscal year (FY) ended September 30, 2017. The WP payout award data that was provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2017 WP goals for the enterprise measures were properly approved. There were no change forms for FY 2017 measures.
• The FY 2017 goals (i.e., target) for the corporate multiplier measures were properly approved.
• The actual year-to-date results for the enterprise scorecard measures agreed with the underlying support.
• The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY 2017 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 6, 2017, was mathematically accurate and agreed with the OIG's recalculation.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$300 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant (CUF) project and proposed unit rates for a Bull Run Fossil Plant (BRF) project included overstated temporary living assignment (TLA) costs, equipment costs, performance and payment bond costs, labor costs, and insurance costs. In addition, the company (1) understated its small tools rate for the CUF project due to errors in the company's estimate and (2) proposed a fee rate for the CUF project that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP). We also found the company's proposed markup rate for employees who receive no benefits was overstated.

We estimated TVA could avoid about $9.62 million on the planned $300 million contract by (1) negotiating appropriate reductions to TLA, equipment, performance and payment bond, labor, and insurance costs; (2) limiting the company's fee rate on the CUF project to the RFP's maximum allowable rate; and (3) negotiating appropriate reductions to unit rates in the BRF proposal. In addition, we suggest TVA negotiate revised markup rates for employees who receive no benefits.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$150 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposals for a Cumberland Fossil Plant (CUF) project and a Bull Run Fossil Plant (BRF) project included overstated (1) equipment costs, (2) material costs,
  (3) general and administrative (G&A) and small tool rates, and (4) labor costs. In addition, we found the company's proposed unit rate for BRF monthly maintenance was understated due to omissions in the company's unit rate cost buildup.
• The company's proposed labor rate attachments included (1) incorrect craft labor rates and (2) noncraft wage ranges that were not reflective of the company's actual wage ranges. In addition, the company's proposal omitted labor rate attachments for employees who receive limited or no benefits.

We estimated TVA could avoid about $6.6 million on the planned $150 million contract by negotiating appropriate reductions to (1) equipment, labor, and material costs and G&A and small tools rates in the CUF proposal and (2) unit rates in the BRF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

The Office of the Inspector General previously conducted an evaluation of Environmental Permitting and Compliance (EP&C) (Evaluation Report 2016-15366 issued September 28, 2016) to identify strengths and risks that could impact EP&C's organizational effectiveness. Our final report identified several strengths and risks along with recommendations for addressing those risks. In response to a draft of that report, Tennessee Valley Authority management provided their management decision. The objective of this follow-up evaluation was to assess management's actions to address risks from our initial organizational effectiveness evaluation. In summary, we determined EP&C has taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation. However, concerns with two managers' behaviors remained unresolved. Management had taken some actions to address behaviors of one manager but had not addressed the behaviors of the other manger. In addition, employees expressed continued concerns related to the process and database used to request environmental reviews of projects and accountability.

  Full Report

We scheduled an audit of the Tennessee Valley Authority's (TVA) long-term wind power contracts after noting TVA paid about $37.7 million to four wind farm contractors for energy it did not receive between November 1, 2012, and January 3, 2017. Our audit objectives were to determine if (1) TVA's decision to enter into long-term wind power contracts was in TVA's economic interest and (2) the $37.7 million in energy curtailment payments were in TVA's economic interest.

TVA's decision to enter into long-term wind power contracts has not proven to be in TVA's economic interest. The decision to enter into the wind power contracts was primarily due to TVA management's assumptions that (1) TVA and other utilities could be required to provide a greater portion of the electricity they sell by using renewable resources, (2) early approval of the wind power contracts would allow TVA to proactively obtain cost effective renewable and clean generation agreements prior to enactment of renewable energy standard legislation, and (3) the wind power contracts were competitive with forecasted market electricity prices. However, the assumptions TVA used in its decision-making process proved to be inaccurate.

TVA accepted a significant amount of risk by locking into level fixed prices over the contract terms. TVA relied on net present value (NPV) analyses based in part on long-term forecasts of electricity prices over a 20-year time horizon. TVA's NPV analyses showed most of the contracts to have only a small positive NPV and a significant probability that the NPV would be negative. In addition, TVA's own analyses showed it would only begin to receive value, if any, in the last 10 years of the contracts' 20-year terms.

As of TVA's most recent NPV calculation performed in March 2016, the total NPV of these contracts was a negative $1.4 billion. If TVA had issued one initial contract for 200 MW instead of contracting with nine wind farms for approximately 1,700 MW all at once, TVA management could have learned valuable insights into wind power contracting and the related risks.

With regard to the $37.7 million in energy curtailment payments TVA made between November 1, 2012, and January 3, 2017, we determined these payments were in TVA's economic interest at the time the decisions were made.

We recommended TVA's Senior Vice President, Distributed Energy Resources:

1. Take a measured approach for large projects in areas TVA does not have familiarity or that are new to TVA. For instance, rather than entering into several large contracts in a short period of time, consideration should be given to entering into one small contract to gain a better understanding of the industry and market.
2. Provide positive financial value earlier in future power purchase contract terms by negotiating terms that do not set a level fixed price over the contract term. Instead, use periodic price adjustments (quarterly or annually) based on a specific economic index or escalating the price at a predetermined rate over the contract term.

TVA management concurred with our recommendations and noted actions taken to address them.

(Summary Only)

The Office of the Inspector General conducted a review of Human Resources (HR) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified strengths within HR related to (1) organizational alignment, (2) collaboration within the departments, and (3) management support from some HR management. However, we also identified risks related to (1) management responsibilities and behaviors, including (a) performance reviews, (b) opportunities for advancement, (c) training and resources, and (d) relationship issues with three managers; (2) execution of HR strategy and programs; (3) perceptions by some of unethical practices; and
(4) inclusion that could negatively affect the ability of HR to contribute to the Chief Human Resources Office's mission and to the success of the Tennessee Valley Authority.

  Full Report

The Office of the Inspector General audited the adequacy of the Tennessee Valley Authority's (TVA) process to surplus and dispose of information technology (IT) equipment due to the risk of (1) protected information disclosure and (2) environmental compliance and regulatory compliance violations associated with the surplus and disposal of IT equipment. We found weaknesses with TVA's policies, procedures, and process to surplus and dispose of IT equipment, including (1) surplus IT equipment was not properly sanitized, tracked, and processed; (2) badge access control reviews of areas holding surplus IT equipment were not being performed as required by policy; and (3) processes for the surplus and disposal of cathode ray tubes do not address environmental regulations to prevent release of the lead into the environment. TVA management agreed with our findings and recommendations.

  Full Report

The Tennessee Valley Authority (TVA) Standard Programs and Processes (SPP) 04.021, TVA Inventory Management Process, defines "surplus" as material that is not expected to be used within the next 3 years by TVA. Due to the risk of disposing of needed materials, and as a result of employee concerns shared during organizational effectiveness reviews at Cumberland and Kingston Fossil Plants in 2015, we initiated an evaluation of TVA's coal plant surplus materials process. The objective of our evaluation was to determine if coal plant materials designated for surplus were appropriate. The scope of our evaluation was materials surplused between October 1, 2013, and March 31, 2017.

We found that materials designated as surplus at active and transitional plants were generally appropriate. Of the $49.7 million of surplused materials from October 1, 2013, to March 31, 2017, less than 1 percent was repurchased by coal plants. However, retired plant materials may have been surplused unnecessarily resulting in missed opportunities to redeploy materials, including inventory and noninventory, within the fleet. Based on our review of TVA SPPs and best practices, we identified opportunities for TVA to improve its redeployment of both inventory and noninventory materials in future plant retirements. In addition, we identified conflicting criteria related to the time frame used in designating materials as surplus.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$100 million contract.

In our opinion, the company's cost proposal was overstated as follows:

• The company's proposal for a Cumberland Fossil Plant project included overstated (1) equipment costs, (2) overhead markup rates, and (3) material costs. In addition, the company's proposed fee rate exceeded the maximum allowable fee rate in TVA's request for proposal (RFP).
• Proposed time and material (T&M) rates were not supported by the company's actual costs.
• The company did not comply with the RFP requirements regarding cost reimbursable work.

We estimated TVA could avoid about $11.1 million on the planned $100 million contract by (1) negotiating the appropriate reductions to the company's proposed equipment costs, material costs, and overhead rate, and (2) limiting the company's fee rate to the RFP's maximum allowable rate. In addition, we suggest TVA negotiate revisions to the company's T&M rates to more accurately reflect its actual costs and require compliance with the RFP's cost reimbursable provisions.

(Summary Only)

Due to concerns identified in a prior review related to the length of time Transmission and Power Supply (TPS) direct charge materials had been stored at the Muscle Shoals Distribution Center (MSDC), we initiated an evaluation to determine if TPS direct charge materials were being managed appropriately. In summary, we determined TPS direct charge materials were not being managed appropriately because: (1) direct charge materials were not purchased in accordance with TVA policy, (2) TPS does not keep track of direct charge materials stored at MSDC, and (3) direct charge materials are being stored at MSDC even though the work orders for which they were purchased have closed. Inappropriately managing TPS direct charge materials could increase the risk of loss, theft, or the over purchase of materials. In addition, project costs could be overstated and funds spent on items that go unused.

  Full Report

The Office of the Inspector General conducted an evaluation of Safety and Performance Improvement (SPI) to identify strengths and risks that could impact SPI's organizational effectiveness. Our evaluation identified strengths within SPI related to (1) organizational alignment, (2) customer focus, (3) management support of employees, (4) employee teamwork and collaboration, and (5) proactive identification of safety risk behaviors. However, we identified issues that, if left unresolved, could increase the risk that SPI will be unable to effectively meet its objective in the future. These issues include (1) mixed messaging on the importance of safety, including the use of Recordable Injury Rate in TVA's Winning Performance Program, placement of the Designated Agency Safety and Health Official within TVA's organizational structure, and frequent movement and reorganization of the safety function and (2) nuclear Safety Consultants reporting structure. However, none of these risks are within the control of SPI, but are dependent on other TVA organizations for resolution.

  Full Report

TVA's Nuclear Quality Assurance (QA) provides monitoring and assessment of plant activities to ensure they are conducted in a quality manner. Periodically, reviews are performed (internal and external) of QA that identify improvement opportunities. Due to the importance of QA's role in monitoring and assessing nuclear plant activities, we initiated an evaluation to determine if QA has taken actions to address issues identified during the internal and external reviews. We determined QA generally took actions to address issues identified during reviews of QA. However, we determined better documentation was needed when actions are not deemed necessary.

  Full Report

The Office of the Inspector General audited cyber security of the Tennessee Valley Authority's (TVA) gas secure rooms that provide remote logical access to all TVA gas fired plants. We found the architecture, current standard programs and processes, and draft standard operating procedures contain appropriate information as suggested by best practices. However, we found the logical controls for the gas secure rooms could be strengthened. Specifically, we found issues with the (1) network devices at the gas secure rooms and a sample of combined cycle and combustion turbine plants and (2) workstations and servers at the gas secure rooms. Additionally, we found the gas secure rooms were not being used for access as originally intended. TVA management agreed with our findings and recommendations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Williams Plant Services, LLC (WPS) for providing facilities maintenance services and technical support services for Bellefonte Nuclear Plant under Contract No. 4067. Our audit included $23.9 million in costs paid by TVA between January 1, 2013, and August 31, 2015. Our audit objective was to determine if the costs WPS billed to TVA were in accordance with the terms of Contract No. 4067. In summary, we found WPS overbilled TVA $2,595,222 as follows:

• $1,560,515 in labor costs were overbilled due to the use of labor classifications and billing rates not provided for in the contract.
• $654,852 in labor and related costs were overbilled, including (1) $454,838 for ineligible general liability insurance markups applied to craft labor, (2) $177,443 in unapproved craft labor costs, (3) $14,136 in excessive nonmanual fringe benefits, (4) $6,302 in ineligible overtime costs, and (5) $2,133 in excessive payroll tax costs. WPS also acknowledged the 2015 payroll tax adjustment required by the contract had not been completed.
• $246,304 in unapproved subcontractor costs were billed.
• $133,551 in overbillings occurred due to ineligible and unsupported temporary living allowances and travel costs, excessive fees, discounts that were not provided to TVA, and ineligible materials, supplies, and fitness for duty costs.

(Summary Only)

The Office of the Inspector General conducted a review of Talent Acquisition and Diversity (TAD) to identify strengths and risks that could impact TAD's organizational effectiveness. Our evaluation identified strengths within TAD related to (1) organizational alignment, (2) collaboration, (3) support from TAD management, and (4) department morale and ethics. However, we also identified potential risks that could negatively affect the achievement of the mission. These risks include (1) the potential for increased noncompliance risk due to (a) the use of social media in the recruitment process and (b) no documentation requirements for hiring interns, (2) talent acquisition process inefficiencies, and (3) the potential for ineffective inclusion metrics and programs.

  Full Report

The Office of the Inspector General audited Tennessee Valley Authority (TVA) Internet-accessible Web sites to identify cyber security weaknesses through penetration testing. In summary, 37 Internet-accessible Web sites were tested, and 7 high risk vulnerabilities were identified. Two of the high risk vulnerabilities that were identified require additional testing by TVA's Information Technology for confirmation. TVA management agreed with our findings and recommendations.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Bull Run Fossil Plant (BRF) (Evaluation Report 2015-15357 issued March 30, 2016) to identify strengths and risks that could impact BRF's organizational effectiveness. Our final report identified several operational and cultural areas for improvement along with recommendations for addressing those issues. The objective of this follow-up evaluation was to assess management's actions in response to our recommendations from our initial organizational effectiveness evaluation. In summary, we determined the actions taken by BRF appear to address most areas for improvement identified during our initial organizational effectiveness evaluation, and for the most part, individuals reported seeing positive changes at BRF. Some concerns remain related to specific areas in the work management process, including planning of work and communication of work order and condition report statuses. However, resolution of these concerns relies on funding decisions that are generally outside of BRF's control.

  Full Report

The Office of the Inspector General conducted an evaluation of Materials and Transportation Management (M&TM) to identify strengths and risks that could impact M&TM's organizational effectiveness. Our evaluation identified strengths within M&TM related to (1) employee teamwork, (2) customer service, and (3) management's support of employees. However, we identified issues that, if left unresolved, could increase the risk that M&TM will be unable to effectively meet its objective in the future. These issues include (1) 3 managers' behaviors and teamwork at 1 location, (2) process inefficiencies in completing purchase requisitions and inventory review processes, (3) the warehouse layout at 1 nuclear site, (4) communication concerns, (5) incomplete performance management documentation, and (6) cross-functional risks between M&TM, Sourcing, and the plants.

  Full Report

The OIG audited the overall effectiveness of the Tennessee Valley Authority's (TVA) patch management process for high-risk, end-user desktops and laptops as they are most vulnerable to spear phishing, a very common tactic used in today's environment to infiltrate computer networks and spread malware. We found (1) TVA is at potential risk for compromise as the patching status was unknown for 12 percent of desktops and laptops in our sample due to desktops and laptops not being managed in patch management tools; (2) 1 of 162 desktops and laptops tested had a missing patch that could lead to remote code execution that has a public exploit available; and (3) the patching process for Mac desktops and laptops is not formally documented. TVA management agreed with our findings and recommendations.

  Full Report

Preventive maintenance (PM) includes tasks carried out on a predetermined interval to reduce the likelihood of a failure. Due to the importance of PM on the reliable operation of assets and as a result of findings identified related to nuclear and coal PM in previous evaluations, we initiated an evaluation of the TVA's transmission PM. The objective of our evaluation was to determine if transmission PM was performed in accordance with established schedules and, if not, what effects the deviations had.

We could not determine if transmission PM had been performed in accordance with established schedules because (1) work completion dates in Maximo, TVA's work management system, did not consistently match the date the PM was completed, and (2) TVA did not require supporting documentation evidencing work completion dates to be maintained. Additionally, we reviewed documentation related to equipment failures and did not identify any failures or Load Not Served, a measure of the magnitude and duration of transmission system outages, attributed to Transmission and Power Supply PM practices.

  Full Report

Preventive maintenance (PM) consists of servicing and data collection activities carried out at predetermined intervals and is intended to reduce the likelihood of equipment failures. Due to the importance of PM to the reliable operation of TVA's generating assets and as a result of findings identified related to nuclear and coal PM in previous evaluations, we initiated an evaluation of TVA's gas plant PM to determine if PM had been performed in accordance with established schedules and, if not, what effect the deviations had.

We determined PM regulated by the North American Electric Reliability Corporation (NERC) was performed in accordance with TVA's established schedules. However, we were unable to determine if non-NERC PM had been performed in accordance with established schedules due to unreliable dates and a lack of documentation in Maximo - the work management system used by TVA to manage PM. We also determined that inadequate PM contributed to 11 equipment failures; 9 of these failures resulted in forced outages. Through interviews with plant personnel, we identified potential areas for improvement including: (1) predictive maintenance, (2) implementation support for new PM programs,
(3) Maximo training and access, and (4) transition of coordinator responsibilities.

  Full Report

The Office of the Inspector General conducted a review of Compensation and Benefits (C&B) to identify strengths and risks that could impact C&B's organizational effectiveness. Our evaluation identified strengths within C&B related to (1) organizational alignment, (2) teamwork, (3) direct management support, (4) knowledge and experience, and
(5) customer service. However, we also identified an employee engagement risk related to a relationship issue with one manager.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Coal and Gas Services (Evaluation Report 2016-15365 issued August 29, 2016) to identify strengths and risks that could impact Coal and Gas Services' organizational effectiveness. Our final report identified several strengths and risks, along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions in response to risks and recommendations included in our initial organizational effectiveness evaluation. In summary, we determined actions taken by Coal and Gas Services appear to address the risks identified during our initial organizational effectiveness evaluation. In addition, employees felt management's actions taken to date have resulted in positive changes.

  Full Report

TVA has both fixed and variable costs that it must recover. Since fuel and purchased power cost can fluctuate significantly with changes in weather and shifts in global supply and demand, TVA recovers these variable costs through a monthly fuel cost adjustment (FCA). The TVA Act assigns rate setting duties to the TVA Board of Directors (Board). The rates approved by the Board include the formula used to calculate the monthly FCA, which represents approximately one-third of the wholesale rate. Due to the importance of TVA correctly calculating the FCA, we performed an evaluation to determine whether the FCA was calculated according to the Board-approved formula.

Based on our independent recalculation of the January 2017 FCA rates, we determined all but one calculation within the FCA was performed in accordance with the Board-approved formula, with the exception being the resource cost allocation (RCA). The RCA assigns variable costs based on usage and power supply cost to one of two customer categories. These categories, Non-Standard Service and Standard Service, are defined by the Board-approved formula and are generally based on a customer's demand. We noted TVA's method of calculating the RCA used in the FCA calculation was not in agreement with the approved methodology. Specifically, while calculating the RCA, TVA did not appropriately categorize some direct-served, federal, and interdivisional customers, based on their contract demand.

TVA subsequently determined that over a 16-month period (October 2015 through January 2017), the miscalculation of the RCA led to errors of about (1) $449,000 too much deferred cost in the Non-Standard Service Customer deferred account and (2) $462,000 too little deferred cost in the Standard Service Customer deferred account.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain's former Director of Sourcing, we audited costs billed to TVA by ScottMadden, Inc. (ScottMadden) under Contract Nos. 3526, 8579, and 8689. Under the contracts, ScottMadden provided consulting services that included, but were not limited to, financial management and business management services. Our audit scope included about $19.6 million in costs that ScottMadden billed to TVA from January 1, 2012, through December 31, 2015, under the three separate contracts. Our audit objectives were to determine if (1) the costs billed to TVA by ScottMadden were in compliance with the contracts' terms and (2) task authorizations awarded under the contracts were in compliance with TVA policies, processes, and procedures.

In summary, we determined ScottMadden billed TVA (1) $2,077,043 for work that was performed prior to authorization and (2) $273,890 for labor categories that were not included in the pricing schedules of Contract Nos. 3526 and 8579. In addition, although ScottMadden had a higher percentage of sole-source awarded tasks than its competitors, we determined Supply Chain was following its intended competitive model for the blanket contracts to obtain the best value for TVA.

(Summary Only)

The Tennessee Valley Authority (TVA) Act of 1933 and TVA Standard Programs and Processes 04.0, Management of the TVA Supply Chain Process, require that any contract action in excess of $25,000 be competed unless the contract action on a noncompetitive basis is properly justified and approved. To ensure compliance with these requirements, we scheduled an audit to determine if TVA's non-competed contracts are (1) identified in TVA systems and (2) executed in accordance with TVA policies and procedures.

We determined non-competed contracts are executed in accordance with TVA policies and procedures. However, identification and classification of non-competed contracts in TVA's Maximo system could be improved. We also noted improvements could be made in the maintenance and retention of contract file documents.

  Full Report

The Office of the Inspector General conducted a review of Learning, Growth, and Management (LG&M) to identify strengths and risks that could impact LG&M's organizational effectiveness. Our evaluation identified strengths within the LG&M organization related to (1) organizational alignment, (2) collaboration within the departments, (3) LG&M management support of employees, and (4) positive relationships with other organizations. However, we also identified employee engagement risks related to management communication and morale that, if left unaddressed, could stifle the maturity of LG&M programs and negatively affect the ability of LG&M to contribute to the mission of the Chief Human Resources Office. Specifically, some individuals mentioned (1) communication issues related to perception of having unproductive meetings and the need for communicating through direct supervisors prior to communicating to other levels of management and (2) low morale due to potential workload fatigue, which affected employee development opportunities.

  Full Report

The Office of the Inspector General conducted a review of the Human Resources Business Office and Ombudsman (HRBO) to identify strengths and risks that could impact HRBO's organizational effectiveness. Our evaluation identified strengths within HRBO related to (1) organizational alignment, (2) leadership, (3) teamwork/collaboration, (4) direct management support, and (5) relationships with customers. However, we also identified risks that could impact the effectiveness of HRBO to contribute to the overall mission of the Chief Human Resources Office. These risks are (1) noncompliance with Equal Employment Opportunity regulations and (2) employee engagement.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Kingston Fossil Plant (KIF) (Evaluation Report 2015-15329, dated March 10, 2016) to identify operational and cultural strengths and areas for improvement that could impact KIF's organizational effectiveness. Our final report identified several operational and cultural areas for improvement, along with recommendations for addressing those issues. We subsequently received KIF's management decision on June 20, 2016. The objective of this follow-up evaluation was to assess management's actions to address areas for improvement from our initial organizational effectiveness review. In summary, we determined the actions taken by KIF appear to address most areas for improvement identified during our initial organizational effectiveness evaluation. Some concerns remain related to the administration of discipline and unresolved conflict in one group. However, in general, individuals reported seeing positive changes at KIF.

  Full Report

The Office of the Inspector General (OIG) received an EmPowerline complaint on January 4, 2016, alleging a chilled/hostile working environment in Operations at Watts Bar Nuclear (WBN) plant. The OIG investigated the allegation and communicated information related to the chilled work environment to the Nuclear Regulatory Commission (NRC). On March 23, 2016, the NRC issued TVA a chilled work environment letter (CWEL) and required TVA to conduct a root cause analysis and take other actions.

Due to the technical nature of the issues, the OIG engaged a consulting firm with expertise in the nuclear power industry, NTD Consulting Group, LLC (NTD) to (1) assess whether TVA's analyses of its April 22, 2016, response to the NRC CWEL were thorough and adequate; and (2) review the history of nuclear safety culture issues at TVA for the past several years. In summary NTD found:

• TVA's two analyses were incomplete and inadequate, as was TVA's April 22, 2016 response to the NRC CWEL.
• TVA's planned corrective actions to address the chilled work environment are unlikely to have long-term effectiveness or sustainability and the probability of success will remain low until an independent and critical evaluation is conducted, and the associated changes are embraced throughout the organization.
• The precursors of the chilled work environment went unrecognized by management, internal and external oversight groups, and TVA barrier programs and processes such as the corrective action program, the Employee Concerns Program, Quality Assurance, Nuclear Safety Culture Monitoring Panel, and the Nuclear Safety Review Board which are the programmatic barriers put in place to detect such precursors.
• Documentation, data, and interview results indicate TVA management has inappropriately influenced the outcome of causal analyses and independent investigations pertaining to nuclear safety culture/safety conscious work environment issues at WBN.

The amount of stress and fear noted in the survey comments over the past several years, as well as current interviews undertaken by OIG, and the recent NRC inspections and TVA commissioned independent assessment results, are atypical of an organization on its way to improved performance, but rather, one that could well reach negative outcomes. It is imperative that the trust issues be addressed and remedied to permit other corrective actions to be successful. Unless and until TVA addresses the harassment, intimidation, retaliation, and discrimination (HIRD) behaviors of management (WBN senior leadership team and others), TVA will not be able to overcome the trust issues at WBN.

In response to NTD's report, TVA management generally agreed with the recommendations and noted that a number of corrective actions were taken or are underway since the first draft of the report was issued. Additionally, TVA management reiterated that they "previously stated to the OIG and, more importantly, to the NRC, its belief that there is a chilled work environment at WBN 1. Moreover, TVA has expressly acknowledged management's role in creating the condition and its responsibility for correcting it."

  Full Report

We audited the Tennessee Valley Authority's (TVA) corporate card transactions from October 1, 2013, through June 30, 2016, totaling $45.2 million to determine the effectiveness of the processes TVA has in place for tax-exempt credit card transactions. We found the processes TVA has in place for tax-exempt corporate card transactions are not effective. Specifically, we identified (1) an estimated $2.48 million of taxes TVA paid on tax-exempt transactions; (2) tax information provided by TVA's credit card supplier, Comdata Network, Inc., was inaccurate; and (3) transactions were approved in TVA's Expense Reimbursement System without adequate support.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for handling and maintenance of coal combustion products. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned
$100 million contract. In our opinion, the company's cost proposal contained overstated time and material (T&M) and fixed unit rates as follows:

• The proposed T&M rates included: (1) markups on third-party equipment rentals not provided for in the draft contract; (2) overstated hourly, daily, and weekly equipment rental rates; (3) overstated hourly craft and noncraft labor rates and noncraft labor classifications for labor costs that are typically recovered through the company's overhead markup rate; and (4) markups on subcontract costs not provided for in the draft contract.
• The proposed fixed unit rates included overstated equipment, overstated labor, and markups not provided for in the draft contract.

We estimated TVA could avoid about $8.934 million on the $100 million contract by negotiating the appropriate reductions to the company's proposed T&M and fixed unit rates.

(Summary Only)

This report is a follow-up to an interim report we issued on July 11, 2016, regarding TVA's proposed sale of Bellefonte Nuclear Plant site (Evaluation 2016-15376). Under the interim report, we determined TVA had taken reasonable actions to date to promote transparency of the sales process and evaluated alternative uses for the site. In addition, we determined TVA appears to have considered the significant risks associated with selling the Bellefonte site.

The objective of this follow-up evaluation was to determine if the sale of the Bellefonte site was conducted according to TVA's policies and procedures. We determined the sale complied with most of the steps in TVA's land disposal policies and procedures. However, the sale was a unique transaction that resulted in some deviations from TVA's policies and procedures. Also, we noted some land disposal guidance was outdated.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for nuclear modifications, outage and supplemental maintenance, and technical support services at TVA's three operating nuclear plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $950 million contract. In our opinion, the company's cost proposal was fairly stated. Specifically, the labor markup rates proposed were supported by the company's actual historical costs.

(Summary Only)

The Tennessee Valley Authority (TVA) uses anhydrous ammonia in selective catalytic reduction systems to aid in the removal of nitrogen oxide, a by-product of burning coal. Anhydrous ammonia is hazardous when inhaled, ingested, or when it comes in contact with the eyes, skin, or mucous membranes. Based on safety risks associated with the handling of ammonia, we initiated an evaluation to determine the adequacy of staffing and training of ammonia operations at coal plants.

Based on our review of the training required by the Occupational Safety and Health Administration and the Environmental Protection Agency regulations, we determined the ammonia training provided by TVA addressed most of the federal training requirements; however, some elements may not be addressed. We also found (1) some personnel had not completed all of the required training, and (2) training could be improved by adding hands-on and more frequent training. Additionally, based on interviews with plant personnel, we determined the staffing of maintenance personnel for ammonia systems was adequate at the four coal plants we reviewed. However, staffing for assistant unit operators was inadequate or needed improvement at two of the four plants.

  Full Report

John Sevier Fossil Plant (JSF) is the first in a series of planned plant retirements to enter the demolition phase of the Tennessee Valley Authority's (TVA) Decommissioning, Deactivation, Decontamination, and Demolition (D4) process. In the demolition phase, the plant, associated equipment, facilities, and structures are removed. Demolition also includes creating conditions for proper site drainage and establishing vegetation.

TVA contracted with Brandenburg Industrial Service Company (Brandenburg) to perform the demolition at JSF. We initiated this evaluation due to inherent safety risks associated with the demolition phase of deconstruction and TVA's lack of recent experience in fossil plant demolition. Our objective was to determine whether demolition activities at JSF were adhering to safety principles found in the TVA D4 Program Guide and were in compliance with selected safety criteria established in Brandenburg's Health and Safety Plan (HASP) for JSF.

Our evaluation found TVA and Brandenburg met most of the safety requirements included in TVA's D4 Program Guide and Brandenburg's HASP for JSF and selected for review by the OIG. However, we determined Brandenburg was not in compliance with hazard identification requirements outlined in its HASP and the D4 Overview training records were not maintained at JSF by Brandenburg for 6 of the 25 sampled Brandenburg employees. We also noted potential safety hazards that were corrected subsequent to our site visit.

  Full Report

The OIG analyzed the metrics and associated maturity levels defined within the Fiscal Year (FY) 2016 Inspectors General (IG) Federal Information Security Modernization Act of 2014 (FISMA) Reporting Metrics and found TVA's maturity levels for the five cybersecurity functional areas ranged from level 1, ad hoc, to level 3, consistently implemented. The Chief Information Officer (CIO), Information Technology ( IT), in consultation with TVA executive management, will continue to be responsible for determining the desired level of maturity to achieve in each of the five functional areas, and actions necessary to reach the desired maturity level, while considering efficiency and budgeting constraints. The OIG will continue to reassess progress and TVA status on an annual basis as prescribed by the Office of Management and Budget and the Department of Homeland Security, utilizing the annual IG metrics and maturity models prescribed by the Council of Inspectors General on Integrity and Efficiency. We recommended the CIO, IT, perform a risk assessment of the FY 2016 IG metrics not met and determine actions necessary to reduce cybersecurity risk to TVA in FY 2017.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for non-nuclear modification and supplemental maintenance services and technical support services. Our objective was to determine if the cost proposal was fairly stated for a planned $950 million contract. In our opinion, the cost proposal was overstated. Specifically, the proposal included overstated nonmanual payroll tax rates and fringe benefit rates. We estimated TVA could avoid $1.14 million on the planned $950 million contract by negotiating reduced (1) non-manual payroll tax rates that are fixed for the contract term and (2) fringe benefit rates.

(Summary Only)

The Tennessee Valley Authority (TVA) vendor management system is a cloud based system physically located away from TVA facilities and outsourced to a third party. The OIG audited the vendor management system to assess the (1) data processing and application controls to ensure data integrity and reliability and (2) logical security controls to ensure only authorized access to system resources and protection of sensitive information. Our scope included TVA's vendor management system and its interfaces to TVA systems. We found TVA system interfaces associated with the vendor management system had reasonable data processing and application controls to ensure data integrity and reliability. However, we found weaknesses in the logical security controls that increase the risk of unauthorized access to TVA data. TVA and the third party responsible for the vendor management system agreed with our findings and recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a company for construction services for TVA bottom ash dewatering facilities. Our objective was to determine if this company's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the company's cost proposal was overstated. Specifically, the company's cost proposal for the Kingston Fossil Plant (KIF) baseline project included overstated fees and costs. We estimated TVA could avoid about $4.5 million on the $100 million contract by (1) negotiating reductions to the proposed fee rate and only applying fee to costs specified in TVA's request for proposal, and (2) revising the KIF baseline project estimated costs to eliminate unsupported engineering costs and reflect the correct markup rates. Additionally, we found the company's cost proposal included incorrect craft labor rates.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a company for engineering and management services for hydroelectric power train and associated systems. Our objective was to determine if the company's cost proposal was fairly stated for a planned $90 million contract. In our opinion, the markup rates included in the company's proposal were fairly stated. However, we estimated that TVA could avoid about $2.88 million on the $90 million contract by (1) utilizing TVA personnel to purchase materials needed for the scope of work rather than having this company procure necessary materials, and (2) ensuring the markup rates applied to affiliate company subcontract labor costs are limited to rates applied to this company's labor costs. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the company.

(Summary Only)

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2016 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with generally accepted government auditing standards.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined a cost proposal submitted by a company for construction services for TVA bottom ash dewatering facilities. Our objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal was overstated. Specifically, the company's proposal included: (1) overstated fees, (2) excessive subcontractor craft labor costs, and (3) contingency costs that could inflate the final costs paid for the services. We estimated TVA could avoid about $10.81 million on the planned $100 million contract by: (1) negotiating reductions to the proposed fee rate and only applying fee to costs specified in TVA's request for proposal (RFP), (2) limiting subcontractor craft labor billing rates to the rates for the company's craft labor employees as required by the RFP, and (3) eliminating contingency costs from cost-based target cost estimate projects. Additionally, we found the company's cost proposal included incorrect craft labor rates.

(Summary Only)

The OIG performed procedures which were requested and agreed to by TVA management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for fiscal year (FY) ended September 30, 2016. The WP payout award data that was provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2016 WP goals for the enterprise-wide and strategic business unit measures were properly approved.
• One scorecard adjustment change form for FY2016 was approved on July 26, 2016. The change form affected one measure that was on five scorecards.
• The FY2016 goals (i.e., target) for the corporate multiplier measures were properly approved.
• The actual year-to-date results for the strategic business unit scorecard measures agreed with the respective supporting documentation.
• The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support.
• The actual year-to-date results for the corporate multiplier measures agreed with the underlying support.
• The FY2016 WP payout percentages provided by the Benchmarking and Performance Analysis organization on October 31, 2016, were mathematically accurate and agreed with the OIG's recalculations.

  Full Report

The OIG audited Information Technology's (IT) use of non-craft staff augmentation (SA) contractor employees working in IT positions during February 2016 for which TVA paid about $1.8 million in labor costs and associated labor markups. Overall, we found the majority of the 207 SA contractor employees had straight-time hourly pay rates less than or equal to TVA midpoint hourly pay rates and the rates were comparable to TVA employee pay rates for the corresponding job codes. However, we also found (1) TVA management's approval of SA contractor employee compensation exceeding the midpoint rate did not take into account the contractor's indirect cost markup rates applied to the pay rate, (2) IT does not currently have a policy in place requiring knowledge transfer from contractor to TVA employees, (3) manual data entry is required to update minimum and midpoint pay rates from the TVA human resource information system, People Lifecycle Unified System, into TVA's contractor system, IQNavigator (IQN), and (4) IQN compares a contractor employee's hourly rate change (e.g., pay increase) to the midpoint rate in effect for the job code when the assignment was made, rather than to the current midpoint rate, unless a new assignment is created.

  Full Report

The OIG audited the physical and logical network architecture at a TVA location and found (1) TVA management used proven best practices in the design of the physical and wireless corporate networks; (2) the network was appropriately architected; and (3) the cable plant was installed in a neat and organized manner. However, we found the TVA network equipment was located in an unsecured room and configurations of some network devices did not follow TVA suggested baselines.

(Summary Only)

The OIG identified strengths within the Generation Construction (GC) Projects organization related to (1) organizational alignment, (2) collaboration within GC departments,
(3) management support of employees, and (4) employee engagement. However, we also identified inherent project management risks that, coupled with relationship issues between GC personnel and customer and support organizations, could increase the risk that GC will not be able to effectively meet its mission in the future. Specifically, both GC personnel and customer and support organizations mentioned lack of recognition of how each organization affects the other, lack of knowledge of TVA Standard Programs and Processes, lack of collaboration and communication, and conflicting priorities as issues that affect their relationships.

  Full Report

As part of our annual audit plan, the OIG audited costs billed to the Tennessee Valley Authority (TVA) by CSX Transportation, Inc. (CSXT) for the transportation of coal from various coal mines and blending facilities to the Bull Run Fossil Plant (BRF) under contract numbers 65133, 14474, 86072, 85702, and 85770. Our audit included approximately $41.5 million in costs CSXT billed to TVA from October 1, 2014, to March 31, 2016, under these five contracts. Our objective was to determine if the costs billed to TVA by CSXT were in compliance with the contracts' terms and conditions. In summary, we determined CSXT overbilled TVA $8,045,846 for costs billed under contract numbers 65133 and 85702. The overbilling included (1) $8,040,045 for overstated adjustments of per-ton rates under contract number 65133 dating back to January1, 2007, and (2) $5,801 for overstated fuel price adjustments under contract number 85702.

(Summary Only)

The OIG audited TVA's compliance with the North American Electric Reliability Corporation's (NERC) Critical Infrastructure Protection (CIP) standards for logical and physical access for systems and locations that are considered high risk assets under NERC CIP standards. We found TVA was within the NERC CIP compliance standards for logical and physical access to high risk systems and locations with minor exceptions that were addressed during the audit. In addition, during our testing, we noted discrepancies between initial clearance dates in the hard copy and electronic records that were addressed during the audit.

(Summary Only)

The OIG found the implementation of wireless local area network physical and logical access controls generally followed recommended best practices. However, we found TVA could strengthen wireless security and improve unauthorized wireless access point detection.

(Summary Only)

Actions taken at the Cumberland plant appear to have addressed areas for improvement identified in our initial organizational effectiveness review. Employees and management reported positive change at the plant, including better communication, an improved safety culture, and a general acknowledgement by employees of management's efforts to improve its relationship with them.

  Full Report

Environmental Permitting and Compliance (EP&C), a business unit falling under TVA's Safety, River Management, and Environment, is responsible for providing oversight, consistency, and standardization in TVA's permitting and compliance activities, interactions with regulators, and alignment of environmental policy with line organization execution. EP&C's long-term vision is to "continue to improve TVA's environmental performance and reputation through integrated project planning and execution, compliance guidance and oversight, and strong regulatory strategy and engagement." The OIG assessed strengths and risks that could affect EP&C's organizational effectiveness.

Our review identified strengths within EP&C related to (1) compliance with regulations, (2) providing support to Operations, (3) relationships with regulators, (4) teamwork, (5) safety, and (6) direct management support of employees. However, we also identified internal and external factors that, if left unresolved, could increase the risk that EP&C will not be able to effectively meet its long-term vision and could impact TVA's ability to meet the environmental portion of its mission. These factors are related to (1) organizational alignment and role clarity within TVA's environmental functions, (2) resource availability to cover the current and emerging TVA risk landscape, and (3) employee engagement risks.

  Full Report

The OIG audited the hydroelectric dam network architecture at a TVA facility to identify security zones and perimeters and analyze network devices and the physical infrastructure for compliance with policies, procedures, and best practices. We found TVA has used proven best practices in the design of the physical and wireless corporate networks, as well as the control network. These networks were architected appropriately and the cable plant was installed in a neat and organized manner. However, we found one corporate network switch was physically unsecure and another lacked a remote access list which would reduce the risk of inappropriate access.

(Summary Only)

Environmental Operations (EO) is responsible for the environmental site and field support for all operations, including inspections, environmental sampling, regulatory reporting, and oversight. The OIG assessed strengths and risks that could affect EO's organizational effectiveness.

Our review identified strengths in EO related to (1) organizational alignment, (2) positive work relationships with other organizations, (3) management support of employees, and (4) employee teamwork. However, we also identified issues that, if left unresolved, could increase the risk EO will be unable to effectively meet its responsibilities in the future. Specifically, our interviews of EO personnel and review of operational information disclosed issues related to (1) role clarity and relationship issues with Nuclear, (2) staffing concerns and environmental audit coverage, and (3) concerns with one manager's behavior.

  Full Report

At the request of TVA Supply Chain, the OIG examined the cost proposal submitted by a contractor, for engineering, design, and construction support for Holistic Industrial Wastewater Treatment Program services at TVA fossil plants. Our objective was to determine if the cost proposal was fairly stated for a planned $45 million contract. In our opinion, the cost proposal was overstated. We estimated TVA could save about $3.68 million on the planned $45 million contract by negotiating reductions to the proposed labor markup rates, including labor markup rates for work performed at TVA sites, and negotiating reductions to the proposed escalation rate and fee rate. In addition, we found the contractor did not propose labor wage ranges for cost reimbursable work, as required by the request for proposal. We also identified compensation terms in the draft contract that needed to be revised to reduce the potential for future billing discrepancies.

(Summary Only)

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety."

Employees interviewed by the OIG in the Operations Department at the Browns Ferry Nuclear Plant (BFN) generally felt free to raise concerns without fear of retaliation. All but one employee reported feeling free to report nuclear safety, quality, or technical concerns without fear of retaliation. Also, most employees were comfortable reporting nuclear safety or quality concerns through multiple avenues. A few employees were aware of retaliation, mostly citing events dating back several years. However, several employees relayed a perception there could be retaliation for raising concerns. Interviews of Operations Department employees at BFN identified issues that could impact an employee's willingness to report concerns in the future, including (1) inadequate resolution of concerns, (2) employee distrust of management, (3) the Outage Control Center and management pressuring employees, and (4) limited awareness and understanding of the Employee Concerns Program.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety."

Employees interviewed by the OIG in the Operations Department at the Sequoyah Nuclear Plant generally felt free to raise concerns without fear of retaliation. All but one employee reported feeling free to report nuclear safety, quality, or technical concerns without fear of retaliation. Also, most employees were comfortable reporting nuclear safety or quality concerns through multiple avenues. However, 11 percent indicated there could be retaliation when expressing concerns. Even though the potential for retaliation may not currently impact an employee's decision to report concerns, it could in the long term. Our interviews with the operators identified other issues that could impact an employee's willingness to report concerns in the future, including (1) the Outage Control Center and management overriding and pressuring employees, (2) employee distrust of management, and (3) a lack of confidence in the effectiveness of the Corrective Action Program and Employee Concerns Program.

  Full Report

The Enterprise Project Management Office (EPMO) is responsible for the development and deployment of project management processes, systems, tools, and training to project organizations within Generation Construction, Projects, and Services, as well as TVA fleet-wide. Additionally, the EPMO is responsible for evaluating project performance. The OIG assessed the strengths and risks that could impact the organizational effectiveness of the EPMO.

Our review found the EPMO to be effective in achieving its current goals and objectives. To meet its responsibilities, the EPMO has deployed project management guidance, risk assessment tools, and a project lessons learned database and is currently developing an integrated suite of project management tools. Our review identified strengths related to (1) organizational alignment, (2) trust and accountability, (3) management support of employees and (4) employee engagement. We also identified an inherent risk pertaining to organizational resistance to change that if not well mitigated, could threaten the mission of the EPMO, as well as the potential for sustainable project management culture change across TVA. EPMO is in the process of mitigating this risk. As a result of actions recently taken by the EPMO to mitigate risks to alignment, execution, and engagement, no recommendations were made.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety." The Nuclear Oversight group, through the Quality Assurance (QA) function, should provide reasonable assurance that plant safety functions are performed in a satisfactory manner. Additionally, Nuclear Oversight's Employee Concerns Program (ECP) is charged with providing an independent avenue for employees to raise concerns. With these key roles, it is crucial that employees in Nuclear Oversight feel free to raise concerns without fear of retaliation.

The OIG found the work environment for Nuclear Oversight is not always conducive to raising concerns without fear of retaliation. Most QA employees felt free to raise concerns or problems without fear of retaliation; however, one QA employee informed us that although they would report a nuclear quality problem or concern, they would not report these problems or concerns to their management. While most QA employees felt free to raise concerns or problems, most ECP employees did not without fear of retaliation. Our interviews with QA and ECP personnel identified issues that could be impacting employees' willingness to report concerns, including (1) distrust of management, (2) past concerns being overridden or ignored, (3) work being influenced, and (4) QA rotational positions.

  Full Report

The Office of the Inspector General found Coal and Gas Services (CGS) met its reliability metrics for gas and coal in fiscal year (FY) 2015 through January, FY 2016. However, some of its cost-effectiveness and fuel flexibility targets during the same period were not met because of outside factors. We identified strengths related to (1) employee teamwork, (2) management support of its employees, (3) employee engagement, and (4) working relationships with other TVA organizations. However, we also identified issues that if left unresolved could negatively impact CGS's effectiveness both now and in the future. Specifically, we identified employee perceptions concerning management favoritism and lack of transparency in specific areas which could be the result of alignment and goal measurement issues in CGS performance reviews. In addition, we noted conditions that could negatively affect business relationships with gas pipeline companies and result in increased transportation risk. Finally, we identified issues related to knowledge transfer. TVA management agreed with our findings and recommendations and provided planned actions to address our recommendations.

  Full Report

The Office of the Inspector General audited local rate adjustments processed during fiscal year 2015 to determine if TVA's process for reviewing Local Power Company (LPC) rate change requests complied with the approved Revised Rate Review Process (RRRP) in the TVA regulatory policy. We found TVA's process for reviewing LPC rate change requests did not comply with the approved RRRP in the TVA regulatory policy due to improper and unapproved calculations of the Guideline Amount in two areas. We also noted the method used to initially calculate an LPC's cash ratio excluded loans and investments of electric system funds to third parties. We recommended TVA's Vice President, Operational and Regulatory Assurance calculate the Guideline Amount as stated in the RRRP or obtain approval for the current calculation method and include any loans or investments of electric system funds in the initial calculation to determine the LPC's cash ratio.

  Full Report

The Office of the Inspector General previously conducted a review of Corporate Accounting (Evaluation Report 2015-15313, issued November 5, 2015) to identify operational and cultural strengths and areas for improvement that could impact Corporate Accounting's organizational effectiveness. Our report identified several operational and cultural areas for improvement and included recommendations to address this. In response, we received Corporate Accounting's management decision on January 4, 2016. The objective of this follow-up review was to assess management's actions taken to address areas for improvement since our initial review. In summary, we determined actions taken by Corporate Accounting appear to have addressed the areas for improvement identified during our initial organizational effectiveness review. In addition, employees felt management's actions taken to date have resulted in positive change.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the Office of the Inspector General examined the cost proposal submitted by a contractor, for engineering, design, and construction support for Holistic Industrial Wastewater Treatment Program services at TVA fossil plants. Our objective was to determine if the contractor's cost proposal was fairly stated for a planned $45 million contract. In our opinion, the cost proposal was overstated. We estimated TVA could save about $1.12 million on the planned $45 million contract by negotiating reductions to the proposed labor markup rates and fee rate, including labor markup rates for work performed at TVA sites, and removing the markup on subcontract costs. In addition, we identified compensation terms in the draft contract that need to be revised to reduce the potential for billing discrepancies.

(Summary Only)

Along with steam, the coal combustion process produces hot gases (called flue gases), including sulfur dioxide, nitrogen oxides, and ash particles. Flue gas moves through ductwork to various air pollution control devices prior to being emitted through the stack. The objective of our evaluation was to determine if TVA is taking actions to address environmental and safety risks related to flue gas ductwork at coal plants. Since scrubbers increase the risk of corrosion within flue gas ductwork, our evaluation included plants with operational scrubbers. We found TVA has completed repairs to address environmental risks associated with flue gas ductwork at coal plants. However, TVA's framework for repairing and reporting ductwork leaks could be improved by (1) clarifying thresholds to repair and report cumulative leaks, (2) establishing realistic repair timelines, and (3) prioritizing the most environmentally damaging leaks for repair. We also found TVA has completed some repairs designed to address safety risks associated with ductwork, but TVA site management indicated long-term capital projects are needed and planned for remediation at Bull Run Fossil Plant and Cumberland where the worst material conditions were present. In addition, we found weakness in the identification of safety concerns related to ductwork at the sites. Additionally, we determined TVA is incurring risk by adopting a strategy to apply internal thermal coatings to ductwork at Cumberland to resist corrosion. Thermal coatings have not previously been used for this application nor have they been through a technical review involving Generation Engineering. This could result in TVA spending several million dollars on a solution that may not work.

  Full Report

The OIG audited TVA's fraud risk management activities to determine if it had incorporated the practices in its organizational culture and structure conducive to fraud risk management as identified by the U.S. Government Accountability Office (GAO) framework for managing fraud risk. In summary, we found while TVA has attempted to demonstrate a senior-level management commitment to integrity through various ethics and code of conduct policies, improvements are needed in TVA's practices to combat fraud and involve all levels of the agency in setting an antifraud tone. In addition, TVA management has not formally designated an entity to design and oversee fraud risk management activities.

We recommended TVA management consider (1) developing policies and practices that directly communicate the senior-level commitment to combating fraud; (2) implementing practices, such as training and other fraud-awareness activities, that involve all levels of TVA in setting an antifraud tone that permeates the organizational culture; and (3) designating an entity within TVA to lead fraud risk management activities in accordance with the guidelines provided by the GAO framework. TVA management agreed with our recommendations, stating they were consistent with Public Law 114-186 signed by President Obama on June 30, 2016.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a contractor for construction management services. Our objective was to determine if the contractor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the proposed general and administrative (G&A) rates were overstated in the proposal, compared to the G&A rates included in a current contract TVA has with this contractor. We estimated TVA could avoid about $4.1million on the planned $100 million contract by reducing the proposed G&A rates to the rates established in the other contract.

(Summary Only)

This interim report provides the results of an OIG review of the transparency of the sale of the Bellefonte Nuclear Plant site, evaluation of alternative uses for the site, and risks associated with the potential sale. We determined TVA has taken reasonable actions to date to promote transparency of the sales process and evaluated alternative uses for the site. In addition, we determined TVA appears to have considered the significant risks associated with selling the Bellefonte site.

TVA management requested approval by the Board of Directors to surplus the Bellefonte site during its May 5, 2016, public board meeting so TVA could begin the process for selling it. After considering future needs for the site, as well as the risks associated with a potential sale, the Board voted to surplus Bellefonte. TVA can now go forward with the sale. We plan to complete a follow-up review after the sale of the property to determine whether the sales process was conducted in accordance with TVA policies and procedures.

  Full Report

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by ABB, Inc. (ABB), for providing large and medium power transformers under Contract No. 4645. Our audit included $83.3 million in costs paid by TVA between June 1, 2011, and March 31, 2015. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we determined TVA missed payment discount opportunities of $1,029,965, including (1) $936,596 due to incorrect payment terms input into the Maximo system on purchase orders (PO) for which TVA opted to make progress payments, and (2) $93,369 for POs for which TVA opted not to make progress payments. Also, ABB overbilled TVA $155,577 for transformer and other costs, and TVA is due a $188,000 rebate for a transformer that had been purchased. In addition, we noted several opportunities to improve contract administration by TVA. Specifically, we found (1) ABB billed TVA $10,293,437 for materials, equipment, and services not provided for under the contract scope of work; (2) TVA payments exceeded the contract monetary limits; (3) ABB billed TVA $506,592 for instrument transformer purchases that should have been ordered and paid for under a different contract TVA had with ABB; and (4) ABB had not provided the price adjustment formulas for each transformer design type required by the contract.

TVA management (1) changed the contract payment terms in the Maximo system on March 21, 2014, from Net 45 days to 2 percent-16 days/Net 45 days, which corrected the problem of missed payment discount opportunities when TVA had opted to make progress payments, and (2) issued Contract Amendment No. 4, effective July 28, 2015, which partially addressed the contract scope of work and fully addressed the price adjustment formulas. However, the contract scope of work needs to be further amended to include materials and services.

(Summary Only)

In 2008, the Tennessee Valley Authority's (TVA) Office of the Inspector General (OIG) performed an audit (2007-11348, Information Services Organizational Effectiveness, March 27, 2008) on the effectiveness of the Information Technology (IT) organization and made several recommendations for improvements. In 2011, TVA OIG completed a follow-up audit (2010-13366, Information Technology Organizational Effectiveness, April 5, 2011) and determined the actions taken were not carried through year to year, and as a result, effectiveness in many areas decreased. Accordingly, recommendations in that audit report were focused on creating sustainable processes. In addition, TVA's former Chief Information Officer created a program titled 1,000 Days to Success (IT1K) to address findings from the 2011 audit as well as other observations he made as to the current state of IT.

In December 2013, IT informed the OIG that management action plans to address recommendations from the 2011 audit were complete. Soon thereafter, IT informed us it had also completed implementation of the IT1K program. To assess the results of the management action plans, the IT1K program, and to determine the current state of IT's organizational effectiveness, a follow-up IT organizational effectiveness audit was scheduled. The objective of this audit was to evaluate the effectiveness of organizations within IT in meeting TVA's mission and values. To accomplish this, we evaluated (1) current effectiveness of operational groups within IT, (2) IT's alignment with TVA values, (3) the outcomes of IT1K initiatives, and (4) the outcomes of management action.

We found operational maturity levels were generally trending upward; however, actions are needed to improve alignment with TVA values in two IT groups, and some IT1K initiatives and management action plans have not been completed or sustained. In addition, we found IT could make improvements in three areas that were not previously covered in our audits of the individual groups under IT-(1) progression planning, (2) support for critical applications, and (3) job descriptions.

(Summary Only)

The objective of this evaluation was to determine if the Tennessee Valley Authority's (TVA) delivered costs of fuel included all appropriate costs and were calculated consistently across commodities. We hired a consultant, Synapse Energy Economics, Inc. (Synapse), to (1) review TVA's delivered cost of fuel components and calculations and (2) research industry practices related to calculating fuel costs for dispatch purposes.

In summary, in conjunction with Synapse, we determined TVA was making dispatch decisions using inaccurate cost information. The dispatch costs were inaccurate because TVA's delivered costs of fuel, which is the major component of dispatch costs, did not include all appropriate costs, were not calculated consistently across commodities, and were not calculated correctly. The errors we identified skewed coal dispatch costs up to 8.4 percent and gas dispatch costs up to 2.8 percent. In addition, other opportunities for improvement were identified related to inflation and escalation rates used in the delivered cost of coal calculations and the usage percentages assigned to each gas hub used by TVA in calculating the delivered cost of gas.

(Summary Only)

As part of the OIG's annual audit plan, we audited $172.6 million in costs billed to the Tennessee Valley Authority (TVA) by Medco Health Solutions, Inc. (Medco), for prescription drug benefits services from January 1, 2012, through December 31, 2013, under Contract No. 00077345. The contract required Medco to provide a fully integrated prescription drug program that would include retail pharmacy, mail order pharmacy, and specialty drug pharmacy services. In summary, we determined Medco overbilled TVA $562,498 and overbilled program participants $121,048 because Medco did not use the contractually defined methodology for pricing certain claims. Medco also overbilled TVA $106,788, including (1) $50,000 for performance standard penalties not paid to TVA, (2) $38,815 for ineligible claim dispensing fees, (3) $13,820 in duplicate claim costs, and (4) $4,153 in ineligible utilization management fees. Medco issued a $50,000 credit to TVA for the performance standard penalties on October 19, 2015. In addition, we noted instances of inadequate contract administration. Specifically, we found Medicare eligible individuals were enrolled in the Commercial account, rather than the Medicare Supplement account, which we estimated has cost TVA up to $200,420 in federal subsidies. We also determined TVA did not perform any independent analyses to verify Medco had achieved the contractually defined operational and pricing guarantees.

(Summary Only)

The OIG completed procedures agreed to by TVA and the Center for Resource Solutions (CRS) to assist in determining TVA's compliance with the annual reporting requirements of the CRS's Green-e Energy program for the reporting year 2015. Results of the agreed-upon procedures applied were provided to TVA and CRS.

(Summary Only)

Maintenance personnel at coal plants use firearms (i.e., shotguns) to remove boiler slag, which is the buildup of molten ash. The objective of this evaluation was to determine if firearms and ammunition at coal plants are properly accounted for and safeguarded. In summary, we determined TVA does not have standardized guidance related to the accountability of firearms and ammunition used at coal plants. Instead, each plant has implemented individualized accountability processes. Although three plants have written guidance related to accounting for and safeguarding firearms and ammunition, two plants did not. Our review of the written guidance and actual practices utilized at each plant found they were insufficient to account for and safeguard firearms and ammunition. Additionally, a firearm sent to Cumberland Fossil Plant by TVA Police & Emergency Management could not be located by plant personnel.

  Full Report

The OIG audited the payments TVA made to Seven States Power Corporation (Seven States) under Contract No. 544179 for a demand response pilot study in which Seven States was to demonstrate its capability to provide aggregated demand response (ADR) services. Under the ADR Proof of Concept (POC) program, Seven States serves in an administrative role, coordinating recruitment of customers, communication with TVA, and tracking of program performance. Participating customers are incentivized to reduce power usage at specific times when called on by TVA. Seven States aggregates the load reduction estimates submitted by participating customers each month and provides TVA with an overall estimate of the load reduction available for the ADR POC program as a whole. End-use customers are compensated through separate agreements.

Our audit objectives were to (1) determine if the amounts invoiced by Seven States were in compliance with the contract terms and (2) assess the effectiveness and management of the ADR POC program. Our audit included $2.34 million in payments made to Seven States from August 1, 2013, through February 5, 2016. In summary, we found Seven States invoiced amounts to TVA in accordance with the contract terms and conditions. However, we also found (1) Seven States has not met capacity nominations, and (2) TVA's management of the ADR POC program needs improvement. Specifically, TVA management did not establish capacity nomination limits that reflected Seven States' actual load curtailment capability and penalties for underperformance until September 30, 2015, which resulted in TVA incurring approximately $1,028,000 in additional costs; has not performed a cost/benefit analysis of the six load curtailment events; and has not established criteria to measure the program's effectiveness.

(Summary Only)

The OIG audited cyber security at a power generation facility to determine (1) the adequacy of physical and environmental controls, logical security controls, network infrastructure controls, and general controls such as backup and recovery, change control, and incident response, and (2) compliance with the Maritime Transportation Security Act (MTSA). In summary, we found opportunities for improvement in the areas of (1) physical access and environmental controls, (2) logical access controls, (3) network infrastructure controls, and (4) general controls. Additionally, during our review of MTSA requirements, we found no issues with compliance. Lastly, we identified no control weaknesses during our testing of (1) a sample of business network laptops, desktops, and servers, (2) wireless access points, and (3) modems. TVA management generally agreed with our findings and recommendations.

(Summary Only)

The Tennessee Valley Authority (TVA) uses bulk industrial gases, including oxygen, hydrogen, nitrogen, and carbon dioxide as part of its normal operations. Due to hazards associated with handling bulk industrial gases and the importance of worker and public safety at TVA, the OIG initiated an audit of TVA's mitigation of risks from bulk industrial gases. We limited our scope to the explosive and flammable risks of hydrogen and oxygen and the asphyxiation risks of nitrogen and carbon dioxide. Our objective was to determine whether TVA designed mitigating actions for fire, explosion, and asphyxiation risks related to hydrogen, oxygen, nitrogen, and carbon dioxide bulk industrial gases. We determined TVA designed mitigating actions for fire, explosion, and asphyxiation risks related to hydrogen, oxygen, nitrogen, and carbon dioxide bulk industrial gases. However, we identified several areas for improvement to further mitigate the risks from bulk industrial gases. Specifically, we found (1) contract terms did not require a supplier to provide TVA with inspection and maintenance reports for bulk gas tanks, (2) emergency plans do not list types and quantities of on-site gases, and (3) unsecured portable compressed gas cylinders at Gallatin Fossil Plant and Widows Creek Fossil Plant. We recommended the Senior Vice President, Power Operations, update site emergency plans to identify types and quantities of compressed gases and cryogenic fluids stored at generating plants and assess the root cause of unsecured compressed gas cylinders at Gallatin Fossil Plant and Widows Creek Fossil Plant and address as appropriate. In addition, we recommended the Vice President, Supply Chain, amend gas supplier contracts to require suppliers to provide TVA with inspection and maintenance reports that show contractor compliance with appropriate inspection/maintenance-related codes and regulations and enable TVA to confirm the supplier is meeting its obligations for tank safety. TVA management agreed with our findings and provided the actions they have taken or plan to take to address each of our recommendations.

  Full Report

The OIG assessed operational and cultural strengths and areas for improvement that could impact Bull Run Fossil Plant's (BRF) organizational effectiveness. We determined, overall, BRF has significant opportunity to improve its effectiveness. While we identified strengths associated with trust of first-line supervisors and teamwork, BRF's performance in fiscal year 2015 was mixed, and the morale of the workforce was low primarily due to the impacts of corporate decisions and limited trust between plant management and employees. The specific areas identified for operational improvement included: (1) plant performance, (2) equipment condition, (3) work management, (4) safety, and (5) staffing. In addition, we found a number of factors that impacted trust and employee morale, including: (1) corporate decisions, (2) behaviors displayed by a manager, (3) an increase in contractor usage, and (4) ineffective communication between plant management and employees. These operational and work environment issues, if left unresolved, could increase the risk that BRF employee engagement and performance levels will not be sufficient for the plant to meet its mission.

  Full Report

As part of its annual audit plan, the OIG audited $16.7 million in costs billed to the Tennessee Valley Authority (TVA) by EnergySolutions, LLC (ES) under Contract No. 69836. The contract provided for ES to furnish personnel, equipment, chemicals, and consumables necessary to process liquid radioactive waste for all three TVA nuclear operating sites. Our objective was to determine if the costs billed to TVA were in accordance with the provisions of TVA's Contract No. 69836 with ES. In summary, we determined ES overbilled TVA $85,246, including: (1) $42,229 in ineligible and unsupported supply, per diem, and travel costs for spent fuel pool cleanout work; (2)$28,967 in ineligible equipment costs; (3) $11,500 in unauthorized waste shipments; and (4) $2,500 in ineligible dewatering and cask costs. ES agreed the ineligible equipment costs were overbilled and issued a credit to TVA on January 14, 2015. In addition, we found $68,898 in costs paid under Contract No. 69836 that should have been paid under Contract No. 69885. We recommended TVA management take action to (1) recover the remaining $56,279 in overbilled costs from ES and (2) ensure future costs paid to ES are paid under the correct contract.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for engineering and management services for hydroelectric power train and associated systems. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $90 million contract. In our opinion, proposed overhead rate to be applied to noncraft salaries was fairly stated. However, we found the proposed 13 percent profit rate to be applied to total costs was (a) double its actual historical profit margins and (b) not in accordance with the application base requested by TVA. We estimated TVA could avoid about $3.45 million on the planned $90 million contract by negotiating a profit rate to be applied to fully burdened noncraft labor costs only and unnecessary markup rates for craft burden, project related insurance, and performance and payment bonds. In addition, we identified compensation terms in the draft contract that needed to be revised to reduce a potential for billing discrepancies.

(Summary Only)

We assessed operational and cultural strengths and areas for improvement that could impact Kingston Fossil Plant's (KIF) organizational effectiveness. We determined overall, KIF has significant opportunity to improve its effectiveness. While we identified strengths associated with trust of first-line supervisors and teamwork, KIF's operational performance in fiscal year 2015 was mixed, and the morale of the workforce was low primarily due to a lack of trust between plant management and employees. The specific areas we identified for operational improvement included: (1) work management, (2) ammonia operations staffing, (3) training, and (4) inventory. In addition, we found a number of factors that impacted trust and employee morale, including: (1) behaviors displayed by a few influential employees, (2) consistency of disciplinary actions, (3) ineffective communication, and (4) unresolved conflict. We also identified concerns based on corporate decisions surrounding staffing levels and management selections that have directly impacted employees. These operational and work environment issues, if left unresolved, could increase the risk that KIF employee engagement and performance levels will not be sufficient for the plant to meet its mission.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction and modification services. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the proposal (1) included inconsistent and overstated labor markup rates; (2) did not comply with the request for proposal requirements related to nonmanual wages, resulting in overstated wage rates; and (3) included multiple fees in the Paradise Fossil Plant baseline costs. We estimated TVA could avoid about $3.34 million by (1) negotiating reduced labor markup rates and (2) reimbursing the contractor's actual salaries within established wage ranges instead of paying a single estimated wage rate for each labor classification. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG audited TVA's Ethics Program to determine (1) compliance with applicable statutes and regulations and (2) if management has identified and incorporated best practices. In summary, we did not identify any areas where TVA's Ethics Program did not comply with requirements for federal agencies' ethics programs in Title 5, Code of Federal Regulations, § 2638.203. Additionally, TVA's Ethics Program has incorporated many of the best practices identified, with the exception of having embedded ethics champions throughout the organization. We also found references to an Ethics Council in TVA's Code of Conduct, but we found the Council has been inactive since at least 2011. We recommended TVA's Executive Vice President and General Counsel and Designated Agency Ethics Official consider (1) having ethics champions embedded throughout the organization who could emphasize the importance of ethical conduct at an individual and organizational level and (2) reinstating the Ethics Council or removing references to it from the TVA Code of Conduct. TVA management agreed with our findings and recommendations and plans to take corrective actions.

  Full Report

The OIG performed this audit to evaluate the effectiveness of TVA's Information Technology (IT) Enterprise Solutions Delivery (ESD) group in meeting TVA's mission and values. In summary, we found that ESD's operational maturity is well defined; however, there are opportunities to improve efficiencies in the documentation of IT development work. In addition, Enterprise Data Warehouse efforts in IT's 1,000 Days to Success transformation initiative were not fully implemented as originally planned. TVA management agreed with our findings and recommendations.

  Full Report

The OIG performed this evaluation to determine whether the Nuclear Employee Concerns Program (ECP) was addressing employee concerns in an effective and timely manner for fiscal years 2013 and 2014. In summary, we determined Nuclear ECP generally addressed employee concerns in an effective manner; however, we identified areas for improvement related to documentation, the resolution follow-up process, and reporting to site management. We could not form an overall conclusion related to timeliness in addressing Nuclear ECP cases because there was no defined timeliness goal for some types of cases; however, the Nuclear ECP did not meet its timeliness goal of 45 days for eight of ten sample cases we reviewed that were classified as Concerns (i.e., issues that require ECP to open an investigation). TVA management agreed with our findings and recommendations.

  Full Report

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by URS Energy and Construction, Inc. (URS), under contract numbers 66777 and 72142. The audit included approximately $113.6 million in costs URS billed to TVA from January 1, 2012, to November 26, 2013.

The OIG determined URS may have overbilled TVA $6,885,835 in shared cost savings and $317,852 for a completion bonus, due to potential misrepresentations in estimated material costs included in the Target Cost Estimate for the John Sevier Combined Cycle project. In addition, we determined URS overbilled TVA $1,205,758, including: (1) $378,212 in overbilled temporary assignment costs, (2) $325,876 in other direct costs, (3) $439,189 in labor costs, (4) $55,390 in markup costs, and (5) $7,091 in travel costs. URS issued credits and refunds to TVA during the course of our audit, which reduced the amount to be recovered by $76,745.

(Summary Only)

The OIG performed this audit to evaluate the effectiveness of TVA's Information Technology Infrastructure Delivery (ID) group in meeting TVA's mission and values. In summary, we found that ID's operational maturity is well defined. However, there are opportunities for ID to improve its disaster recovery program and improve communications within one of ID's operational groups. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined proposed hourly labor rates and drilling services unit rates for a managed task contract for TVA's Dam Safety Assurance Program. Our objective was to determine if the proposed hourly labor rates and drilling services unit rates were fairly stated. In our opinion, the proposed hourly labor rates were fairly stated. However, we found (1) the proposed drilling services unit rates included overstated labor markup rates, and (2) the hourly labor rates did not include a driller helper labor classification to be utilized for drilling services when additional helpers were needed. TVA's Supply Chain subsequently entered into a contract with the vendor and was successful in negotiating a (1) reduction in proposed drilling services unit rates which will potentially save TVA $46,300, based on TVA's plans to spend $40 million over 5 years, and (2) new labor category within drilling services for use when additional support is needed in the field. In addition, we compared the vendor's effective profit included in the proposed hourly labor rates to the profit rates included in a similar contract TVA has with the vendor and found the mix of field and home office labor will determine which contract would result in lower costs to TVA.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction/modification services. Our objective was to determine if the cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) included inconsistent equipment and labor markup rates, (2) included overstated labor markup rates, (3) overstated the Paradise Fossil Plant baseline project price, and (4) overstated the minimum non-manual wage rates. We estimated TVA could avoid about $4.1 million on the planned $100 million contract by negotiating reduced markup rates and ensuring fixed price estimates are calculated correctly with negotiated rates. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

FISMA is meant to bolster computer and network security within the federal government. In accordance with FISMA and guidance from the Office of Management and Budget, TVA and the TVA OIG are required to report on agency-wide IT security and privacy practices annually. In our 2015 review of TVA's information security program, we found TVA was in compliance in the security program control areas of (1) identity and access management, (2) incident response and reporting, (3) plan of action and milestones, (4) remote access management, and (5) contingency planning. However, TVA still has ongoing actions in the following areas: (1) continuous monitoring management, (2) configuration management, (3) risk management, (4) security training, and (5) contractor systems control. Additionally, we found controls over the issuing of virtual private network tokens could be improved. TVA management agreed with our findings and recommendations and is implementing its remediation plan.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction/modification services. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) overstated the other direct cost (ODC) markup rate in the Gallatin Fossil Plant and Paradise Fossil Plant baseline project prices, (2) overstated the payroll tax rate in the craft labor rate schedule, and (3) included non-manual hourly wage ranges that were not reflective of actual salary costs. We estimated TVA could save about $1.2 million on the planned $100 million contract by negotiating reductions to the proposed ODC markup rate and craft labor payroll tax rate. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG audited corporate card transactions totaling $17.3 million for the period March 1, 2014, through August 31, 2014, to determine if appropriate policies and controls were in place to mitigate the risk of charge card fraud and abuse. We found policies could be strengthened and appropriate controls put in place to mitigate the risk of charge card fraud and abuse. We also found there was no documentation to explain the various database tables or the contents of corporate card data fields in the Employee Reimbursement System (ERS). Additionally, potential cost savings may not be achieved due to insufficient tax-related data and confusion within the organization and among vendors regarding TVA's tax status. Our recommendations to TVA management included: (1) requiring annual training for approvers, (2) implementing multiple ERS modifications to strengthen automated controls and enhance compliance with policies, (3) reviewing potentially duplicate and ineligible transactions identified to determine if TVA was due reimbursement, (4) performing periodic review of ERS data to identify potentially ineligible charges, (5) evaluating the appropriateness of delegation of supervisory approval, (6) formally documenting ERS, and (7) determining which corporate card transactions are exempt from state and local taxes. TVA management agreed to or has taken actions to address some, but not all of our recommendations to mitigate the risk of charge card fraud and abuse.

  Full Report

The Inspector General Act of 1978, as amended, requires federal inspectors general, including the Tennessee Valley Authority (TVA) OIG to review the work of nonfederal auditors to assure their work complies with Government Auditing Standards (GAS) as set forth by the Comptroller General of the United States. We reviewed the work of Ernst & Young LLP (EY) in relation to its audit of TVA's fiscal year 2015 financial statements and internal control over financial reporting. Our review, as differentiated from an audit in accordance with GAS, was not intended to enable us to express, and we do not express, an opinion on TVA's financial statements or the effectiveness of TVA's internal control over financial reporting. EY is responsible for the auditor's reports dated November 20, 2015, and the conclusions expressed in those reports. However, our review of EY's work disclosed no instances where they did not comply, in all material respects, with GAS.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for construction and modification services. Our examination objective was to determine if the contractor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) overstated the rates in the equipment rate schedule, (2) understated the overhead and general and administrative (G&A) rates in the labor markup rate schedule, (3) overstated subcontractor costs in the coal plant's baseline project price, and (4) overstated the minimum and maximum non-manual wage rates. We estimated TVA could achieve a net savings of about $2.96 million on the planned $100 million contract by reducing the equipment rates, increasing the labor markups, and ensuring an indirect cost markup is not applied to subcontractor costs. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG performed procedures which were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for the fiscal year (FY) ended September 30, 2015. TVA management is responsible for the WP payout award data. In summary, we found the FY 2015 WP goals for the enterprise-wide and Strategic Business Unit (SBU) measures were properly approved. Two scorecard adjustment change forms for FY 2015 were approved on February 4, 2015; one change form was approved on March 2, 2015; and one change form was approved on June 24, 2015. The change forms affected seven scorecards and seven measures and/or payout percentages. The FY 2015 goals (i.e., target) for the corporate multiplier measures were properly approved. The actual year-to-date results for the SBU scorecard measures agreed with the respective supporting documentation, without exception. The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support, without exception. The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception. The FY 2015 WP payout percentages provided by the Benchmarking and Performance Analysis organization on November 4, 2015, were mathematically accurate and agreed with OIG calculations.

  Full Report

Corporate Accounting provides financial services to the Tennessee Valley Authority (TVA) and is comprised of the following functional areas: (1) Accounting Reporting and Research, which includes Accounting Policy and Research, External Reporting, and Fuel Accounting; (2) Disbursement Services, which includes Payment Services and Payroll Operations; (3) Revenue; and (4) Sarbanes-Oxley. As of March 24, 2015, Corporate Accounting had 72 employees. Our review assessed operational and cultural strengths and opportunities for improvement within Corporate Accounting. We used operational expectations as defined in Corporate Accounting's business plan and behavioral expectations as defined by TVA's values as the criteria for the review. We identified several operational and cultural strengths within Corporate Accounting. Specifically, we found Corporate Accounting effectively provides business support to TVA operations and works well with other TVA organizations. Additionally, employees reported they have the financial information systems they need to do their jobs. We also found Corporate Accounting has an ethical environment, engaged workforce, leadership that is trusted and respected, strong teams, and opportunities for input that are satisfactory to employees. However, we also identified several operational and cultural areas for improvement within Corporate Accounting. Operational areas for improvement included missing and misaligned performance measures for core services, not formally soliciting customer feedback, and differing management and employee perspectives around adequacy of staffing resources. Cultural areas for improvement included minimal response to prior cultural surveys, perceived unfairness in hiring and promotion practices, lack of cohesion between Corporate Accounting departments, relationship issues with two managers, and perceived negative impacts from reorganizations and recent cost-cutting measures. These types of issues, if left unresolved, can undermine employee trust in management and negatively impact both employee engagement and operational performance.

  Full Report

Cumberland Fossil Plant (CUF) is one of the fossil plants relied upon to assist the Tennessee Valley Authority (TVA) in meeting its mission. CUF's mission, in support of the overarching TVA mission, is "to provide low cost, reliable generation and ancillary services while keeping our people safe and ensuring compliance with environmental regulations." Our review identified operational and cultural strengths and opportunities for improvement at TVA's CUF. We used operational expectations as defined in the business plan and behavioral expectations as defined by TVA values as the criteria for the review. We identified several operational and cultural strengths at CUF. Specifically, we found CUF is currently meeting or exceeding expectations related to key measures in its current business plan. In addition, the plant manager is generally seen as open, approachable, and respected, and some managers within midlevel management are viewed as trusted and supportive of their crews. We also found CUF employees exhibit a high degree of enthusiasm and commitment to the plant mission and seem genuinely motivated to make the plant a highly successful operation. Additionally, employees generally view CUF's safety program framework favorably. However, employees expressed frustrations related to a number of management decisions and actions. These decisions and actions included mixed messaging related to safety, unintended consequences of safety accountability, enforcement of the sick leave policy, use of contractors, perceptions of inadequate staffing, disposal of materials, distrust of some midlevel management, use of an integrated supplier, overreactions by management, perception of conflicting priorities, and Fossil versus Nuclear.

  Full Report

As part of our annual audit plan, the OIG audited costs billed to the Tennessee Valley Authority (TVA) by VECTOR. VECTOR is a joint venture between Bechtel Power Corporation and Sargent & Lundy, L.L.C. (S&L) that provided engineering services for Bellefonte Nuclear Plant Unit 1. Our objective was to determine if the $26.8 million in S&L costs paid by TVA from October 1, 2010, through December 31, 2012, were in accordance with the contract terms and conditions. In summary, we determined VECTOR overbilled TVA $322,535 for S&L's services. The overbilled costs included (1) $236,224 in excessive labor markup costs, (2) $50,685 in ineligible temporary living allowance and travel costs, (3) $14,171 in other ineligible costs, and (4) $21,455 in unsupported costs.

(Summary Only)

In August 2008, numerous newspaper articles questioned the fairness of a TVA Maintain and Gain transaction granting water access to The Cove at Blackberry Ridge LLC (Blackberry). The articles raised questions about whether the Blackberry's primary investor, a Congressman, used his position to influence TVA's decision to grant Blackberry's request for water access. Because doubt was cast on the fairness of a TVA process, the OIG conducted an inspection and found no evidence of pressure on TVA from the Congressman to give Blackberry water access on this lakefront project. However, the appearance of possible favoritism resulted in reputational harm to both the Congressman and TVA. As a result of that inspection, TVA and the Board of Directors developed the "Obtaining Things of Value from TVA Protocol" (Protocol) in June 2009 to provide a means to identify the potential of actual or apparent conflicts of interest or the appearance of the exertion of undue influence on the part of a person applying for a TVA benefit.

This audit was initiated to determine whether (1) the design provides reasonable assurance of meeting its intended purpose and (2) the Protocol was implemented as required. We determined the Protocol provides false assurance TVA is mitigating the risk of undue influence due to several factors: (1) the design not meeting its intended purpose, (2) the Protocol not being implemented as required, due to inconsistent incorporation into policies and procedures and noncompliance with some Protocol requirements, (3) a lack of consequences for the applicant's noncompliance with self-disclosure, and (4) an absence of instructions on how an employee should disclose knowledge of actual or apparent undue influence limits the likelihood it will be identified and prevented. Ultimately, this poses a risk of reputational harm to TVA and the applicant, person, corporation, or entity seen as receiving the benefit.

We recommended TVA (1) perform a risk assessment to determine what types of "things of value" and "covered persons" should be defined in the Protocol; (2) enhance the Protocol by evaluating the benefit of whether to define applicant violation consequences, incorporating reporting guidelines for employees, and revising immediately, and requiring review cadence; (3) require implementation of the Protocol for benefits identified as "things of value," into all TVA related policies and processes; (4) develop a repository for all types of defined "covered person" requests other than those related to Section 26a permit and interest in real property requests; (5) identify who is responsible to brief the TVA Board's Audit, Risk, and Regulation Committee; (6) provide annual training; and (7) disseminate the Protocol annually, at a minimum, to TVA personnel who could be affected by its requirements.

  Full Report

The TVA developed an integrated resource plan (IRP) to guide the organization in meeting future energy demand. Due to the importance of the TVA's IRP as a directional document for TVA's future, the OIG evaluated the adequacy of TVA's development process for the 2015 IRP, including demand-side and supply-side strategies. We determined TVA's process for developing the 2015 IRP was adequate in considering potential future uncertainties and associated responses. Specifically, we determined the IRP project team met stakeholder input objectives by engaging numerous stakeholders and incorporating public opinions into the development of the IRP; considered project risks, including those related to project management; and incorporated practices commonly seen in integrated planning processes, as well as best practices, into the IRP. In our opinion, the IRP team improved on integrated resource planning efforts as the 2015 IRP incorporated lessons learned from the 2011 IRP, where applicable. Additionally, we determined scenario and strategy development and consideration of IRP inputs were consistent with those of other organizations. TVA developed metrics to analyze the portfolios generated in the 2015 IRP that reflected stakeholder input, where applicable, and were consistent with TVA's strategic mission and imperatives. Lastly, we determine considerations included in the Supplemental Environmental Impact Statement were adequate.

  Full Report

The OIG audited TVA's Contractor Workforce Management (CWM) process for acquiring craft and noncraft staff augmentation contractors to determine whether the process was operating as intended and risks were being adequately mitigated. The purpose of the process was to "maintain the highest performing contractor workforce at the lowest total cost of ownership."

We determined there was no assurance the process was operating as intended, and some risks were not being adequately mitigated. Specifically, we determined (1) the process was primarily designed to acquire and process staff augmentation contractors, but the process could only provide limited assurance of assembling the least-cost contractor workforce; (2) controls around contractor employment tenure could be improved; (3) numerous exceptions to a control capping noncraft staff augmentation contractor salaries were being granted; (4) hiring managers could choose job positions in the contractor selection system with higher pay rates than intended for the position being filled; (5) CWM performance metrics were not being calculated; and (6) contractor data inaccuracies existed within TVA systems. We also identified three CWM process risks that may not be adequately mitigated, including compliance with TVA's Citizenship Requirements policy, conflicting employer-employee relationships, and compliance with United States Citizenship and Immigration Services guidance. TVA management agreed with our recommendations to address the findings and risks noted above.

(Summary Only)

In October 2014, the OIG completed an audit of the TVA executive retention. As a follow-up to that audit, we initiated an audit of TVA's executive incentives. Our objectives were to determine (1) if executive incentives align with TVA's objectives and goals, and (2) whether processes for establishing executive incentive performance measures are followed. TVA currently has two executive incentive plans, the Executive Annual Incentive Plan (EAIP) and the Executive Long-Term Incentive Plan (ELTIP), which include performance-based incentives tied to the achievement of TVA's goals and objectives. The performance measures associated with EAIP are based on the accomplishment of approved goals identified in TVA's Winning Performance Team Incentive Plan balanced scorecards. Since the performance measures associated with EAIP are not executive specific, we focused this audit on the alignment and development of ELTIP performance measures. We determined long-term performance measures currently included in the ELTIP align with three of the five strategic imperatives included in TVA's Strategic Plan. However, we noted two of the five strategic imperatives, Debt and People and Performance Excellence, are not incentivized in the ELTIP.

In our opinion, aligning long-term incentives with all strategic imperatives would (1) benefit TVA by promoting accountability in all areas identified as crucial to the achievement of TVA's mission in TVA's Strategic Plan, and (2) continue to emphasize these areas as members cycle off of the TVA Board of Directors and executives leave TVA.

We also reviewed the process for establishing long-term performance measures for the ELTIP and found the process was followed by TVA and the TVA Board. However, one potential area for improvement was noted regarding the inclusion of additional information in the plan documents that clearly describe the ELTIP performance measures development process. The People and Performance Committee and TVA management acknowledged our recommendations and provided planned actions.

  Full Report

The OIG performed this audit to determine TVA Information Technology Enterprise Customer Operations' (ECO): (1) current effectiveness, (2) actions completed in the implementation of management action plans and Information Technology (IT) 1K initiatives in relation to achieving outcomes, and (3) design of the management action plans in response to Audit No. 2010-13366 and IT1K program for gaps related to any outcomes not met. ECO has worked to improve the end-user experience by adopting industry standard best practices, building a new customer operations center, offering expanded self-service options to end users, and providing strong and constructive leadership to its staff, creating a positive work environment. While ECO has succeeded in many efforts, it has yet to establish proper application service levels. Field Operations Services provides technical support across the valley, including network, desktop, phone, and server support. While the group is managing the current workload, there are concerns the quality of work and customer wait times may suffer if the workload increases. According to IT management, one IT1K outcome relating to manual inventory and tagging of IT assets was not completed, and the management action plan related to Service Level Agreements made in response to Audit No. 2010-13366 was not implemented. TVA management agreed with our recommendations.

  Full Report

The OIG performed this audit to determine whether (1) TVA systems development processes were being followed and (2) business processes were considered during implementation of the project. In summary, we determined the TVA project team followed TVA systems development processes and included consideration of business processes during implementation. However, we noted (1) three individuals had access to the sensitive data without the appropriate security clearance, (2) access groups which control work order approval levels were not being maintained, and (3) historical supporting documents have not been properly linked to transactions within the application. TVA management agreed with our recommendations to improve controls and address the document linkage for the remaining historical documents.

(Summary Only)

The OIG performed this audit to (1) identify excessive amounts of overtime, (2) determine if overtime was properly approved and (3) determine if controls are in place to prevent situations where fatigue could reduce the ability of operating personnel to work in a safe condition. During our audit, we found overtime hours were not passed to TVA's payroll system for payment until they had been approved in the time-reporting system, eWorkplace. Although the post approval process appears adequate, we found inconsistent methods for documenting preapproval of overtime. Additionally, we noted TVA lacks organizational guidance for management of fatigue and work-hour limits in all operational areas other than TVA Nuclear.

We recommended TVA's Executive Vice President and Chief Operating Officer, Operations: (1) implement a common procedure for preapproval of overtime; (2) develop guidance for all of TVA for managing fatigue and controlling work hours; and (3) review positions within the organization where employees are working excessive amounts of overtime on a regular basis, to determine whether safety and/or productivity are a concern. TVA management agreed with our findings and recommendations and provided planned actions to address them.

  Full Report

The OIG performed this audit to determine TVA Information Technology Operation Solution Delivery's (OSD) current effectiveness, including alignment with TVA values. During our interviews with OSD personnel and customers, we found both groups expressed concern regarding the number of resources assigned to OSD. While OSD is currently able to meet needs and cover the workload for supporting operational applications, OSD's resources are stretched, and as new technologies and needs arise, the current level of staff may not be able to meet customers' needs. In addition, the OSD staff expressed frustrations with the time it takes for changes to be applied to software and other services to be received from other IT organizational groups. TVA management agreed with our recommendations.

  Full Report

The OIG audited the Area Access Manager (AAM) application to determine the adequacy of: (1) data processing and application controls to ensure data integrity and reliability, (2) logical security controls to ensure only authorized access to system resources and protection of sensitive information, and (3) automated controls for granting physical access to sensitive TVA locations. In summary, we determined logical security controls were generally operating effectively and controls around granting physical access to sensitive TVA locations were operating in accordance with TVA policy. However, we found: (1) electronic copies of completed TVA form 15589, TVA Facility Access Request, which included the requester's social security number, were not stored encrypted, as required by TVA Standard Programs and Processes; (2) the level of access for three system administrators appeared to be greater than what was needed to perform their jobs; and (3) documentation of periodic reviews of the AAM was not maintained. (Note: We found AAM performs limited data processing and does not update any other systems. Therefore, we did not test data processing and application controls.) TVA management (1) corrected the system administrators' level of access during the audit, (2) agreed with our recommendations to secure the electronic copies of completed TVA form 15589 and to maintain documentation of periodic reviews, and (3) has begun or is planning to take action to implement the recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain and Watts Bar Nuclear Plant Unit 2 (WBN2) construction management, we reviewed a contractor's potential rework and damages liability in association with work performed at WBN2. Our objective was to determine the reasonableness of TVA's methodology for identifying and estimating the contractor's rework and damages liability. In summary, we found TVA's methodology could be improved and recommended TVA management take action to improve its processes for identifying and estimating the contractor's rework and damages liability. TVA management agreed with our findings and is taking action to address the recommendations.

(Summary Only)

At the request of the TVA Supply Chain, we reviewed a cost proposal submitted for a planned $30 million contract to provide hydro modernization, unit rehabilitation, and functional support services in support of TVA's hydro facilities. The objective of our review was to determine if the cost proposal was fairly stated. In summary, except for excessive costs included in the proposed markup rates and labor and burden rates, nothing came to our attention that indicated the cost proposal was not fairly stated. We concluded TVA could avoid up to $2.11 million on the planned $30 million contract by negotiating reductions to the labor and burden rates and certain markup rates that correspond to the proposing company's actual 2014 costs and expected future costs.

(Summary Only)

The OIG performed this audit to determine Enterprise Architecture and Planning's (EAP) current effectiveness and actions completed in the implementation of management action plans in response to a previous audit, and TVA IT's 1,000 Days to Success initiative (IT1K). The TVA OIG also assessed the design of the management action plans and IT1K program as well as identified gaps related to any outcomes not met.

We found while EAP's operational maturity has improved, actual IT project delivery has been inconsistent. A review of a judgmentally selected sample of recently completed and ongoing projects identified various possible causes for this inconsistency, including:

1. IT resource engagement, including level of involvement and resource availability.
2. Level of IT senior leadership team's project engagement.
3. Project Manager (PM) effectiveness, including the level of authority to acquire resources and the impact of PM turnover on projects.
4. Inconsistent business engagement in IT projects.
5. Inconsistent project processes, including the identification, documentation, testing, and tracking of business and functional requirements.

(Summary Only)

The likelihood of fire is lower at hydro plants than at coal plants, but hydro plants are not without fire risk. Hydroelectric stations share many of the same fire hazards as coal plants, such as oil-filled transformers, electrical cables and switchgear, air-cooled generators, and large quantities of combustible hydraulic oil. Hydro plants are typically an underground/underwater windowless structure. In many ways, a hydro plant poses more extreme safety issues and rescue risks, because of limited building access, lack of natural lighting, and embedded structures, all of which increase the potential a fire on a higher level will trap workers on a lower level.

During our review, TVA indicated fire protection systems and equipment were generally maintained and in good condition, with some exceptions. Additionally, Hydro Generation was making improvements to condition assessments of fire protection equipment. However, we found the following: (1) risk assessment reports indicated hydro plants could use more fire protection equipment, and additional documentation of inspection, testing, and maintenance were still needed; (2) TVA indicated fire drills were being conducted on a routine basis, but were not being documented as required, fire incidents were not being tracked, and lessons learned were not consistently shared; (3) TVA had not fully implemented the Emergency Response Liaison (ERL) role; and (4) the increased risk from replacing the ERL role had not been considered in TVA's enterprise risk process. We made recommendations to management to address the findings.

  Full Report

This review was initiated to assess recent efforts by the TVA Nuclear Power Group (NPG) to improve outage performance. The objective of the OIG's review was to determine whether the initiatives implemented by the NPG to improve outage performance achieved planned results and current improvement efforts can be improved. We found cost structure development and controls initiatives improved outage performance with respect to cost; however, outage duration and dose continue to miss business plan goals. Additionally, we found outage performance initiatives continually changed and excellence/improvement initiative plans did not include all planned actions. While some initiatives have been completed, others are ongoing and have rolled over to different plans, making it a challenge to tie changes to measurable results.

  Full Report

In response to increasing workplace violence occurring throughout the country and weaknesses identified in a previous OIG evaluation, 2012-14636 - Master Key Program Management - Property and Natural Resources, the OIG initiated a review of TVA firearms and ammunition. The objective of our review was to determine if firearms and ammunition are properly accounted for and safeguarded. Our review found TVA Police and Emergency Management (TVAP&EM) were accounting for and safeguarding firearms and ammunition; however, coal plant-owned shotguns on the 2014 inventory were not included in the annual hands-on inventory list. Unissued firearms are safeguarded in secured storage areas. These firearms, and those issued to TVAP&EM employees, are accounted for through an annual hands-on inventory. During testing, TVAP&EM were able to provide documentation for a sample of firearms that were either destroyed or transferred. While TVAP&EM guidelines require all TVA-issued firearms to be carried while on duty, one employee was unable to initially provide a firearm for physical inventory due to the firearm being in his home. Additionally, while TVAP&EM were able to provide documentation for destroyed and transferred firearms, some improvements could be made to better comply with guidelines for the documentation of transfers. Finally, there were a few instances in the guidelines regarding firearms and ammunition responsibility that did not match actual practice.

(Summary Only)

Due to TVA aging equipment and the risk parts would be unavailable, the OIG scheduled a review of Hydro Generation obsolete equipment. The objective of our review was to determine if Hydro Generation was effectively managing obsolete equipment. During our review, we found Hydro Generation could more effectively manage obsolete equipment. We found there was no documented guidance to specify how obsolete equipment should be managed. In addition, we found obsolete equipment had extended outage durations. We also found some equipment condition assessments (ECA) included an "Availability of Spare Parts" indicator, which measures the availability and willingness of the original equipment manufacturer to support existing, installed equipment with parts and service; however, the indicator was not always included in the equipment condition assessments.

  Full Report

Fires in substations can severely impact the supply of power to customers and the utility company's revenue and assets. These fires can also create a fire hazard to utility personnel, emergency personnel, and the general public. There are 14 sites managed by Transmission that have fire protection systems to protect their 500-kilovolt transformers. According to TVA management, fire protection systems have been established where needed; however, the risk that fire protection systems will not function effectively is increased by the condition of systems and systems not meeting national code or TVA requirements. The current systems have antiquated equipment that is being replaced as funding allows. The upgrades do not include modifying the current system's water supply which does not meet National Fire Protection Association code or TVA Standard Process and Procedure requirements. While TVA management indicated TVA is not required to meet national code, not doing so in the case of the water supply could limit the effectiveness of the fire protection system if it were engaged during a fire. According to TVA management, maintenance on fire protection equipment is performed or requested by personnel at the Transmission Service Center; however, maintenance is not always documented. We found there were no requirements to track the fire protection systems or their condition. In addition, the inspections of fire protection equipment that were part of the preventive maintenance program were not conducted consistently. There is an increased risk an issue could go unrecognized if systems are not being consistently inspected and the condition tracked. We made recommendations to management to address the findings.

  Full Report

The OIG audited electronic communications by the TVA Board of Directors. The objective was to evaluate controls over the electronic distribution of TVA business information to and from the Board by non-TVA managed mediums. We determined current Board email practices were consistent with the Presidential and Federal Records Act Amendments of 2014. In addition, we found the third-party service used to distribute sensitive documents to the Board had appropriate processes and controls in place as reported by another independent audit company. However, improvements could be made to reduce the risk of exposing TVA business information. The Board of Directors agreed with the findings and will continue to explore options around the recommendations.

  Full Report

The OIG evaluated the efficiency of TVA's hiring process from when the need to hire an annual employee was identified until the position was filled. We determined the process was inefficient due to the following: (1) a lack of training in (a) the use of the People Lifecycle Unified System (PLUS) to initiate a vacancy, (b) requesting a recruiting strategy, and (c) policies for obtaining approvals and posting vacancies within and outside TVA; delays in receipt of documentation by the hiring manager and fingerprinting potential candidates; a lack of defined job requirements for job codes; redundancy in the application and background investigation process; lack of a repository to capture feedback on Human Relations' performance; and deficiencies in PLUS that hinders updating of data by applicants, running queries, and issuance of unique employee identification numbers; and (2) issues impacting the usefulness of the time-to-fill metric as a reliable performance measure. In addition, we identified two areas where TVA does not comply with the Office of Personnel Management requirements related to Selective Service registration and internal requirements for psychological evaluations for system operators and dispatchers. Three additional matters came to our attention during the audit related to completing psychological evaluations and motor vehicle checks for certain positions. These three matters were not directly related to our audit objectives but were included in the report for management's consideration and action, as necessary.

Except for suggested actions to assess the risk of having armed guards without psychological evaluations and use a single application to reduce redundancy in the application process, TVA management generally agreed with our recommendations.

  Full Report

Nuclear Power Group (NPG) Business Practice (BP) 247, Revision 9, Emerging Regulatory Issues Management Process, "establishes a process to identify, categorize, manage, monitor and provide statuses to senior management on issues that may have regulatory impacts on Nuclear Power Group (NPG) or NPG managed material licenses." The OIG determined the process for addressing nuclear emerging regulatory issues (ERI) is generally effective.

During the period of our review, September 26, 2009, through September 26, 2014, we identified no instances where TVA overlooked an ERI related to NRC-proposed rulemaking; however, we did identify areas where the BP 247 was not being followed. Specifically, (1) the ERI Monitoring Table was not being filled out completely and consistently, (2) formal executive briefings were not consistently occurring, and (3) executive sponsors were not being assigned to ERIs with significant impacts on NPG resources. As a result of our audit, TVA began taking corrective action by issuing a revision to BP 247, with an effective date of December 12, 2014.

  Full Report

At the request of TVA Supply Chain, the OIG audited the costs billed to TVA by Hayward Baker, Inc. (HBI), for remediation work performed at Blue Ridge Hydro Dam under Contract No. 6902. Our objective was to determine if the costs billed were in accordance with the contract terms and conditions. The audit included $2,928,773 in costs and fee billed by HBI for work performed between December 2012 and April 2013. TVA disputed $947,282 of the amount billed and paid HBI $1,981,491 on December 31, 2013. The audit found the costs HBI billed to TVA were in accordance with the contract terms and conditions. TVA and HBI reached preliminary agreement on May 27, 2015, and final settlement occurred on June 11, 2015.

(Summary Only)

The OIG audited TVA's invoice approval process to (1) assess TVA's policies and procedures related to the review and approval of invoices, (2) determine compliance with applicable policies and procedures, and (3) determine if TVA's invoice approvers have adequate information, including clear contractual compensation provisions and sufficient invoice detail to effectively perform their role. The scope of our audit included Supply Chain non-receiving contracts and purchase orders with fiscal year 2013 payments totaling $3,363,603,152.

We found policies and procedures were not followed to ensure effective review and approval of supplier invoices. Specifically, our review of 143 invoices totaling $184,339,674 found inadequate reviews were performed on 104 invoices or 73 percent. Based on our review, we identified several possible underlying causes why effective invoice reviews were not performed: (1) contracts contained unclear and/or conflicting compensation provisions; (2) some contracts do not provide specific requirements regarding invoice detail and for those contracts that do, the requirements are not being followed or enforced; (3) not all relevant contract and purchase orders are attached to the invoice or available in TVA's Enterprise Asset Management (EAM) system; (4) required field invoice approver (FIA) training does not include details on how to access and approve invoices in TVA's EAM system; (5) clear and frequent communication does not always exist between the FIA and contracting officer (CO); (6) an approval stamp used at a nuclear plant implied the OIG reviews the invoices; and (7) the current invoice review process is a manual process within an automated system.

We recommended TVA management: (1) develop a contract quality assurance program to ensure clear, concise, and easy to follow compensation terms, (2) ensure the FIAs and contract technical stewards have the most up-to-date terms and conditions of a contract by developing an approach to provide access (dependent upon business need) to contract documents, (3) require training for those accessing and approving invoices in TVA's EAM system, (4) revise policies to require the CO to confirm FIAs understand their responsibilities in approving invoices for payment, and (5) revise policies to clarify CO responsibility for monitoring the invoice approval process and verifying the contractor's invoices contain adequate detail in a format that facilitates the review. In addition, we recommended TVA management utilize the technology available to expedite and improve the invoice review process by implementing automated steps in the invoice review process where possible, including: (1) requiring electronic data from vendors that allows for 100 percent review, (2) setting parameters to identify exceptions, (3) following up on items identified as exceptions before making payment on those items, (4) establishing automatic notifications be sent to FIAs, contract managers, and others regarding exceptions to ensure the exceptions are reviewed, and (5) establishing automated analytical reviews, as necessary.

TVA management generally agreed with our findings and stated they would take action to address our recommendations.

  Full Report

The OIG performed this audit to determine Enterprise Information Security and Policy (EISP) organization's (1) current effectiveness, (2) actions completed in the implementation of management action plans in response to a previous audit and TVA IT's 1,000 Days to Success initiative (IT1K); and (3) the design of management action plans and the IT1K program and identify gaps related to any outcomes not met. EISP has improved operations through the expansion of internal processes. While EISP has improved operations, some process improvements may not be not sustainable, had inconsistent engagement in some areas and small gaps in staff experience and skills. In addition, TVA's defined values were not always reflected in EISP's work and communications. Concurrent with this audit the new EISP Director, who started his position in November 2014, was engaged in meeting with EISP staff and identified many of the same issues as noted in the report findings. In response, the Director of EISP began taking actions to address these issues.

(Summary Only)

The OIG completed procedures agreed to by TVA and the Center for Resource Solutions (CRS) to assist CRS in determining TVA compliance with annual reporting requirements of its Green-e Energy program for the reporting year 2014.This is a requirement of the CRS accreditation and certification program. Results of the procedures performed were provided to CRS and TVA.

(Summary Only)

As part of the OIG's annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Geosyntec Consultants, Inc., for professional environmental services under Contract No. 00050771. Our audit included $6 million in costs paid by TVA between November 14, 2011, and May 1, 2014. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we determined Geosyntec overbilled TVA $162,307, including (1) $95,425 in travel costs and (2) $66,882 in miscellaneous expenses. Additionally, we found Geosyntec (1) did not obtain advance written approval from TVA's Contracting Officer for $333,556 in subcontract costs billed and (2) billed TVA $32,386 using lump sum pricing provisions not provided for in the contract.

(Summary Only)

At the request of Tennessee Valley Authority's (TVA) Supply Chain, we audited AREVA NP, Inc.'s, calendar year 2012 and 2013 rate adjustments required under Contract No. 004027. The contract provided for AREVA to complete engineering, licensing, construction, and start-up operations of a single Bellefonte Nuclear Plant unit by the end of 2017. The objective of our audit was to determine if AREVA's rate adjustments were in accordance with the contract terms. In summary, we determined AREVA's 2012 and 2013 rate adjustments totaling $5,107,878 were overstated by $1,817,940. AREVA previously issued TVA credits totaling $607,637. Accordingly, TVA is due the remaining $1,210,303. In addition, we found AREVA billed $5,618,666 in labor costs and associated fee in 2012 and 2013 using cost center rates not included in the contract.

(Summary Only)

At the request of Tennessee Valley Authority (TVA) management, the Office of the Inspector General (OIG) audited the TVA project to implement ComTrac for use in managing TVA's coal supply fuel chain. Our objectives were to evaluate whether (1) federal and TVA systems development processes were being followed and (2) server and application controls were considered during implementation of the project. In summary, we determined the TVA project team followed TVA systems development processes and included consideration of business processes during implementation. During the audit, items of potential risk and concern identified by the OIG were communicated to the project management team, project sponsors, and/or Executive Steering Committee. The project team addressed all of our findings by either implementing our recommendations or accepting the risk to the project prior to the time ComTrac went live.

(Summary Only)

Personally identifiable information (PII) is defined by the U.S. Office of Management and Budget in Memorandum 07-16 and refers to information which can be used alone to distinguish or trace an individual's identity. This includes an individual's name, social security number, biometric records, or when combined with other personal/identifying information, is linked or linkable to a specific individual, such as date and place of birth or mother's maiden name. The OIG conducted this audit as an independent review of TVA's use of PII in accordance with privacy provisions of the Consolidated Appropriations Act of 2005.

This is our fourth audit since the requirement was enacted. Since the OIG's previous audit, TVA hired a Senior Program Manager for Privacy to manage the agency's privacy program. We generally found the privacy program improved since our prior audit; however, we found that controls could be strengthened in the areas of: (1) written policies, (2) storage of hard copy and electronic PII, (3) monitoring of systems containing PII, and (4) system inventory. TVA management agreed with our findings and recommendations.

(Summary Only)

The Federal Information Security Management Act of 2002 (FISMA) is meant to bolster computer and network security within the federal government. In accordance with FISMA and guidance from the U.S. Office of Management and Budget, TVA and the TVA OIG are required to report on agency-wide IT security and privacy practices annually. In our 2014 review of TVA's information security program, we found TVA was in compliance in the areas of: (1) incident response and reporting, (2) plan of action and milestones, (3) remote access management, (4) contingency planning, and (5) security capital planning. However, TVA needs improvements in the areas of: (1) continuous monitoring management, (2) configuration management, (3) identity and access management, (4) risk management, (5) security training, and (6) contractor systems. We recommended TVA implement additional improvements in its security configuration management program, update its security awareness and training, update interconnection security agreements, and update the FISMA system inventory. TVA management agreed with our findings and recommendations and is implementing its remediation plan.

(Summary Only)

While, generally, TVA effectively monitors gas and pipeline transportation costs and efficiently manages storage capacity, the OIG identified opportunities to improve the monitoring of natural gas and transportation costs. Specifically, we determined TVA did not (1) track the financial impact of penalties, (2) consistently witness pipeline meter testing, and (3) verify the accuracy of the variable cost portion of pipeline transportation invoices. We also determined TVA's reconciliation process addressed the risk of overpayments to natural gas suppliers; however, we identified a $20,000 credit provided to TVA by a natural gas supplier that management determined was credited in error. Additionally, TVA was efficiently managing storage capacity; however, TVA did not actively manage pipeline transportation capacity due to a strategic decision to base firm transportation capacity needs on a percentage of the plants' capacities to ensure reliability. We recommended the Senior Vice President, Power Operations, perform a periodic assessment of gas pipeline penalties and require meter tests be consistently witnessed by appropriately trained personnel. We recommended the Senior Vice President, Power Operations, in collaboration with the Vice President and Controller, Corporate Accounting, implement a process to verify the accuracy of transportation invoices and take action to reimburse the $20,000 mistakenly credited to TVA.

  Full Report

As part of our annual audit plan, the OIG performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Canal Barge Company, Inc. (Canal) for transporting coal by barge to the Cumberland Fossil Plant under contract number 40753. Our audit included $141.3 million in costs paid by TVA from February 1, 2009, through May 7, 2014. The contract's original compensation provisions were effective February 1, 2009, through December 31, 2011, and provided for TVA to pay per ton rates to Canal for barge services based on the origin loading point. The compensation provisions were amended effective January 1, 2012, to provide for (1) fixed monthly rate(s) for the number of boats Canal utilized and (2) a variable rate per ton based on the origin loading point. Our objectives were to determine if (1) the costs Canal billed to TVA were in accordance with the contract terms and conditions and (2) the data and assumptions TVA used in its analysis to support the amended pricing structure were reasonable. In summary, we found Canal billed costs to TVA in accordance with the contract terms and conditions. However, TVA's analysis for determining a revised pricing methodology for its contract with Canal used assumptions that were not supported by the contract or available historical information. As a result, the amended pricing structure will result in TVA paying up to an estimated $6 million more from January 1, 2012, to December 31, 2014, than would have been incurred under the original pricing structure. In response to our draft audit report, TVA management stated they agreed with the conclusions and recommendation and will (1) work to ensure that measures used in the analysis are reasonable based on contract provisions and (2) utilize historical information where it is relevant and available. However, management also stated (1) Coal and Gas Services (C&GS) had received differing legal opinions regarding how to value liquidated damages when it constructed the contract amendments, and (2) historical information is only one of several inputs utilized in generating potential scenarios. We agreed with TVA management's stated actions. However, with regard to management's other statements, (1) C&GS could not provide documentation that it had received differing legal opinions regarding how to value liquidated damages, and (2) historical information was the most reliable data source to determine towing capacity scenarios, but it was not a key data component used in TVA's analysis.

(Summary Only)

The OIG audited approximately $3.36 million in costs billed to TVA by Bristol Tennessee Essential Services (BTES) as of September 30, 2014. In summary, we found costs billed to TVA were supported by invoices paid to third parties by BTES. However, we noted (1) instances where costs billed were not supported by evidence the work associated with invoices had been completed, (2) BTES had not completed all actions required under the contract, and (3) TVA had not determined the benefits of the project. Finally, we noted TVA was providing excessive credits to BTES each month under an existing Direct Load Control (DLC) program based on documentation provided to us by BTES. We recommended TVA (1) ensure all payments made to BTES under contract number 00072597 are for work completed in accordance with the specifications and timelines required by the contract and determine what actions to take if all switches are not installed and working properly by January 30, 2015, (2) receive adequate support to ensure all work related to an invoice has been completed prior to payment and make receipt of key deliverables a requirement for payment under any future research and development related contracts, and (3) determine, based on the findings of the project, whether load control schemes produce the desired effect for TVA, distributors, and residential customers before moving into a new program. Additionally, we recommended TVA reduce the monthly credits given to BTES under the existing DLC program to reflect BTES documentation of switches installed under that program. TVA management is working on plans to address the recommendations in the report.

(Summary Only)

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by VECTOR JV. VECTOR is a joint venture between Bechtel Power Corporation and Sargent & Lundy LLC, providing engineering services for Bellefonte Nuclear Plant Unit 1. Our objective was to determine if the $60.7 million in costs paid by TVA for Bechtel's services from October 1, 2010, through December 31, 2012, were billed in accordance with the contract terms and conditions. In summary, we determined VECTOR overbilled TVA an estimated $358,434 in costs for Bechtel's services, including:

• $246,353 in ineligible other direct costs.
• An estimated $47,978 in temporary living costs.
• $64,103 in ineligible labor costs.

In addition, we noted several opportunities to improve contract administration by TVA. Specifically, we found TVA paid VECTOR (1) an estimated $1,747,353 in temporary living allowance (TLA) costs for Bechtel employees for time periods not shown on employee TLA certification forms and (2) an estimated $50,486 in excess costs because temporary living monthly allowances were not included in the contract's compensation terms until April 30, 2011.

(Summary Only)

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Nexant, Inc., for commercial and industrial energy efficiency services. Our audit included $63.6 million in costs paid by TVA between December 29, 2009, and March 21, 2014. Our objective was to determine if the costs billed to TVA were in compliance with the contract's terms and conditions. In summary, we determined Nexant overbilled TVA an estimated $431,846, including:

• $269,009 in subcontractor costs.
• An estimated $144,570 in labor costs.
• An estimated $18,267 in travel costs.

Additionally, we found TVA overpaid $67,189 in incentive payments of which Nexant has refunded $15,685.

(Summary Only)

As part of our annual audit plan, we performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for providing engineering, procurement, construction, and related services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2. Our audit included about $520 million in noncraft costs billed to TVA from January 1, 2010, to September 30, 2013, (craft costs will be audited separately). Our objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions. In summary, we determined Bechtel overbilled TVA an estimated $2,066,495, including:

• $923,231 in labor and related costs, which included (1) $696,841 in ineligible labor hours and rates billed, (2) $228,490 in ineligible home office labor costs,(3) $24,044 in excessive payroll additive costs, and (4) a net credit of $26,144 in other labor costs.
• $938,928 in ineligible or unsupported relocation, permanent and temporary assignment, and travel costs, which included (1) $520,370 in relocation costs,(2) $372,048 in permanent and temporary assignment monthly allowances,(3) $23,932 in other temporary assignment costs, and (4) $22,578 in travel costs.
• $204,336 in ineligible or unsupported affiliate company and subcontractor costs.

(Summary Only)

The OIG monitored the work of TVA's external auditor, Ernst & Young LLP (EY), to assure the work was performed in accordance with generally accepted government auditing standards (GAGAS). Our review of their work, as differentiated from an audit in accordance with GAGAS, was not intended to enable us to express, and we did not express, an opinion on TVA's financial statements or on the effectiveness of TVA's system of internal control over financial reporting. EY is responsible for the auditor's reports dated November 14, 2014, and the conclusions expressed in those reports. Our review disclosed no instances where EY did not comply in all material respects with GAGAS.

  Full Report

The OIG performed six agreed-upon procedures requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2014. Following are the results of the procedures applied.

1. The fiscal year (FY) 2014 Winning Performance goals for the enterprise-wide and Strategic Business Unit measures were properly approved. One change form for FY 2014 was approved by the Chief Executive Officer on September 22, 2014. The change form affected three scorecards and resulted in no change to payout.
2. The FY 2014 goals (i.e., target) for the corporate multiplier measures were properly approved.
3. The actual year-to-date results for the Strategic Business Unit scorecard measures agreed with the respective supporting documentation, without exception.
4. The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support, without exception.
5. The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
6. The FY 2014 Winning Performance payout percentages provided by the Benchmarking and Performance Analysis organization on October 20, 2014, were mathematically accurate and agreed with the Office of Inspector General's recalculations.

  Full Report

The Tennessee Valley Authority (TVA) engaged in three major initiatives during fiscal year (FY) 2009 through FY 2013 related to workforce productivity and operational performance: DeWolff, Boberg & Associates, Inc.'s (DBA) workforce performance, McKinsey and Company's Pilot and Performance Boost, and TVA's Diet and Exercise (D&E). Our audit objective was to assess the effectiveness of TVA's management of those productivity and operational performance improvement initiatives. Based on our assessment of the effectiveness of TVA's management of the DBA, McKinsey Pilot and Boost, and D&E initiatives, we determined TVA management did not effectively monitor achievement of all performance improvements. Specifically, we identified a deficiency in the control design related to monitoring and tracking for verification of savings claimed from the DBA and the McKinsey initiatives. In addition, the sustainability of the performance improvement initiatives was hindered by a lack of employee engagement and resource constraints that made operational efficiency improvements unachievable or unrealistic. Further, employee morale suffered during the DBA initiative due to employees' perceptions of disrespectful behavior towards them by DBA. Morale also suffered during the McKinsey initiative from a perceived lack of follow-through by TVA management to provide funding to implement improvements. Based on the above, we recommended TVA (1) assess the cultural climate through meaningful dialogue with employees about the impacts of the initiatives to determine the long-term effects on employee engagement and morale and (2) establish a standard process and procedure for future improvement programs. TVA management reviewed a draft of the report and agreed the contents were factually correct. TVA management is working on a plan to address our recommendations.

(Summary Only)

Over the last several years, there has been anecdotal information indicating a high level of turnover among the Tennessee Valley Authority's (TVA) executives. We initiated this audit to review the costs associated with the hiring and dismissal of executives brought in from outside TVA since the change to TVA's part-time Board of Directors. For the purposes of this audit, we considered an executive to be an employee with the title of vice president or above.

To perform our audit, we reviewed TVA's documentation of personnel who were classified as executives for the period March 2005 through May 2014. Also, we reviewed TVA's recruiting, hiring, and severance expense information for executives who were hired and departed during the period. In summary, we found:

• As of March 1, 2005, TVA had 46 executives compared to 54 executives as of May 31, 2014. During the period, TVA hired 47 executives and promoted 55 employees to executive level positions. TVA also demoted and/or reclassified 15 executives to nonexecutive level positions and 79 executives departed TVA.
• Executives who were promoted from within appeared to remain a TVA executive longer than those who were hired from outside TVA.
• TVA incurred approximately $7.4 million in recruiting, hiring, and severance expenses for 20 executives who were hired and also departed TVA during the period. We estimate it costs TVA an average of almost $400,000 when an executive leaves TVA and another executive is recruited and hired to fill the vacancy.

We also compared the number of TVA's executive departures as reported to the Securities and Exchange Commission (SEC) to the reported departures of TVA's compensation peer group for the period of January 2007 through May 2014. Although we found TVA reported more executive departures than most of the peers, companies may interpret SEC filing requirements differently, making it difficult to ensure the information reported by TVA's peer group was consistent with TVA's reporting.

  Full Report

This review was initiated as part of the Office of the Inspector General's commitment to provide oversight of coal combustion product (CCP) management. The objective of our review was to determine if TVA was meeting its commitments for CCP management.

We found TVA was meeting its commitments for CCP management. Specifically, we found TVA has implemented programmatic improvements, stabilized its coal ash storage facilities, and improved oversight of CCP management. Additionally, we found TVA was taking steps to become an industry leader in CCP management. The report did not include any recommendations.

  Full Report

This review was initiated as a follow-up to Inspection 2010-13530, Review of TVA's Fossil Fire Protection Systems, issued September 30, 2011. Fire protection systems are a combination of mechanical and electrical components and like power generation equipment, need regular attention. The objective of our review was to determine if the fire protection systems were adequately maintained and mitigating actions were taken to minimize the impact of fires at TVA fossil plants.

We found TVA's maintenance of fire protection systems was improving; however, there was heightened risk of damaging fires at TVA sites due to (1) restoration times for certain priority systems exceeding TVA targets; (2) delays in addressing fire protection work orders; (3) instances of noncompliance with TVA's inspection, testing, and maintenance procedure; and (4) difficulties in maintaining aging equipment. We noted improvements were made to minimize the impact of fire, such as equipping fire trucks for each plant, replacing the fire brigade room at Kingston, and updating a portion of personal protective equipment for brigade members. However, many issues noted in the original inspection remained. For example, fire brigade members continued to have concerns about fire response preparedness and lessons learned were not shared consistently across the fleet. We also found Fire Protection Self-Assessments presented the condition of TVA's fire protection systems in a more positive manner than other sources might suggest was warranted.

We recommended the Senior Vice President, Power Operations, (1) take steps, as appropriate, to restore impaired fire protection systems to service and determine if additional personnel or resources are needed to expedite repairs of fire protection systems in the future; (2) determine the equipment needs of fire brigade members and take steps to provide that equipment; (3) identify additional training needs for fire brigade members and take steps to provide that training; (4) determine whether increased staffing is warranted for fire brigades; (5) create and implement a formal process for capturing and sharing lessons learned from fire events across the fleet; (6) amend the Fire Protection Self-Assessments to include ratings of fire protection system equipment, provide a more objective means for determining whether preventive maintenance was performed, reflect prioritization of impairments and work orders outstanding, and provide a synopsis of additional drivers of fire risk at each site. TVA Management agreed with the findings and recommendations.

  Full Report

As a result of findings in a recent evaluation 2012-14845, Review of TVA's Nuclear Power Group Preventive Maintenance, we conducted a review of coal plant preventive maintenance (PM). The objective of our review was to determine if PM was performed in accordance with established schedules and if not, what effect the deviations were having.

We found compliance with PM schedules varies by plant, and the PM compliance metric captured may not fully represent all PM activities not completed. The monthly PM compliance percentage varied from 10.5 to 100 percent. The most common reasons cited for not completing PM or adjusting the PM schedule was resource driven and/or due to emergent/sponsored work. We also found if a work order did not have the correct reconciliation code, a canceled PM task would be counted as completed, which skewed the data. Reconciliation codes are essential for accurate reporting, but they are not a required field in Maximo.

We found that both uncompleted and unestablished PM contributed to equipment failures. In a review of 65 Problem Evaluation Reports (PERs), we identified six PERs linking failures to PM issues. Four of those PERs related to equipment for which no PM schedule or requirement had been established, and two PERs related to uncompleted PM tasks. We also found plants were making progress implementing the new Maintenance Basis Optimization (MBO) but had seen some delays in achieving target dates. Support of outages had impacted some sites' abilities to complete its MBO phases. Additionally, we found the absence of PM requirements could make it harder to manage equipment reliability risk.

We recommended the Senior Vice President, Power Operations, (1) increase PM completion/reduce deviations from PM schedules and reinforce the importance of PM activities, (2) develop a way to more accurately capture and report PM compliance and other appropriate PM tracking metrics, (3) expedite MBO efforts, and (4) consider the potential impact of having PM governed only by guidelines and not requirements. TVA management generally agreed with the recommendations in the report.

  Full Report

Based on the findings of a previous review, we evaluated the TVA Nuclear Power Group (NPG) Groundwater Protection Program (GWPP). The objectives of our review were to determine if NPG's GWPP performed required monitoring and reporting and completed required corrective actions based on monitoring results.

While NPG's GWPP performed required reporting, we could not verify the monitoring requirements in TVA's NPG standard programs and processes were followed. Our review also found corrective actions were taken to address the leaks and spills at TVA's nuclear plants reported to the NRC for the time frame of our review. However, we found opportunities for programmatic improvements. There were instances where programmatic weaknesses were identified several times over the last five years and were not remediated. External assessments also noted deficiencies in the program that were downgraded or excluded when NPG performed its fleet self-assessment. In addition, there was not a formal process in place to ensure recommendations made by external consultants were addressed. We made recommendations to management, accordingly, to address the findings in the report.

  Full Report

The Office of the Inspector General included a review of Revenue Billing's invoice preparation process for local power companies (LPC) on its annual audit plan because of the significance of this source of revenue to TVA. We audited the invoice preparation process for the period April 1, 2011, through July 31, 2013, to determine if: (1) wholesale invoices were calculated correctly, (2) controls to prevent/detect invoice errors were adequate, and (3) Oracle Utilities had appropriate/adequate information technology general and application level controls.

Our audit of the invoice preparation process for LPCs during the period, found: (1) wholesale invoices were calculated correctly, (2) controls to prevent/detect invoice errors were adequate, and (3) Oracle Utilities had appropriate/adequate IT general and application level controls. However, we identified minor issues where changes could strengthen and/or improve the revenue billing process and decrease the likelihood of errors or adjustments.

  Full Report

The Office of the Inspector General audited costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for services provided by Bartlett Holdings, Inc. Bartlett was to furnish qualified personnel to Bechtel on a seconded basis for the Watts Bar Nuclear Plant Unit 2 construction completion project. Our audit included approximately $121.4 million in payments made by TVA for services provided under the subcontract from January 1, 2010, through September 30, 2013. Our objective was to determine if the costs billed to TVA were in accordance with the provisions of TVA's contract with Bechtel and Bechtel's agreement with Bartlett.

In summary, we determined TVA was overbilled $1,547,434 for costs and fees billed under the contract associated with the Bechtel-Bartlett subcontract. The overbilling included (1) $1,484,582 in excessive payroll tax and insurance costs and related fee, (2) $60,287 in ineligible temporary living allowance costs, and (3) $2,565 in excessive labor costs and related fee. We recommended TVA management take action to recover $1,547,434 in overbilled costs from Bechtel and ensure payroll tax and insurance reconciliations are performed on an annual basis.

(Summary Only)

The Office of the Inspector General performed this review as part of its ongoing effort to provide oversight of the Kingston Recovery Project to determine if TVA is meeting its commitments for the Kingston Recovery Project.

Our review found TVA has met or is meeting its commitments for the Kingston Recovery Project. Community leaders and regulatory personnel interviewed were satisfied with TVA's actions to meet its commitments.

In order to address these commitments, TVA has taken a number of steps. Specifically, TVA has cleaned up the ash spill and restored the area, protected public health and safety, kept the public and stakeholders informed and involved in the process, and helped with the economic development of Roane County. Some community leaders believe TVA has worked to make the area better than it was before the spill.

  Full Report

The Office of the Inspector General initiated a review of the Energy Services Company (ESCO), currently known as the Federal Energy Services Program. The objective of the review was to evaluate whether the program was meeting its intended purpose of providing energy efficiency for the customer. TVA was unable to provide documentation to allow determination of the amount of actual energy efficiency achieved, specifically by ESCO, for two of the three current customers participating in the program. As a result, we were unable to determine the total impact of ESCO in providing energy efficiency for the customer and the degree ESCO supported the accomplishment of TVA's 2020 vision of greater energy efficiency. Also, as part of the audit, we assessed TVA GOES (government, oversight, execution, and support) and business case documentation and found that while substantial improvements were being made to the program, programmatic gaps and other opportunities for improvement existed.

  Full Report

The Office of the Inspector General evaluated the effectiveness of the Tennessee Valley Authority (TVA) processes for identifying and managing actual and potential environmental issues and risks. TVA's Environmental Management System (EMS) program was established to manage environmental impacts of TVA operations and help fulfill commitments of TVA's Environmental Policy. Within this purpose, EMS plays a significant role in managing environmental risks across TVA and sustaining a high level of environmental compliance in TVA operations.

Generally, TVA had effective processes for identifying and managing actual and potential environmental issues and risks. However, we noted areas where environmental risk management processes can be strengthened as of the end of FY2013. Specifically, we found environmental risks identified for business planning could be more comprehensive, more clearly identified, and integrated agency wide in order to help ensure their recognition and resource availability. In addition, weaknesses in environmental review processes increase TVA risks and can be strengthened to demonstrate regulatory compliance and due diligence in assessing the potential environmental impacts of proposed agency decisions.

Many positive aspects of the EMS program were evident and demonstrated effectiveness of functions related to environmental risk management. However, we determined opportunities for enhancing TVA's EMS exist in communicating with regulators, coordinating planning processes, emergency response preparedness, environmental training, and sharing lessons learned.

We recommended process improvements related to identifying risks and integrating environmental information sources, system enhancements to strengthen environmental reviews, and enhancements to EMS functions. By implementing our recommended actions, TVA can improve process efficiencies that will help sustain EMS effectiveness in the face of current challenges and impacts from budget constraints.

  Full Report

During a prior review of how TVA organizations assess the condition of its assets, we learned that asset condition assessments done by the Fossil Power Group (FPG) determined some generation assets were in poor condition. As a follow up to this prior work, we initiated a review to determine whether TVA was taking actions to address FPG systems and programs with poor ratings.

We found actions were taken to address some programs and systems with poor health. We identified that 785 out of 1,617 programs and systems within FPG had been rated red or yellow and randomly selected 35 programs and systems for detailed review. Actions taken by FPG to address the poor health resulted in an improvement in color rating or overall health of 17 programs and systems. However, there was no upgraded rating or improvement in system health for 18 systems. Of these 18 systems, 7 had no actions completed, while 11 had some actions completed without improvement in system health. The major reason cited for not completing actions was lack of funding.

We also found system health reports were not completed or documented and required program health reports could not be provided. Additionally, FPG-SPP-09.045, Performance of Engineering Programs, and FPG-SPP-09.030.03, System Health Reports, were superseded by engineering guidance documents which have no requirements, only recommendations. This may increase the number of health reports not completed or not completed in a timely manner. The absence of accurate and timely equipment health reports could make it more difficult for TVA to effectively manage equipment reliability risk.

We recommended the Senior Vice President, Power Operations, (1) document justification when actions are not taken to address systems and programs with red and yellow ratings, (2) reinforce the importance of consistent documentation of system health reports, and (3) consider the potential impact of eliminating the requirement to do asset health assessments on TVA's non-nuclear asset condition risk and determine a schedule for completing health assessments that will mitigate the risk of equipment failure TVA management responded they will incorporate our feedback into their review effort to have a consistent approach to system health with appropriate documentation.

  Full Report

The OIG audited the costs billed to TVA by Choctaw Generation Limited Partnership (CGLP) for power purchases. TVA and Choctaw Generation, Inc., entered into a contract with an effective date of February 20, 1997. Choctaw Generation, Inc. became CGLP through an assignment agreed to by TVA, effective April 30, 1998. The contract obligated TVA to buy 92 percent of the annual power generated for 30 years from a coal generation plant to be built by CGLP in Choctaw County, Mississippi.

CGLP constructed the Red Hills Generation Facility (RH) to burn lignite coal in two fluidized-bed combustion boilers generating a combined 440 megawatts of power. The facility's fuel is supplied by Mississippi Lignite Mining Company's lignite mine located adjacent to RH. TVA's 30-year obligation to buy power from CGLP started when RH began commercial operation April 1, 2002. Our audit included $400.3 million in costs billed by CGLP associated with the period October 1, 2010, through September 30, 2013. Our objective was to determine if the costs billed were in accordance with the contract's terms and conditions.

In summary, we found:

• TVA's electronic workbook used to calculate the invoice amount does not contain a formula needed to account for unexcused hours when TVA directs RH to provide less energy than at full capacity (derated) and RH cannot produce any power.
• TVA needs to improve documentation and communication of adjustments to the RH meter data.
• CGLP billed TVA $12,674 in costs for meter readings not supported by actual meter data on the October 2011 invoice.
• CGLP overbilled TVA a net $5,135 due to data entry errors made by TVA in the electronic workbook used to calculate the invoice amount.

We recommended TVA management take action to (1) revise the electronic workbook to include a formula to address time periods when TVA directs RH to provide derated capacity and RH cannot produce any power; (2) recover $12,674 in unsupported costs; (3) establish a procedure for documenting and communicating adjustments to the RH meter data; and (4) recover $5,135 in overbilled costs.

(Summary Only)

The OIG found official stations were generally appropriate for TVA's most frequent travelers. However, we noted departments with employees who frequently travel to multiple locations assign official stations in differing ways. Additionally, controls and policies could be strengthened by including guidance on evaluating official stations and requiring approval from the appropriate level of management for decisions not to change official stations based on the dollar values of travel expenses incurred or expected to be incurred. As part of our audit we followed up on TVA management's actions taken in response to the OIG's previous travel review, Inspection 2006-522I, Review of TVA Travel Reimbursements, we noted action plans agreed to in the past do not appear to have been fully implemented.

  Full Report

The OIG audited TVA's payments to the Alabama Emergency Management Agency (AEMA) and the Alabama Department of Public Health (ADPH) under two contracts with the State of Alabama. Under the contracts, AEMA and ADPH cooperated in a program to operate and maintain the Radiological Emergency Preparedness (REP) programs for TVA's Browns Ferry and Sequoyah Nuclear plants. Our objective was to determine if the costs paid under the contracts were in compliance with the contract terms. Our audit included $6,601,445 TVA paid to AEMA ($5,666,875) and ADPH ($934,570) for the period October 1, 2007, through September 30, 2013.

In summary, we found the current contract's compensation terms should be revised to (1) clarify whether TVA will reimburse costs incurred or pay an annual lump sum to AEMA and ADPH and (2) require AEMA, ADPH, and the five counties, Lauderdale, Lawrence, Limestone, Madison, and Morgan, to provide details to TVA on actual funds spent during a fiscal year in support of the REP program. We also noted the salaries paid to emergency management personnel varied significantly between the five counties.

We recommended TVA management take action to revise the contract language to address the two issues noted above. TVA management agreed the contract language needs to be revised in these areas and plans to revise the language accordingly in a new contract with the State of Alabama to be effective October 1, 2014.

(Summary Only)

In a previous OIG review of how TVA organizations assess the condition of assets, we learned asset condition assessments completed by River Operations (RO) had determined some assets were deteriorated. As a follow up to our prior work, we reviewed whether TVA was taking action to address RO systems and components with deteriorated conditions. These assets were designated as "red" or "yellow." According to RO personnel, a red rating indicated equipment condition was poor, while a yellow rating indicated equipment condition was marginal.

In RO, 1,438 systems and components had been rated red or yellow. We randomly selected 50 systems and components for review, eight with a red rating and 42 with a yellow rating. We found actions had been taken to address some systems and components with poor or marginal health. Of the eight systems and components with a red rating, all had either a project or work order developed to address the condition as required by the guidance. For five, actions to improve the asset condition were currently in progress, and for three, no actions were underway or planned within the next three years. Of the 42 systems and components with yellow ratings, for 32, no action had been taken, and for 10, projects were being developed to address the identified deficiency. Of the 10 that had projects under development, two had projects that were funded or being worked, seven had projects that were not currently funded, and one had a project that was completed.

Additionally, we found TVA had identified asset condition of non-nuclear generation as a top Enterprise Risk Management risk in FY2014. ROR-SPP-09.21, System and Component Health Program, was superseded by an engineering guidance document, which had no requirements, only recommendations. This could result in health report assessments not being completed. Without accurate and timely equipment health report assessments, TVA cannot effectively manage equipment reliability risk.

  Full Report

The OIG assessed the effectiveness of the Enterprise Risk Management (ERM) organization's role within TVA's overall risk management program. To aid in our assessment, we compiled the results of prior relevant audits and evaluations to identify common themes that bear on the ERM organization's effectiveness.

We found TVA has made improvements in its ERM program since a 2008 OIG inspection was completed. However, we made the following observations in our recent review: (1) risks were not aligned to strategic objectives that support TVA's mission, (2) TVA had not established and communicated a risk appetite or risk appetite statement, (3) the risk management culture was not fully embedded throughout the organization, (4) risk tolerances reported by SBUs/BUs could be improved, and (5) multi-point risk assessments were not used as part of the risk assessment process. Also, the current application used to collect and analyze risks limits the effectiveness and efficiency of the ERM program, and information in and the process for reviewing TVA's risk management program guidelines and policy could be improved.

We made six recommendations for improving the effectiveness of the ERM program. Prior to our issuing the final report, TVA addressed the deficiencies in its risk management policy and guidelines. Management generally agreed with the remaining findings and recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain organization, the OIG audited $22.7 million in costs billed to TVA by Comdata Network, Inc. The contractor was to provide TVA with a MasterCard platform and issue fuel cards to TVA personnel to purchase fuel, vehicle fluids, and car washes for TVA-related business. The objective of the audit was to determine if costs paid by TVA from October 1, 2011, through June 30, 2013, were billed in accordance with contract terms. In summary, the OIG determined TVA was overbilled $1,044,302, including:

• $846,022 for duplicate invoices submitted by the contractor.
• $83,271 in duplicate costs charged on merchant transactions.
• A net $106,174 in state taxes paid on fuel purchases which included (1) $157,065 in state fuel taxes from which TVA was exempt, (2) $59,229 in state fuel excise taxes that had been stripped from invoices by the contractor and for which TVA was liable, and (3) $8,338 in state excise taxes from states outside TVA's service region and from which TVA may be exempt.
• $8,835 in unauthorized transactions.

In addition, the contractor owes TVA $11,459 in interest on overpayments made by TVA due to duplicate invoices submitted by the contractor.

In response to our draft report, the contractor stated TVA should reimburse it a net $192,042 for state taxes stripped from invoices for which either TVA is liable ($65,907) or the contractor cannot file for a refund from the states ($126,135). Based on additional documentation provided, the OIG determined TVA may owe the contractor up to $164,663 of the $192,042 it claimed it was owed for state taxes that had been stripped from invoices, including:

• $59,229 in state taxes applicable to TVA (discussed above).
• $93,227 in Alabama state taxes that the contractor had stripped from invoices and for which the contractor cannot file for a refund. (TVA will need to recover the taxes from Alabama and provide a credit to the contractor for the stripped amount.)
• $9,411 in Tennessee state taxes that the contractor had stripped from invoices that should not have been.
• $3,045 in Georgia state taxes that had been stripped from invoices and for which the contractor cannot file a refund. (TVA will need to recover the taxes from Georgia and provide a credit to the contractor for the stripped amount.)
• Less the $249 overbilled to TVA for North Carolina taxes.

The OIG recommended TVA management take action to recover:

• $846,022 from the contractor for payments made on duplicate invoices plus $11,459 in interest.
• $83,271 overbilled by merchants due to duplicate costs charged on merchant transactions.
• $253,337 from the appropriate party for state fuel taxes billed by the contractor for tax exempt fuel purchases, pay the contractor $164,663 for state fuel taxes stripped from invoices for which either TVA is liable or the contractor cannot file for a refund from the respective state, and determine if TVA can recover $8,338 in state excise taxes billed by the contractor for other states outside TVA's service region.
• $8,835 from the contractor for unauthorized charges billed.

(Summary Only)

The OIG reviewed Coal Operations' (CO) 4th quarter fiscal year (FY) 2012 and 2nd and 4th quarters FY2013 enterprise risk maps for asset performance vulnerability to assess whether risk mitigation plans and actions were established and properly designed to manage risks. We determined the 4th quarter FY2013 mitigation plans and actions were adequately designed to manage the risks. Although the risk rating and trend had increased from 2 years ago, in our opinion, mitigation plans and actions that consider utilization of assessment tools, replacing components during planned outages, development and implementation of projects and programs to avoid consequences, and reclassification of components to capital from operations and maintenance to increase investment in long-term improvements reasonably address the risk of asset performance vulnerability in CO. We also identified an opportunity to improve CO's risk mitigation documentation which was addressed during our audit.

  Full Report

During 2012, we completed an audit of TVA's Financial Trading Program (FTP) audit number 2011-14477. The program, which started in 2003, was designed to hedge or otherwise limit economic risk associated with the price of commodities recovered in TVA's fuel cost adjustment (FCA). Since the hedging of natural gas comprised the majority of the hedging program, we generally limited our scope to the gas hedging program. Although our audit determined the overall design of TVA's FTP control structure was appropriate, we also identified several areas where management oversight needed improvement to validate the usefulness and effectiveness of the program, as well as ensure TVA stakeholders' understanding of the program.

As a follow-up to audit 2011-14477, we contracted with Mercatus Energy Advisors (Mercatus) to provide a third-party review of the final actions taken by TVA management with regard to the recommendations from our audit and determine if TVA's Financial Gas Hedging program was designed and functioning in a manner to achieve program objectives in the most efficient and effective manner.

In summary, Mercatus agreed the overall design of TVA's FTP control structure was appropriate. However, Mercatus identified several additional areas regarding the design and function of the program that required attention. To address these areas, Mercatus recommended TVA

• Determine risk tolerance and proper size of the FTP.
• Analyze volumetric risk on a regular consistent basis and communicate with stakeholders having a vested interest in this aspect of the FTP.
• Redesign hedging strategies to better match the characteristics of the exposures being hedged.
• Improve and consolidate performance reports.
• Cease using "Value at Risk" as a primary risk metric and replace it with at risk type of metric(s) that includes financial natural gas hedges and the physical exposures being hedged.
• Conduct stress testing on a routine basis.
• Ensure actions required by governance documents are adhered to or if language in the documents is inaccurate, revise the documents to reflect actual practices.
• Conduct a proper cost/benefit analysis of the FTP and compare all-in hedged cost of fuel to the cost of fuel without hedging (market price).
• Properly analyze and manage all of TVA's energy commodity exposure.

TVA management generally agreed with the recommendations and provided a plan of action to address the recommendations.

  Full Report

In completing project number 2009-12883, Survey of TVA's Process for Determining Condition of Assets, with a report dated September 20, 2012, the OIG learned that asset condition assessments performed by the Nuclear Power Group (NPG) had determined some generation assets were in poor condition. As a follow up to our prior work, we performed a review to determine whether TVA was taking action to address NPG systems, components, and programs with poor ratings. Under NPG's health report process, actions were required when ratings were designated red or yellow. Red ratings are defined as requiring excessive monitoring/resources to maintain, and yellow ratings indicate a need for additional attention.

We found 333 systems, programs, and components within NPG had been designated red or yellow. We randomly sampled 25 for detailed review. Our analysis showed at least two actions were taken to address 24 of the 25 samples. For 1 component, only one action was completed and other actions were awaiting approval. These actions resulted in an improvement in condition and a change in 14 cases to a white or green rating, while 11 had ratings that remained red or yellow. It is important to note that of the remaining 11 with red and yellow ratings, 2 changed from red to yellow, and 9 remained the same. In addition, 5 of the 9 that remained red or yellow had some asset condition improvement but not sufficient improvement to change the rating.

  Full Report

The Non-Nuclear Employee Concerns Program (ECP) is important to the Tennessee Valley Authority's current culture and environment. The OIG conducted a review to determine whether the program was addressing employee concerns in a timely and effective manner.

We found improvements in the Non-Nuclear ECP have been made in addressing concerns in a timely manner, but the effectiveness of the program could be improved. We found (1) instances where the Non-Nuclear ECP was not adequately addressing employee concerns, and (2) some employees felt concerns were not being adequately addressed and reported experiencing pressure and repercussions from management and team members.

We recommended TVA management (1) identify an individual to perform audits and assessments of closed concerns, (2) coach individuals addressing concerns on what constitutes a sufficient investigation, and (3) develop an instrument to send to complainants to indicate instances of retaliation and investigate as necessary. TVA management agreed with our findings and recommendations.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by AMEC Environment and Infrastructure, Inc., for a broad range of geotechnical services to support engineering design for structures, earthwork, and environmental projects under Contract No. 21705. Our audit included $5.33 million in costs billed between June 1, 2009, and October 23, 2012. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions.

In summary, we determined AMEC overbilled TVA an estimated $100,441. The overbilling included an estimated (1) $63,196 in labor costs, (2) $14,693 in transportation and subsistence costs, (3) $13,243 in unit rate costs, (4) $8,709 in miscellaneous costs, and (5) $600 in unclassified costs.

(Summary Only)

Due to the importance of reliable nuclear production at TVA, the OIG audited the risk of long term equipment reliability in the Nuclear Power Group (NPG). Our objectives were to assess whether risk mitigation plans and actions were established and properly designed to achieve the desired results and operating as intended, as well as identify opportunities to improve mitigation strategies for reducing long term equipment reliability risk in NPG. Our audit determined the mitigation plans identified were adequately designed to address this risk. However, the extent to which the mitigating actions were effectively reducing the risk could not be determined because of how the actions were prioritized. The audit also identified opportunities to enhance risk mitigation strategy and documentation, but we were unable to determine whether NPG had established an upper limit for the long term equipment reliability risk NPG was willing to accept. In response to our draft report, NPG management believed they had demonstrated appropriate action to address the findings and three recommendations in the report. NPG management agreed to review the long term equipment reliability risk map during upcoming quarterly reviews to determine if the associated enterprise risk could be further reduced or it should be removed from the risk map altogether. The OIG agreed with plans to reassess this risk.

(Summary Only)

The Tennessee Valley Authority (TVA) contracted with the independent public accounting firm of Ernst & Young LLP (EY) to audit the balance sheet as of September 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), 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 2013 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. The objective of our review was not intended to enable us to express, and we do not express, an opinion on the TVA's financial statements or on management's conclusions about the effectiveness of its system of internal control. EY is responsible for the auditor's reports dated November 15, 2013, and the conclusions expressed in those reports. However, our review disclosed no instances where EY did not comply, in all material respects, with generally accepted government auditing standards.

  Full Report

The OIG audited the subcontracting process used by URS Energy & Construction, Inc. (URS), under contract numbers 66777 and 72142. Under the contracts, URS was to provide design, engineering, procurement, delivery, installation, and construction management services for TVA's (1) combined cycle combustion turbine or simple cycle combustion turbine projects and (2) various equipment for selective catalytic reduction and dry flue gas desulfurization precipitators. Our audit included subcontracts and related change orders for $256.3 million in subcontractor costs URS billed to TVA from December 14, 2007, to June 27, 2012.

In summary, we determined URS (1) did not obtain TVA approval for some subcontracts and circumvented requirements for TVA approval, and (2) overbilled TVA $168,623 in the markup costs applied to costs for services and equipment provided by TVA under subcontracting agreements.

(Summary Only)

The OIG evaluated the adequacy of actions taken to mitigate combustible coal dust at TVA coal plants. Despite some improvements in combustible dust management, we determined actions taken to date were inadequate in improving deteriorating equipment conditions, addressing housekeeping challenges, and providing appropriate monitoring of combustible dust conditions at the coal plants.

Although the probability of occurrence for coal dust explosions was rated by TVA in the Enterprise Risk Management risk map as unlikely, the potential consequences of an explosion could be severe and result in disruption of generating capacity, costly clean up and repairs, and even loss of life.

We found coal plant and coal handling conditions exceeded acceptable dust level limits specified in TVA Safety Procedure (TSP) 816. Specifically, we observed coal dust accumulations that exceeded the 1/32 inch standard in many of the coal handling areas during walkdowns at the Bull Run, Cumberland, and Paradise fossil plants. Additionally, TVA self-identified coal dust accumulations that were above the allowable standard in many areas throughout the coal fleet. We also found monitoring tools required by the program were not being used consistently to improve plant conditions.

Site assessment reports performed by yard systems engineers indicated some conditions improved between 2010 and 2012. Some equipment deficiencies were being addressed, and there were several programmatic practices in progress that were expected to improve conditions over time. However, equipment has deteriorated faster than funding has been available for repairs or replacements. Deficiencies resulting from inadequate equipment maintenance contribute to the increased presence of combustible coal dust and coal accumulations within the coal handling system. With deteriorating equipment and recent staff reductions for housekeeping, TVA faces significant challenges in keeping coal dust accumulations within the limits specified in TSP 816. More focus is needed on the program in order to better contain coal dust and reduce the necessity for extensive and repeated housekeeping activities to achieve dust accumulations below the 1/32 inch standard.

TVA management generally agreed with our recommendations and has taken or is taking actions to address the findings.

  Full Report

The OIG performed four agreed-upon procedures which were requested solely to assist management in determining the validity of the TVA Winning Performance payout awards for the fiscal year (FY) ended September 30, 2013. In summary, we found:

1. The FY 2013 Winning Performance goals were properly approved. One change form for FY 2013 was approved on March 3, 2013; two change forms were approved on June 7, 2013; one change form was approved September 16, 2013: and one was signed but not dated. The change forms affected five scorecards and resulted in no change to the payout.
2. The comparison of actual year to date figures for September 2013 for all the measures on the strategic business unit and business unit scorecards noted one exception related to the Nuclear Power Group's Equipment Reliability measure and did not result in a change to the payout. The measures on the strategic business unit and business unit scorecards agreed with the respective supporting documentation provided.
3. A comparison of the actual year to date figures for the incentivized TVA Corporate balanced scorecard measures to the definition sheets noted one exception related to the Total Corporate Spend measure and did not result in a change to the payout. The incentivized TVA Corporate balanced scorecard measures agreed with the underlying support. Subsequent changes to the Total Financing Obligations over Productive Assets actual year to date measure were received on November 4, and 7, 2013, and were compared to the supporting documentation. We determined there would be no impact to the payout percentage.
4. The FY 2013 Winning Performance payout percentages were provided by the Metrics and Performance Analysis organization on October 21, 2013. Subsequent changes to the actual year to date figure for the Total Financing Obligations over Productive Assets measure were received November 4, and 7, 2013. These changes did not impact any payout percentages.

(Summary Only)

At the request of Tennessee Valley Authority's (TVA) Supply Chain and TVA's Senior Vice President, Generation Construction, we audited $66.4 million in costs billed to TVA by Phillips and Jordan, Inc. (P&J), under an Advance Authorization (AA) agreement and Contract No. 78268. The AA agreement and contract provided for P&J to unload and dispose of at least four million tons of coal combustion by-products from the coal combustion by-products spill at TVA's Kingston Fossil Plant in December 2008. Our objective was to determine if the costs billed from June 2, 2009, through September 4, 2011, were in compliance with the terms of the AA agreement and the contract.

In summary, we determined P&J overbilled TVA $366,401 which included (1) $225,832 in overbilled tonnage costs, (2) $122,921 in overbilled leachate costs, (3) an estimated $11,206 in overbilled standby costs, and (4) $6,442 in overbilled structural adequacy costs

(Summary Only)

The Tennessee Valley Authority (TVA) identified asset performance and operations as a major risk for the agency. Without effective management of critical spare parts, TVA could face equipment failure which could result in safety and generating failures. This review was initiated to determine if the Nuclear Power Group (NPG) and Coal & Gas Operations (C&GO) were effectively managing critical spare parts.

We found critical spare parts could be managed more effectively. We found there were inconsistencies in TVA's management of its critical spare parts. Specifically, we found (1) C&GO does not have written policies to govern its critical spare parts program; (2) preventive maintenance is not being performed on critical spare parts at certain plants; and (3) information maintained in TVA's system for asset and location information, Maximo, regarding critical spare parts, is unreliable. We also found the lack of critical spare parts has negatively affected system and component health. We noted TVA has taken steps to improve identification and procuring of critical spare parts but has not followed through with implementing steps recommended by a management consulting firm. Additionally, our physical inventory counts at the plants were consistent with the information contained in Maximo.

We recommended the Executive Vice President and Chief Generation Officer, Generation, (1) develop C&GO procedures to govern the identification and procurement of critical spare parts; (2) ensure proper maintenance is performed on spare parts; (3) take steps to follow-up on actions recommended by a management consulting firm, (4) work with Engineering Environmental & Support Services to implement controls over the information maintained in Maximo, including who can identify what are critical spare parts; and (5) work with Supply Chain to accurately update Maximo to reflect what items should be listed as critical spare parts. TVA management agreed with our recommendations.

  Full Report

This review was initiated in follow up to a recent OIG review of TVA's project management software, PowerPlant. During that review, we identified several areas for further analysis related to timely project approvals, delegated approvals, and project charges allocated incorrectly. The objective of this review was to determine if the TVA capital project approval process was (1) efficient and timely, (2) performed in accordance with TVA policies, and (3) aligned with industry best practices.

We found the capital projects approval process was generally performed timely, as well as in accordance with TVA policies. We also found TVA had incorporated best practices in the approval process. However, we found areas for improvement related to the timeliness of Nuclear Power Group (NPG) project approvals and the forecasting of project schedules.

We found that although the overall TVA project approval process was completed in a reasonable time frame, the NPG approval process took 25 days longer than the TVA average. This indicated there were opportunities for improvement in the timeliness of NPG approvals.

We found 31 percent of NPG projects reviewed came in more than 25 percent behind the forecasted schedule. While there were also projects that came in ahead of schedule, the degree to which the schedules were being missed indicated there was potential for more accurate planning related to forecasted schedules.

We recommended management (1) evaluate the approval process for NPG capital projects to identify opportunities to improve the timeliness of project approvals, and (2) evaluate the planning and forecasting process to identify other areas for improvement.

  Full Report

Preventive maintenance (PM) is important to the reliable operation of assets. As a result of recent issues with nuclear performance, the OIG conducted a review of Nuclear Power Group's (NPG) PM program. The objective of this review was to determine if nuclear plant PM had been performed in accordance with established schedules, and if not, what effect the deviations were having.

We found that reported PM metrics may not be accurate. During our review, we identified several concerns that raised questions about the validity of reported PM metrics. For calendar year 2012, auditors were provided two sets of PM metrics for each site. There were differences in the data sets and some of the differences were significant. Additionally, the three plants were not consistently using the "Counts as Deferral" flag in Maximo, thus preventing certain deferrals from being identified and considered for the deferral count. Also, we found there was inconsistency in how the late PM metric was reported. These issues will impact the value of the NPG Equipment Reliability Index (ERI), which is part of NPG's winning performance scorecard for fiscal year (FY) 2013. We also found that deviations from the PM schedules were negatively affecting system and component health. While PM program health has historically been rated poorly, there has been recent improvement. TVA started a PM optimization (PMO) program to bring its PM program in line with industry standards. Due to slow progress at all three plants, escalations were filed to raise this concern to a higher level.

We recommended the Executive Vice President and Chief Generation Officer, Generation, take steps to (1) define methods for consistent and accurate reporting of PM metrics across the nuclear fleet, including a step for verification and retention of documentation for items manually excluded; (2) address the issue with the "Counts as Deferral" flag used in PM tracking; (3) perform an analysis to determine what impact inaccurate PM data could have on the Equipment Reliability Index calculation for fiscal year 2013 winning performance measures; (4) reduce deviations from the PM schedules; (5) take necessary actions to prevent recurring PMO implementation problems resulting from lack of site support; and (6) expedite PMO efforts. TVA management agreed our recommendations.

  Full Report

The TVA has stated its future depends on effective succession planning and faces a potential workforce challenge due to retirement within the next five years. Also, TVA has identified a risk of senior leadership attrition that could leave a gap in key positions. This review was conducted as a follow-up to a previous OIG review of TVA's succession planning. The objective of this review was to assess TVA's succession planning.

This review found TVA has made improvements to succession planning; however, areas for improvement still exist. Improvements include the use of a talent grid, implementation of succession planning metrics, and a more accurate attrition prediction model. In addition, we found TVA could strengthen some best practices.

While TVA has made progress in its succession planning process, we found, through interviews and review of documentation, areas for improvement still exist. Specifically, areas of improvement include: (1) follow-up on action items identified in talent reviews including the development of organizational action plans; (2) cross-pollination of talent; (3) reduction in talent review preparation time; and (4) frequent revisions of the talent review and succession planning process, which have caused frustration among TVA management. Additionally, TVA is working to address areas of concern regarding populating succession plans with realistic candidates.

As part of this review, we identified succession planning best practices and compared them to processes TVA had in place. Of the ten best practices identified, we found TVA could strengthen executive ownership, onboarding of succession candidates, and transparency of the succession planning process. In addition to these findings, all TVA managers who were interviewed expressed concern with the use of forced distribution for the talent grid.

We made recommendations to management to address the findings in the report.

  Full Report

TVA introduced the Valley Investment Initiative (VII) program as a means to incentivize customers to invest in the economic development of its geographic area. The OIG included a review of the VII program in its annual audit plan as the budget for this program has significantly increased since its inception in 2009. Our audit objective was to determine if TVA was exercising adequate oversight over the VII program. In summary, we found Economic Development personnel complied with TVA policies and procedures for oversight of program operations; however, TVA oversight of the VII program as a whole could be improved. For example, TVA had not established performance measures specific to the VII program nor performed an evaluation study to determine the effectiveness of the program. We also noted customer compliance audits could be improved by adding independent verification of customer reported information.

We made four recommendations that pertain to improving TVA's oversight of the VII program. TVA management generally agreed with our recommendations and plans to take action to address them.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain and Senior Vice President, Generation Construction, the OIG audited the costs billed to TVA by AMEC Environment and Infrastructure, Inc., (AMEC) for loading coal combustion by-products from the spill at TVA's Kingston Fossil Plant onto rail cars and/or trucks for off-site disposal under an advance authorization agreement (AA) and AMEC's contract with TVA. The audit included $19.3 million in costs billed to TVA from June 2, 2009, through January 13, 2011. The objective was to determine if AMEC billed TVA in accordance with the terms and conditions of the AA agreement and contract. We determined AMEC overbilled TVA $2,187,410, which included $2,123,694 in overbilled and unsupported standby costs and $63,716 in overbilled tonnage costs.

(Summary Only)

The OIG audited the distributor compliance assessments completed through December 31, 2012, to determine if (1) the assessments were adequately planned and performed to verify distributors' compliance with key provisions of the wholesale power contract, (2) the assessments were performed in accordance with the Distributor Compliance Charter and applicable policies, and (3) there was adequate segregation between the group charged with developing, interpreting, and implementing TVA's retail regulatory policy, Retail Regulatory Affairs, and the group responsible for assessing distributors' compliance with TVA's regulatory policies and procedures, Distributor Compliance.

We found several positive attributes in Distributor Compliance's planning and performance of the assessments; however, we noted areas where changes were needed to improve (1) assessment planning and performance and (2) compliance with the Distributor Compliance charter and applicable professional standards and policies regarding the assessment reports. Specifically, we noted:

• Scope statements in the reports did not always reflect the actual information that was reviewed.
• Documentation of sampling methodologies was inadequate and the methodologies could be modified to provide more assurance that assessment objectives are met.
• Recommendations did not always help detect issues and/or prevent identified issues from recurring.
• Testing for misclassified residential accounts was not being performed.
• Distributors were not made aware of all issues identified during the assessments and the unreported issues.

We determined there was adequate segregation between Retail Regulatory Affairs and Distributor Compliance. However, certain work being performed by both groups was duplicative.

We made the following recommendations: (1) include testing for the number of days provisions in the contract, (2) include testing to identify penalty exempt accounts in all assessments, (3) when possible, select a sample containing items from across the population instead of from a subset of the population, (4) fully document sampling methodology in working papers and the report, including details for replacing and/or expanding the sample, (5) review and update processes for ensuring all applicable issues are included in report, (6) include recommendations that help improve distributors' compliance with the wholesale power contract by detecting issues and/or preventing identified issues or errors from recurring, (7) include in assessments the testing for potentially misclassified residential customers, and (8) inform distributors of all issues identified during the assessments.

  Full Report

Because of the importance of a reliable transmission system, the OIG audited the risk of significant equipment failure in the Energy Delivery (ED) organization. ED identified four specific actions in its enterprise risk management documentation to mitigate the risk of significant equipment failure. We found the identified mitigation strategy and supporting actions were appropriately designed; however, a lack of funding to the asset preservation program contributed to ED's inability to effectively reduce the risk as planned. While the risk was not being reduced as planned, ED was managing the risk by performing preventive maintenance and replacing assets as funding permitted. In addition, we found improvements were needed in ED's risk documentation. Specifically, we found certain actions included in ED's risk documentation did not directly affect the risk rating or mitigate risk. Conversely, the risk documentation lacked the preventive maintenance program and planned actions for implementing a critical spares program designed to further manage risk.

(Summary Only)

The OIG audited $4.8 million in costs billed to the Tennessee Valley Authority (TVA) by Nol-Tec Systems, Inc., to design, furnish, and install hydrated lime injection systems for SO3 mitigation at various TVA fossil plants. Our objective was to determine if the costs billed to TVA for the period January 1, 2011, through September 19, 2012, were in compliance with the terms and conditions of the contract.

We found Nol-Tec overbilled TVA $292,678, including (1) $150,147 of ineligible sales commissions, (2) $89,155 of ineligible labor costs, (3) $39,878 for a duplicate payment made by TVA, and (4) $13,498 of ineligible subcontractor markup costs.

(Summary Only)

The OIG investigated allegations that TVA Board Chairman William "Bill" Sansom's personal financial interests and position at TVA constituted a conflict of interest and that he had a relative who worked at TVA in violation of TVA's nepotism policy. Federal conflict of interest law prohibits federal officials and employees from acting on a particular matter in their official capacity which affects personal financial interests. There was no evidence Mr. Sansom participated in any particular matter as part of his TVA duties which was related to his personal financial interests. In addition to the conflict of interest law, TVA has a policy which prohibits Board members from owning investments in distributors, entities in the electricity business and companies adversely affected by TVA's success. None of Mr. Sansom's financial interests fell into these categories. The nepotism claim was unfounded. The TVA employee in question had the same name as Mr. Sansom's son-in-law but was unrelated.

  Full Report

The OIG completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of the CRS Green Pricing Accreditation Program for the year ended December 31, 2012. The results of the procedures performed, which were related to TVA's renewable energy initiative, "Green Power Switch," were provided to the CRS.

(Summary Only)

We audited the risk program at Bellefonte Nuclear Plant (BLN) to determine the adequacy of TVA's consideration of risks associated with the construction of BLN Unit 1. The scope included BLN construction risk management program activities beginning August 2009 through November 2011 and subsequent changes to the risk management program. We determined that while a renewed emphasis has been placed on BLN's risk management program, previous program failures indicated significant improvements to the program were needed. Specifically, we identified a lack of a strong continuity in the risk management process, which affected program effectiveness. This lack of continuity included ineffective guidance and oversight of BLN's risk program by former TVA management and a lack of documentation for key risk information allowing for facilitation of the risk program. A new risk manager has been assigned to pilot and implement a new risk management process. As part of these renewed efforts, the new Risk Manager has taken steps to address these actions. We commend current BLN project management for taking steps to address guidance, oversight, and documentation. Current BLN project management recognized the failures of the initial attempts to develop and implement the risk management program, and the new processes being implemented are steps in the right direction. We verbally communicated an additional action that can be taken to ensure history does not repeat itself as the project moves forward. This action included the clarification and clear communication of (1) whether risk mitigation activities are to be included in the contingency estimate controlled at the project level and the management reserve amount controlled at the corporate level and (2) what that means in terms of the project's estimated cost.

(Summary Only)

As a result of delays and overruns on the Tennessee Valley Authority (TVA) Watts Bar Nuclear Unit 2 (WBN U2) construction project, questions have been raised about the quality of the work performed. Nuclear Construction (NC) Quality Assurance (QA) plays a key role in ensuring that work completed meets high-quality standards. The objective of our review was to determine if the NC QA program was effective in its oversight of the WBN U2 construction project. We found NC QA has generally been effective in its oversight of the construction project; however, a breakdown in the QA program resulted in a lack of oversight in one area. With the exception of the breakdown in QA discussed below, no significant issues were identified. In addition, we reviewed documentation that showed NC QA conducted oversight activities and Bechtel performed QA activities. As issues were identified, Problem Evaluation Reports (PERs) were generated to address those issues. A breakdown in the QA program related to the commercial-grade dedication program was identified by the Nuclear Regulatory Commission (NRC). Specifically, there was no oversight of the commercial-grade dedication program by QA since 2008. In response, TVA conducted an evaluation to see if problems existed in other areas. TVA's evaluation found a few areas that required minor adjustments, and those adjustments were made. Furthermore, TVA assembled an independent, technical team to review commercial-grade dedication packages, and as of May 2013, no significant issues had been identified. We also found, that while the turnover of one system has occurred, a process for transitioning the authority for the execution of the QA program from Bechtel QA to NC QA has not been implemented, which could limit the effectiveness of the NC QA's oversight efforts. The process for transition of authority from Bechtel QA to NC QA will provide evidence that the construction phase QA requirements in the Nuclear Quality Assurance Plan have been met and also help to prevent any steps or reviews from being missed. We made recommendations to management to address the findings in the report.

  Full Report

The OIG audited the costs billed to the Tennessee Valley Authority (TVA) by MPW Industrial Services, Inc. (MPW) for providing hydroblasting services at TVA locations under Contract No. 38764. Our scope included $2.33 million in costs paid by TVA from January 7, 2009, to December 27, 2011. This amount included $1.88 million paid under Contract No. 38764 and $0.45 million paid under stand-alone purchase orders which incorporated the pricing terms of Contract No. 38764. Our objective was to determine if MPW billed TVA in accordance with the contract terms and conditions.

In summary, we determined MPW overbilled TVA $397,519 as follows:

• $323,654 was overbilled for equipment and labor costs, including (1) $212,443 for ineligible equipment and labor costs; (2) $96,975 for excessive crew costs; and (3) $14,236 in fuel surcharges, per diem, and labor escalation associated with the ineligible equipment and labor costs that were billed.
• $73,865 of ineligible mobilization/demobilization costs were overbilled, including (1) $64,307 in setup and breakdown costs not provided for by the contract and (2) $9,558 in mobilization/demobilization costs billed for ineligible equipment.

Additionally, MPW was overpaid $38,066 because certain invoices were paid twice by TVA.

(Summary Only)

The Office of the Inspector General audited the savings guaranteed to the Tennessee Valley Authority (TVA) by DeWolff, Boberg & Associates, Inc., (DBA) for work management improvement services. DBA guaranteed efficiency and productivity gains would result in minimum total cost savings to TVA of $17,971,760. Our objective was to determine if DBA complied with the terms of the contract and achieved the guaranteed cost savings. Although we did not find evidence of noncompliance with the contract, we could not determine if DBA achieved the guaranteed cost savings. We could not determine if the metrics used to measure improvements were valid, because TVA did not have management controls in place to ensure consistency. Accordingly, we could not determine the value TVA received from the $16.17 million it paid to DBA.

(Summary Only)

There have been a number of recent incidents requiring emergency response at TVA fossil plants, including the ash spill at Kingston Fossil Plant and fires at multiple plants. This review was initiated to assess TVA coal and gas fleet emergency preparedness.

The objective of this review was to determine if Coal Operations and Gas Operations have made progress in their emergency preparedness and response program since the ash spill at Kingston Fossil Plant. This review looked at the current status of emergency preparedness with respect to both Coal Operations and Gas Operations.

Our review found that although progress had been made in emergency preparedness and response, improvements could have been implemented more effectively. In addition, opportunities to improve the program still exist in the areas of site consistency and training. Through interviews and review of documentation, we found a lack of consistency in how emergency preparedness is handled between the sites. Also, training more personnel in National Incident Management System and adding training opportunities could build a more in-depth emergency preparedness program. An additional concern was raised during interviews concerning the responsibilities of the shift operations supervisors. The roles specified for incident commanders are generally in addition to their jobs as shift operations supervisors, and there were concerns that the training was a significant commitment in addition to the daily work load. We made recommendations to management to address the findings in the report.

  Full Report

Tennessee Valley Authority (TVA) Watts Bar Nuclear Plant Unit 2 (WBN2) management requested the Office of the Inspector General to perform a review of the commodity tracking process being implemented for the WBN2 construction project. This review was intended to help TVA gain confidence in their commodity tracking process, which is used in conjunction with other tools and metrics to gauge the project's progress.

We identified minor vulnerabilities in the commodity tracking process for the WBN2 construction project related to potential duplication of data entry and review. We made recommendations to eliminate the duplication. TVA agreed with our findings and the OIG concurs with WBN2 management's planned action.

(Summary Only)

TVA provides biweekly vehicle allowances to eligible officers and key managers in accordance with Vehicle Allowance Guidelines that were put into effect April 1, 2006. Additionally, TVA maintains a light fleet of about 2,900 vehicles, which are available for assignment to any TVA employee with a business need. Business units with an assigned vehicle pay a monthly fee to TVA Fleet Services for use of the vehicle. In fiscal year 2011, TVA paid $648,050 in vehicle allowances to 65 employees. Also, business units paid approximately $9.66 million in monthly fees during fiscal year 2011 to Fleet Services for use of assigned vehicles.

The Office of the Inspector General audited TVA's vehicle allowance and assigned vehicle programs to determine the cost effectiveness of the programs and if proper controls were in place to ensure program eligibility guidelines were being met. Our specific audit objectives were to determine if (1) TVA employees receiving vehicle allowances met established eligibility requirements and if proper controls were in place to determine eligibility criteria were met, (2) TVA employees with assigned vehicles met established criteria for having an assigned vehicle and if proper controls were in place to determine eligibility criteria were met, and (3) the cost effectiveness of both the vehicle allowance and assigned vehicle programs.

Our audit found TVA does not document how officers and key managers who are paid vehicle allowances meet the "business need" eligibility criteria specified in TVA's Vehicle Allowance Program Guidelines. Based on the available data, it appears a large percentage of the personnel who receive vehicle allowances may not meet TVA's stated criteria of significant business related travel. We also noted several administrative matters within the guidance that were not followed.

TVA's Fleet Service management did not maintain adequate documentation to validate the adequacy of TVA's controls over vehicle assignments. Additionally, we were unable to determine which program is more cost effective because data obtained during the audit indicated the cost differential between the two programs was small. However, overall cost savings may be available, because there are individuals who either receive a vehicle allowance or have an assigned vehicle who do not appear to have a business need for the allowance or vehicle.

We made five recommendations that pertained to (1) documentation of vehicle allowances, (2) periodic review of those receiving an allowance, (3) maintenance of the Vehicle Allowance Guidelines, (4) coordination between those with vehicle allowances and those with assigned vehicles, and (5) review of all employees currently receiving an allowance. We made three additional recommendations that pertained to (1) maintenance of TVA Form 9314A, (2) documentation of vehicle replacements, and (3) review of all employees currently assigned a vehicle.

  Full Report

This investigation was initiated after the Tennessee Valley Authority (TVA) Office of the Inspector General (OIG) received a complaint alleging the TVA Board of Directors (Board) failed to give proper notice as required by the Government in the Sunshine Act (Sunshine Act) when the Board selected William D. (Bill) Johnson as TVA's President and Chief Executive Officer (CEO).

Our investigation found the following:

• The Sunshine Act requires public meetings by an executive agency be open to the public. However, as a legal matter, the prevailing view as indicated by the District of Columbia, U.S. Appellate Court, is that notational voting does not constitute a meeting, and it does not constitute a violation of the Sunshine Act. Furthermore, because notational voting does not constitute a meeting as described in the Sunshine Act, notice is not required.
• In selecting a CEO, the Board decided to use the notational process to protect the privacy of applicants and to address the difficulties of obtaining a quorum at that time.
• The evidence developed by our investigation shows the Board followed notational procedure by not discussing the candidates' qualifications or otherwise deliberating with one another about the selection. Board members voted separately.
• Because the Sunshine Act does not prohibit the notational procedure and the evidence demonstrates that the Board properly used that procedure, the Board did not violate the Sunshine Act.

  Full Report

TVA's meter testing was identified as a key internal control in the revenue recognition process after TVA moved from end-use to wholesale billing. The OIG audited the adequacy of TVA's process for testing meters owned and read by TVA. The audit included (1) evaluating whether TVA meter testing policies and procedures met or exceeded identified industry standards, (2) verifying TVA tested the meters within the applicable time limits, in compliance with TVA meter testing policies and procedures, and (3) determining if TVA had procedures in place to identify all meters used to capture data for wholesale billing.

In summary, we determined TVA meter testing complied with TVA policies and procedures regarding timeliness and met identified industry standards. However, we noted areas for improvement in TVA's meter testing processes, including (1) verification of meter constants, (2) reconciliation of meter information in TVA systems, and (3) consistency among testing documentation.

We recommended TVA (1) formalize its policy for testing and/or documenting meter constants as part of preventative maintenance; (2) develop a procedure for reconciling meter information included in the Maximo, Itron Enterprise Edition, and Lodestar systems; and (3) develop guidelines for acceptable documentation of meter tests, including information, review, and maintenance requirements. TVA management concurred with our recommendations and is taking or has taken action to address these issues.

  Full Report

The OIG audited TVA's fiscal year 2012 compliance with the Improper Payment Information Act of 2002, as amended. In summary, we found TVA was in compliance with applicable IPIA requirements.

  Full Report

In May 2004, the Nuclear Regulatory Commission (NRC) incorporated the National Fire Protection Association's (NFPA) Standard 805 as a voluntary alternative to the existing fire protection standards as published in Section 50.48, "Fire Protection," and Appendix R of the 10 Code of Federal Regulations (10 CFR 50). On March 4, 2009, the Tennessee Valley Authority (TVA) committed to the NRC to transition Browns Ferry Nuclear Plant (BFN) to NFPA 805 by a license amendment date of March 4, 2012.

TVA has included the BFN NFPA 805 transition project as part of fire protection risk in its Enterprise Risk Management process. We reviewed the BFN transition to the NFPA 805 program. Our audit objective was to evaluate BFN's performance in transitioning to the NFPA 805 program requirements by the license amendment date.

TVA did not meet the NFPA 805 transition date for the License Amendment Request submittal of March 2012 and has revised its commitment date to March 2013. We determined the Nuclear Power Group's delays in transitioning to NFPA 805 adversely impacted BFN's ability to meet the 2012 commitment date. Specifically, historical indecisiveness coupled with a lack of due diligence and inadequate attention to emerging industry fire protection regulations contributed to revising the commitment date. In addition, the Nuclear Power Group's mitigation strategy as provided in Enterprise Risk Management documentation did not include consideration of the consequences of not meeting the revised March 2013 deadline, which would include NRC-assessed penalties.

  Full Report

At the request of Tennessee Valley Authority's (TVA) Supply Chain, we audited AREVA NP, Inc.'s calendar year 2011 rate adjustments required under the terms in its contract. The contract provided for AREVA to complete engineering, licensing, construction, and startup operations of a single Bellefonte Nuclear Plant unit by the end of 2017. The objective of our audit was to determine if AREVA's rate adjustments were in accordance with the contract terms.

In summary, we determined AREVA's net credit adjustment of $134,544 due to TVA was understated. Based on the methodology included in the contract, we determined the adjustment should be a credit to TVA of $564,765. AREVA officials agreed with our findings. AREVA issued TVA a credit of $375,875 and plans to issue TVA a credit for the remaining $188,890.

(Summary Only)

Tennessee Valley Authority's (TVA) Facilities Management (FM) business unit is responsible for managing TVA's facilities portfolio and providing services across TVA, such as building maintenance and grounds and property management. Within FM, Facilities Programs and Projects manages efforts for facility renovations, upgrades, major repairs, energy efficiency, sustainability, and other facilities' needs. These efforts include TVA's Facilities Asset Preservation (FAP) Program, which was designed "to ensure core facility related assets are maintained in a condition to satisfy their intended operational capabilities." The FAP team is responsible for gathering asset information, identifying deficiencies, recommending corrective actions, and implementation planning for approved projects.

TVA's facilities asset portfolio includes over 34 million square feet of gross space in about 3,446 structures, and a small number of these properties are not in use. From 2009 to 2011, FM identified 19 underutilized properties. Two of these properties, former coal plants, were decommissioned in 2011. A third property, part of TVA's Muscle Shoals reservation, is being mitigated under an extensive redevelopment project, which includes the November 2012 TVA Board of Directors approval of the possible sale of 1,000 acres of the Muscle Shoals property. In addition, TVA established the Challenged Properties Program (CPP) in March 2012 to develop strategies for proper handling of underutilized or vacant properties.

Because of the importance of proper maintenance to the safe, efficient, and effective operation of assets, we initiated this audit to evaluate TVA's efforts to identify and mitigate risks associated with its buildings and infrastructure. As of July 2011, TVA's Enterprise Risk Management identified the risk of building and infrastructure failures among other safety risks and the FAP Program as the primary strategy to mitigate these risks.

In summary, our audit disclosed FM's FAP Program was adequately designed to identify and mitigate the risks of building and infrastructure failures, and FM's processes for remediating identified risks are reasonably effective. However, we found TVA's risk exposure from building failures is elevated because the identified risks exclude underutilized properties, and FAP funding has not been adequate to address the risks in the long term. We also identified opportunities to improve some FAP Program and related FM processes.

  Full Report

As part of a series of reviews to evaluate the Tennessee Valley Authority's (TVA) actions to address key risks, we evaluated TVA's outage scheduling risk. The objective of this review was to evaluate TVA's outage scheduling risk to identify opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. Outage Scheduling was identified as a top five strategic business unit risk in the Internal Process and Procedures Risk category in FY 2011. The risk refers to failure in coordination of the outage schedule for TVA. Adherence to Standard Programs and Processes (SPP) 33.4, Outage and Derate Concurrence Process (Outage Concurrence Process), will ensure a formal outage change request process is followed by asset organizations requesting outage changes, and concurrence with outage schedules is given by all impacted organizations. This mitigation is currently ongoing.

While mitigation strategy for addressing TVA's outage scheduling risk is designed appropriately and has reduced risk, opportunities exist to improve the outage scheduling process. We found (1) the control overseeing the Outage Concurrence Process is manual and time consuming; (2) the control in place over quality checks is not being completed; and (3) the Outage Concurrence Process does not align with SPP-30.004, TVA Chief Operating Officer Approved Method to Optimize TVA Asset Availability (Asset Availability Optimization Process), in regard to the use of Asset Availability in entering outages.

We recommended the Vice President, System Planning, (1) work in conjunction with the Asset Availability owners to determine if a control can be added to Asset Availability to prevent outages from being entered without first completing the Outage Concurrence Process; (2) take steps to make sure that quality checks are performed as prescribed in the Outage Concurrence Process; and (3) work in collaboration with the owner for the Asset Availability Optimization Process to address conflict between the Outage Concurrence Process and the Asset Availability Optimization Process to align the process for entering outages into Asset Availability. TVA management agreed with the recommendations.

  Full Report

The OIG audited $2.5 million in costs billed to the Tennessee Valley Authority (TVA) by G&A Environmental Contractors, Inc., for vacuuming services. Our objective was to determine if the costs billed to TVA for the period January 1, 2010, through September 30, 2011, were in compliance with the terms and conditions of the contract. In summary, we determined G&A overbilled TVA $254,060 including:

• $153,619 due to the use of ineligible firm price billings.
• $60,991 for hydro-blasting work which was not included in the contract's scope.
• $20,229 of ineligible billings for materials and miscellaneous costs.
• $19,221 of labor billings that were overstated because G&A did not use the billing rates in the contract.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by Day & Zimmermann NPS, Inc. (DZNPS) for the Watts Bar Nuclear Plant's Unit 1 refueling outage during 2011. Under the contract, DZNPS was to provide the services of qualified personnel to perform modification, outage and supplemental maintenance services, and technical support services at TVA generating plants. Our audit included $27.7 million in costs billed by DZNPS from January 24, 2011, through June 19, 2011. Our objective was to determine if the costs billed were in compliance with the terms and conditions of the contract.

In summary, we determined DZNPS overbilled TVA an estimated $215,042, which included $186,798 in nonmanual labor costs and $28,244 in craft labor costs. In addition, DZNPS did not use the Hourly Craft Superintendent (HCS) classification in TVA's labor agreements and instead, classified all superintendents as nonmanual employees, including six employees promoted from craft general foreman. Because a 15-percent general and administrative cost markup is applied to nonmanual labor, TVA paid an additional $35,867 for these six employees, which would not have been incurred if they had been classified as HCS.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by Day & Zimmermann NPS, Inc. (DZNPS) for the Watts Bar Nuclear Plant's Unit 1 refueling outage during 2011. Under the contract, DZNPS was to provide the services of qualified personnel to perform modification, outage and supplemental maintenance services, and technical support services at TVA generating plants. Our audit included $27.7 million in costs billed by DZNPS from January 24, 2011, through June 19, 2011. Our objective was to determine if the costs billed were in compliance with the terms and conditions of the contract.

In summary, we determined DZNPS overbilled TVA an estimated $215,042, which included $186,798 in nonmanual labor costs and $28,244 in craft labor costs. In addition, DZNPS did not use the Hourly Craft Superintendent (HCS) classification in TVA's labor agreements and instead, classified all superintendents as nonmanual employees, including six employees promoted from craft general foreman. Because a 15-percent general and administrative cost markup is applied to nonmanual labor, TVA paid an additional $35,867 for these six employees, which would not have been incurred if they had been classified as HCS.

(Summary Only)

As part of a series of reviews to evaluate the Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's load forecast risk. Load forecast was identified as a top five strategic business unit risk in the Long Range Planning Process Risk Category in fiscal year (FY) 2011. The objective of this review was to evaluate TVA's load forecast risk to identify opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk.

While EL&RF is taking actions to mitigate risk associated with load forecasting, we found opportunities exist to improve the mitigation strategy documentation. The documented mitigation strategy does not reflect planned actions to improve data integrity or the regular updates to the forecast models and economic drivers. Additionally, we found mitigations are generally designed appropriately. However, we noted EL&RF does not have any compensating controls to prevent inadvertent modifications to data until the Demand & Data Consolidation Process is completed.

We recommended the Senior Vice President, Strategy, Financial Planning & Business Development, (1) enhance the load forecast documented mitigation strategy to include the mitigations planned, or already occurring but not listed, as part of the strategy and (2) implement measures to reduce the likelihood of inadvertent modifications to data until the Demand & Data Consolidation Process is completed. TVA management agreed with our findings and recommendations and has taken actions to address them.

  Full Report

We performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Jacobs Engineering Group, Inc. for providing project planning, management, oversight, and environmental services to assist TVA in the recovery and remediation associated with the Kingston Fossil Plant Dredge Cell Incident. Our audit included about $37 million in costs billed to TVA from February 6, 2009, to December 31, 2011. Our audit objective was to determine if Jacobs billed TVA in accordance with the contract terms and conditions.

We determined Jacobs overbilled TVA an estimated $15,667 including $9,285 in ineligible overtime labor costs and $6,382 in excessive and ineligible travel and miscellaneous costs. In addition, at the start of our audit, TVA was performing an assessment of temporary living allowance (TLA) costs billed and identified $84,628 in overbilled TLA costs. Jacobs disputed TVA's assessment and stated the overbilled costs were $64,785. We determined TVA's calculation of overbilled TLA costs was correct, and Jacobs subsequently agreed to refund $84,628 and issued a credit to TVA in its September 2012 invoice.

We also found several instances of inadequate contract administration including (1) $266,788 paid by TVA for a labor classification, which was not included in the contract's "Schedule of Prices;" (2) $21,717 in additional travel costs paid by TVA because TLA compensation terms were not made part of the contract until January 1, 2010; and (3) failure by the contractor to obtain advance written approval from TVA prior to billing subcontractor TLA and relocation costs.

(Summary Only)

As part of a series of reviews to evaluate Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's physical assaults risk. Physical assaults risk was identified in the 2011 Enterprise Risk Management Program. The objective of our review was to evaluate TVA employee, contractor, and visitor physical assaults risk, identifying opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. TVA developed a mitigation strategy to reduce risk that included (1) creating a comprehensive physical security plan, (2) expanding employee education, (3) replacing communication infrastructure and equipment, and (4) implementing a guard program.

Our review found TVA has implemented or was implementing actions to reduce the risk of physical assaults on TVA employees, contractors, and visitors. The mitigations were generally designed appropriately to address the risk. However, TVA identified that workplace-violence incidents were not always reported to TVA Security and Emergency Management. This prevented TVA from recognizing emerging patterns and identifying possible training that could lower the risk of similar future incidents.

We recommended a procedure be created for individuals who receive workplace-violence incident reports detailing which workplace-violence incidents should be reported to TVA Security and Emergency Management along with a uniform way of submitting that information. TVA management generally agreed with our findings and recommendations and plans to take measures to address them.

  Full Report

As part of a series of reviews to evaluate Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's physical assaults risk. Physical assaults risk was identified in the 2011 Enterprise Risk Management Program. The objective of our review was to evaluate TVA employee, contractor, and visitor physical assaults risk, identifying opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. TVA developed a mitigation strategy to reduce risk that included (1) creating a comprehensive physical security plan, (2) expanding employee education, (3) replacing communication infrastructure and equipment, and (4) implementing a guard program.

Our review found TVA has implemented or was implementing actions to reduce the risk of physical assaults on TVA employees, contractors, and visitors. The mitigations were generally designed appropriately to address the risk. However, TVA identified that workplace-violence incidents were not always reported to TVA Security and Emergency Management. This prevented TVA from recognizing emerging patterns and identifying possible training that could lower the risk of similar future incidents.

We recommended a procedure be created for individuals who receive workplace-violence incident reports detailing which workplace-violence incidents should be reported to TVA Security and Emergency Management along with a uniform way of submitting that information. TVA management generally agreed with our findings and recommendations and plans to take measures to address them.

  Full Report

The OIG performed four agreed-upon procedures, which were requested solely to assist TVA management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2012. In summary, we found:

1. The fiscal year (FY) 2012 Winning Performance goals were properly approved.
2. The actual year to date measures for the September 2012 Strategic Business Unit and Business Unit scorecards agreed with the respective supporting documentation provided.
3. The three actual year to date incentivized measures on the TVA Corporate balanced scorecard were compared to the respective measures on the definition sheets and one exception was found; however, this did not impact the payout. The measures agreed with the respective supporting documentation provided.
4. The FY 2012 Winning Performance payout percentages were provided to the OIG by the Metrics and Performance Analysis organization on October 21, 2012. The OIG was notified on October 30, 2012 of a subsequent change to the actual year to date net cash flow; however, the change did not impact the payout.

(Summary Only)

TVA's Board of Directors approved a Financial Trading Pilot Program in September 2003 to hedge or otherwise limit the economic risks associated with the price of commodities covered by TVA's Fuel Cost Adjustment (FCA). At that time, the maximum Value at Risk (VaR) was not to exceed $5 million on an annual basis without the approval of the TVA Board. In May 2005 the TVA Board approved the request to expand and fully implement the Financial Trading Program (FTP). The FTP currently has an aggregate transaction limit of $130 million (based on one-day VaR) of which $90 million is allocated to natural gas hedging.

TVA's hedge strategy requires a minimum of 50 percent to a maximum of 75 percent of the forecasted natural gas volume for the fiscal year be hedged. From FY 2006 through the first quarter of FY 2012, TVA's natural gas-related costs have been $3.14 billion; the FTP hedging program contributed another $840 million for total costs of $3.98 billion. This contribution reflects the difference between the locked-in price of natural gas and the market price of natural gas at the time of delivery. TVA management stated the $840 million is a result of the dramatic drop in the price of natural gas over the period. In addition, TVA, as of December 31, 2011, expects the hedging program to add $421 million to natural gas costs of $3.7 billion for the period January 2012 to December 2017 for total natural gas costs of $4.1 billion. Although this situation could reverse in an environment with rising gas prices, it illustrates the significant potential impact, positive and negative, the FTP can have on TVA's FCA. As a result of the growth in FTP financial positions and the inherent risk with the program, we audited the program to evaluate (1) management oversight and the design of controls in place to mitigate operational risk exposure, (2) the program objectives and related performance measures, (3) whether TVA was meeting defined performance objectives, and (4) how the FTP impacts TVA's overall risk tolerance.

In summary, we determined the design of TVA's FTP control structure was appropriate. However, we identified several areas where improvement is needed to validate the usefulness and effectiveness of the program as well as to ensure TVA's stakeholders' understanding of the program. Specifically,

1. TVA has not conducted a comprehensive cost benefit analysis to determine whether the benefits derived from the FTP are greater than the inherent risks of the program.
2. TVA does not currently measure the performance of the FTP against defined program objectives.
3. aR back-testing was not performed on a routine basis.
4. TVA's communications with its customers did not sufficiently convey the FTP's impact on rates.

TVA Management generally agreed and plans to take appropriate action.

  Full Report

Because of the importance of successful capital project management, and in light of recent capital project cost overruns and schedule delays, we initiated a review of Tennessee Valley Authority's (TVA's) capital project management. The objective of our work was to determine whether the Project/Portfolio Management (PPM) function of PowerPlant meets the needs of the strategic business units (SBU).

PowerPlant replaced TVA's Project Justification System on March 7, 2011, at a cost of about $7 million. PowerPlant was implemented to replace the assets module within the Enterprise Financial Management System, while also providing the functionality to centralize project and portfolio management. TVA achieved some project and portfolio management capability with the new system, but considerable opportunity for improvement exists. Specifically, as a result of our review, we identified (1) the PowerPlant PPM tools do not currently meet all needs identified by the SBUs, (2) users feel they have not been adequately trained on some functions of the system, and (3) communication of defects that have been resolved would benefit users.

We recommended management consider (1) implementing additional project management functionality available in the PowerPlant system or purchasing another system to provide a PPM tool to more efficiently and effectively manage TVA's capital projects, (2) completing additional PowerPlant training as planned, and (3) developing a strategy for communicating system changes, upgrades, and modifications.

  Full Report

TVA established the Direct Load Control (DLC) program in the 1970s as a means to shift load from on-peak/high-priced periods to off-peak/low-priced periods. At the time of our audit, there were 12 distributors participating in the DLC program. Credits provided to these distributors during 2011 ranged from $5,909 to more than $1 million for a total cost to TVA of $2,365,819. The OIG audited TVA's DLC program to address concerns received regarding the benefits of the program. Our specific audit objectives were to assess the effectiveness of the program and TVA's oversight of the program. In summary, we determined the DLC program was not operating effectively, and TVA was not employing two key oversight mechanisms afforded by the DLC contract.

• The program was not operating effectively because much of the DLC program equipment was outdated and in disrepair, and the program cost was substantially higher than the savings TVA achieved.
• TVA was not using two key contractual oversight mechanisms for verifying the program was operating as intended and distributor reports to TVA were accurate.

We made three recommendations that pertained to determining whether the DLC program was cost-beneficial and TVA used contractual oversight mechanisms available. TVA management generally agreed with our recommendations and findings.

  Full Report

We audited $10.4 million in costs billed to the Tennessee Valley Authority (TVA) by Hartford Steam Boiler Inspection and Insurance Company of Connecticut for nuclear Authorized Inspection Agency service under several contracts. The $10.4 million billed included (1) $4.8 million billed between October 1, 2001 and December 31, 2008 under one contract; (2) $4.1 million billed between December 1, 2007 and August 19, 2011, under second contract; and (3) $1.5 million billed between January 1, 2009, and July 22, 2011, under a third contract. Our objective was to determine if the costs billed were in compliance with the terms of the contracts. In summary, we determined Hartford had overbilled TVA an estimated $679,370, including:

• $524,623 of ineligible labor costs, including $517,358 in excessive labor costs because Hartford did not bill actual employee wages, associated labor burden, and fees as specified by the contracts and $7,265 of ineligible labor costs billed for corporate personnel.
• $147,358 in temporary living allowance costs for which Hartford could not provide the contracts' required eligibility certifications and other related documentation.
• An estimated $7,389 in unsupported or ineligible travel and miscellaneous costs.

(Summary Only)

Because of the potential usefulness of a sound lessons-learned process in completing generation construction projects effectively and efficiently, we reviewed the lessons learned process used during the construction of the Lagoon Creek Combined-Cycle Combustion Turbine. We determined Generation Construction (GC) has a process in place for lessons learned management, but we identified some potential areas of improvement in the GC process. Specifically, we determined (1) there are no documented criteria or review processes for determining what is or is not a lesson learned, (2) the process for documenting lessons learned could be improved, and (3) there were no mechanisms to reasonably assure project teams were reviewing lessons learned from previous projects or relevant lessons learned were incorporated into the project's scope. We also determined improvements can be made in sharing lessons learned across TVA organizations. TVA management generally agreed with our recommendations; however, further action is not planned for two of our six recommendations.

  Full Report

With the age of TVA generating assets, the need to understand the condition of these assets and use this information to effectively plan is critical. As a result, the OIG initiated a review to determine how TVA assesses the condition of electric assets and uses this information in planning. This review did not include assessing the condition of TVA assets. The organizations reviewed included Nuclear Power Group (NPG), Fossil Power Group (FPG), Energy Delivery, and River Operations (RO).

We found the condition of assets is identified through system, program, and component health assessments; however, the process varies among the organizations. According to process descriptions and interviews, all organizations we reviewed use asset condition information to identify corrective actions when necessary. RO personnel stated they take actions to address any system with poor ratings even though the RO process does not specifically require this as the other organizations' do.

We also found the condition of assets information is used by TVA for planning purposes, and by the organizations to develop and prioritize projects for business planning purposes and system planning for future costs. In addition, TVA has instituted a capital productivity initiative to improve management of capital and operations and maintenance (O&M) projects to capture savings. As part of the new initiative, projects will be reviewed by a project review board, and the condition of assets information could be a factor for consideration in its project reviews.

We made two recommendations that pertained to requiring defined actions where assessments resulted in poor ratings in the RO organization, and including the condition of assets information as an evaluation factor for proposed capital or O&M projects where the condition is relevant. TVA management generally agreed with our findings and recommendations.

  Full Report

The OIG audited Tennessee Valley Authority's (TVA) craft labor staffing, which was identified by TVA as one of its top five risks in two risk categories, talent management and capacity expansion and construction. Our objectives were to assess TVA's mitigation of craft labor risks associated with competition from other companies and a shrinking labor pool and its process for identifying craft labor risks. We focused on TVA's plans with regard to contractor craft workforce. Our audit included mitigation plans as defined in TVA's Enterprise Risk Management document dated July 13, 2011 and additional mitigations for contractor craft labor within the Generation Construction, Coal Operations, Gas Operations, Nuclear Construction, and Nuclear Power Group organizations.

Based on our review of TVA's plans and actions to mitigate the risk and potential effects of craft labor shortages, we determined plans and actions were inadequate to aid in the achievement of future goals as identified in TVA's Integrated Resource Plan (IRP). Specifically, we determined risk mitigation actions related to competition needs improvement, and deficiencies existed in risk planning and mitigation related to the shrinking labor pool. In addition, we noted improvements could be made to the process for assessing and monitoring risk related to craft labor.

TVA has passed the management of craft labor risk to contractors, unions, and other organizations. In our opinion, TVA, as part of its economic development mission, has an obligation to participate in efforts to replenish shrinking craft labor pools. In addition, to achieve long-term future goals as identified in TVA's IRP, it is necessary to develop actions for attracting and retaining craft labor and/or look for alternative solutions to achieve these goals.

Based on the above, we recommended nine actions related to the process for monitoring craft labor staffing risk, as well as plans and actions for reducing craft labor staffing risk. TVA management agreed with the findings and recommendations.

  Full Report

The OIG performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for providing engineering, procurement, and construction services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2. Our audit included about $397 million in costs billed to TVA from October 1, 2007 to December 31, 2009. Our objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions. We determined Bechtel overbilled TVA an estimated $1,449,752 including:

• $903,698 in labor and related costs, which included (1) $778,617 in ineligible home office labor costs, (2) $75,309 in excess payroll additive costs, (3) $34,098 in excessive labor costs, and (4) $15,674 in fees for manual personnel seconded services. In addition, we found Bechtel did not invoice costs for seconded services separately as required by the contract, and seconded service costs were improperly included in Bechtel's annual performance fee base.
• $546,054 in other ineligible or unsupported direct costs, which included (1) $534,835 for relocation, temporary assignment, and travel costs; (2) $5,795 for other nonlabor direct costs; and (3) $5,424 for fees on subcontractor costs.

We recommend TVA management (1) recover $1,449,752 in overbilled costs from Bechtel, (2) ensure Bechtel separately invoices all seconded service costs, and (3) ensure seconded service costs are excluded from Bechtel's annual performance fee base.

(Summary Only)

The OIG completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with annual reporting requirements of the CRS Green Pricing Accreditation Program for the year ended December 31, 2011. The results of procedures applied to TVA's renewable energy initiative, "Green Power Switch," were provided to the Center for Resource Solutions.

(Summary Only)

The OIG audited $35.7 million in costs billed to the Tennessee Valley Authority (TVA) by Trans-Ash, Inc. The contracts provided for Trans-Ash to perform

(a) assistance in the off-site fly ash utilization project at Johnsonville Fossil Plant,

(b) ash pond management services at Johnsonville Fossil Plant, and (c) additional work described in separate Task Agreements (TAO) executed by TVA and Trans-Ash. In summary, we determined Trans-Ash billed TVA (1) $1,479,630 for work that was not authorized under the contracts, and (2) $186,955 in excessive and unsupported costs. Specifically,

(1) $1,479,630 was billed for work not included in the contracts' scopes and not authorized by separate TAOs. Additionally, the cost was billed using rates that were (a) not provided for by the contracts and (b) higher than rates included in another contract TVA had with Trans-Ash. As a result, the unauthorized cost was inflated by $81,434.

(2) $186,955 was overbilled due to:

- $170,993 in excessive costs that were billed on three TAOs;

- $13,866 in unsupported costs; and

- $2,096 in excessive costs billed due to an inflated tonnage rate.

We recommended TVA management:

1. Determine if $1,479,630 of unauthorized work should be recovered from Trans-Ash. If TVA management decides to pay for the unauthorized work, it should take action to recover $81,434 of inflated billings from Trans-Ash. Additionally, management needs to implement controls to ensure future work with Trans-Ash is properly authorized and billed using established contractual provisions.

2. Take action to recover $186,955 in overbilled costs from Trans-Ash.

(Summary Only)

The OIG assessed whether TVA performed adequate analysis in its decision to implement a new expense management application. Auditors reviewed the analysis performed to make the decision to implement the application as of May 31, 2011, as well as other documentation supporting that decision. Auditors were unable to verify TVA systems development processes were followed and system and business protocols were considered during the implementation of the application, because the project was merged with the upgrade to another system.

The OIG concluded, based on the review of project documentation and discussions with project management, adequate analysis was not performed to support the decision to implement the expense management application. Specifically, we found management circumvented controls and the decision was made without adherence to TVA project management policies. This resulted in time delays within the project, inadequate budget planning, duplication of efforts including possible waste of resources, and project management inefficiencies. Even though steps were taken to (1) define a business need, (2) derive estimates for cost and time implementation and identify ownership, (3) evaluate alternative system solutions, (4) obtain approvals and define a budget, and (5) assess the current and future business conditions, these efforts were made after the application was chosen as the system solution. Without understanding the reasons and parameters for implementing a new expense management system, the project team's efforts to follow the process as outlined in the project management policies were ineffective and resulted in schedule delays as well as project management team frustrations. We recommended the Vice President and Controller ensure project management policies are followed with TVA's mission in mind by communicating those policies to individuals within the organization and stressing the importance of (1) adequately defining the business need for a project prior to selecting the solution, (2) validating assumptions used in decision-making, evaluating business conditions and alternative solutions, and (3) determining project budget limits and obtaining project approval. TVA management agreed with the recommendations.

  Full Report

The OIG audited the electric system of Memphis Light, Gas, and Water Division (Memphis), a distributor based in Memphis, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and Memphis during the period January 2009 through December 2010. For the twelve-months ended June 30, 2010, Memphis reported it provided power to approximately 406,000 customers and earned electric sales revenue of approximately $1.2 billion.

The OIG's audit of Memphis found (1) an erroneous adjustment made to a customer account resulted in a $3.6 million underpayment to TVA in January 2010, and (2) other isolated instances of noncompliance related to the proper reporting of electric sales, including customer misclassifications and a metering issue. Additionally, Memphis could improve compliance with other contract provisions and/or Memphis' policy by (1) obtaining and maintaining required documentation and (2) increasing accuracy of contract demand in the billing system.

The OIG also identified two areas where TVA's oversight of distributors should be enhanced. The two issues, (1) the lack of guidance related to permitted expenditures and (2) the lack of a joint cost study, were included in previous OIG distributor audit reports, and TVA has agreed to take corrective action to address these issues.

The OIG made 10 specific recommendations that require action by Memphis, and recommended TVA's Senior Vice President, Policy and Oversight, work with Memphis to resolve the findings. These recommendations generally related to (1) complying with power contract provisions and (2) remediating classification and metering issues. Memphis and TVA management generally agreed with our recommendations and are taking action to address the findings.

  Full Report

The OIG audited $15.4 million in costs billed to TVA by Pressure's On, Inc. (POI), for providing hydro blasting services at the Tennessee Valley Authority (TVA) locations, including $14.82 million in costs paid by TVA to POI as of January 16, 2009. In addition, the OIG reviewed $596,789 in costs for hydro blasting services incorrectly billed under a separate contract that TVA had with POI for vacuuming services only. In summary, it was determined POI had overbilled TVA $4,145,909 including:

• $2,482,444 in unsupported costs related to (1) missing cost details, (2) unclassified costs, (3) subcontractor costs, (4) labor costs, and (5) equipment and materials.
• $1,113,702 in costs for hydro blasting services because POI billed (1) excessive hours for equipment operating time and (2) hourly rates for equipment and employees not provided for in the contract.
• $393,848 of ineligible costs for (1) equipment and materials, (2) labor costs, (3) mobilization / demobilization, (4) travel, meals, and per diem, and (5) fuel surcharges.
• $135,941 due to the use of incorrect billing rates.
• $41,837 in duplicate billings.
• Credit for $21,863 in discounts that had been provided by POI.

The OIG also noted numerous instances where POI did not pay its employees in accordance with the Project Maintenance and Modification Agreement (PMMA) labor provisions in the contract. In addition, POI did not submit "Weekly Statement of Payroll Compliance" reports to TVA's Contract Officer as required by the PMMA.

We recommended TVA management recover the $4,145,909 in net overbilled costs from POI and ensure POI complies with the PMMA requirements.

(Summary Only)

The OIG audited the electric system of Knoxville Utilities Board (KUB), a distributor based in Knoxville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and KUB for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, KUB provided power to approximately 197,000 customers resulting in electric sales revenue of approximately $455 million to KUB.

Our audit found KUB generally complied with key contract provisions for (1) proper reporting of electric sales and (2) nondiscrimination in providing power, but we noted noncompliance related to (3) approved use of electric revenues. Additionally, we noted a few other minor issues regarding required documentation and information in the billing system.

We also identified two areas where TVA's oversight of distributors should be enhanced. The two issues, addressing (1) distributors using electric funds for economic development and (2) the lack of a joint-cost study, have been reported in previous OIG distributor audit reports, and TVA has agreed to take corrective action on these issues.

We make six specific recommendations in this report that require KUB action and recommend TVA's Senior Vice President, Policy and Oversight, work with KUB to resolve them. These recommendations generally relate to (1) complying with Power Contract provisions and (2) remediating classification issues.

KUB and TVA management disagreed with our finding regarding the noncompliant use of electric system funds for economic development purposes. KUB stated it intends to continue the practice of using modest amounts of electric system funds for economic development purposes. TVA stated it does not plan to take any action prior to completion of its currently ongoing review of TVA regulatory policy and the TVA Board's action on that review.

KUB and TVA management generally agreed with our other recommendations, and KUB stated it has taken action on the majority of the recommendations prior to issuance of this report.

  Full Report

The WBN Unit 2 construction project has experienced significant schedule and cost overruns. The project was originally expected to be completed in October 2012 at a cost of just under $2.5 billion. However, TVA will not meet these targets. On April 5, 2012, TVA announced an additional $1.5 billion to $2 billion would be required to complete the project with an estimated time of completion between September and December 2015. TVA's Board of Directors approved the revised schedule and budget on April 26, 2012.

Since TVA began construction on Watts Bar Nuclear Plant (WBN) Unit 2 in October 2007, the OIG has had staff assigned to attend meetings at the project site in order to keep abreast of management challenges as the OIG conducts its various reviews. During meetings attended by the OIG at the WBN Unit 2 project site, construction issues discussed were characterized by management as recoverable or normal construction problems. Each project schedule, based on its associated assumptions, showed how everything was on track for meeting the early target finish date. Additionally, pertinent information critical of the project's performance was not provided to the OIG by former TVA management when requested by our office. These actions made it harder to identify the extent and potential consequences of the problems on the project. However, in 2010, it became evident many of the issues raised in meetings were symptomatic of much broader problems that increased the risk of exceeding the project's schedule and budget. As a result, we began this review. In mid-2011, we met with TVA executives to brief them on our concerns surrounding the project. In August 2011, we briefed the Audit, Risk, and Regulation Committee on our concerns and the preliminary findings of this report.

We conducted this review to (1) assess TVA's schedule and cost performance on this project and (2) identify any weaknesses in the project's set-up and management and recommend actions to improve schedule and cost performance on this and future projects. We found two primary reasons for the schedule and cost overruns. Based on our assessment of the individual issues raised in various meetings, discussions with WBN Unit 2 and TVA personnel, and reviews of project documentation, we determined that the poor performance experienced at WBN Unit 2 was attributable primarily to (1) deficiencies in project set-up and (2) ineffective management oversight as discussed below.

• Problems with the original project set-up included the following: (1) the detailed scoping, estimating, and planning study was not as in-depth as it should have been; (2) inability to implement prime subcontractors' agreements contributed to project delays; (3) Bechtel was the American Society of Mechanical Engineers (ASME) certification holder, limiting TVA's ability to remove them from the project if problems occurred; and (4) construction began before adequate engineering had been completed.
• Project management in key areas was also ineffective. Specifically, TVA management did not: (1) perform effective oversight of the engineering, procurement, and construction contractor; (2) address certain warning signs that the project was in trouble; and (3) adequately mitigate known problems related to staffing, work order packages, timeliness and quality of information provided to the Nuclear Regulatory Commission, and the procurement of materials that require a long lead time to obtain.

TVA recognizes the problems associated with the construction of WBN Unit 2 and has publicly acknowledged them. In addition, TVA has taken several actions to address the problems identified at WBN Unit 2 and offer an accurate reflection of the progress of the project, engage and improve the relationship with the project workers, and promote transparency. Further, Nuclear Construction and TVA Corporate's planned actions include a review of the accuracy of the Bellefonte estimate, restructuring the independent Project Assurance Organization, and developing a contracting strategy for various project classifications. TVA's actions are positive and should help to improve the process for WBN Unit 2 and future projects.

TVA management agreed with our recommendations to: (1) develop a consistent and thorough approach for planning and estimating nuclear construction projects including, but not limited to, a range of estimates with probabilities, key risk assumptions, and contingency amounts; (2) develop contingencies for supplementing contractors' expertise in case they are unable to provide qualified resources; (3) develop contingencies for obtaining the American Society of Mechanical Engineers certifications for future projects as applicable; (4) require design engineering to be substantially complete before starting construction on nuclear projects; (5) establish controls over the development and reporting of project performance data and provide for independent verification of the data; (6) assess the cultural climate to determine if the actions of certain former key management have affected the organizational culture and provide a venue for WBN unit 2 personnel to voice their concerns; (7) evaluate project incentives to ensure they will deliver the desired results; (8) address aging nuclear workforce issues by developing a program for transferring knowledge; and (9) work collaboratively with TVA's Board of Directors to evaluate the benefits of retaining the services of nuclear construction experts to monitor large nuclear construction projects' progress and report results directly to the Board.

  Full Report

In light of recent gas-related explosions in the utility industry, we conducted a review of Tennessee Valley Authority's (TVA) safety of gas line and gas plant operations. The objective of our review was to determine if TVA has taken appropriate steps to identify and mitigate risk associated with the operation of gas plants and gas lines. We found that the vast majority of gas-related explosions were gas line related. According to TVA personnel, TVA is not responsible for gas until it reaches the reducing stations on TVA property. This significantly decreases TVA's risk of a gas-related incident. We did identify explosions in Middletown, Connecticut and Garner, North Carolina that occurred at gas plants due to improper commissioning. In both instances, fuel gas was used to clean or purge gas pipes of debris, air, or other substances. TVA has taken steps to mitigate this risk by using compressed air instead of gas to clean or purge gas pipes.

As part of TVA's Risk Management program, the organization has identified asset performance vulnerability. Asset performance vulnerability impacts TVA's ability to provide power when there is a demand. The risk for asset performance vulnerability is driven by equipment-failure-related incidents that cause forced-outage events and planned-outage extensions of significant duration. According to TVA's Risk Management program, the severity for asset performance vulnerability is moderate. TVA has mitigated these risks. In addition, TVA has completed the draft of a Natural Gas Piping System Management manual. This manual provides the primary standards and methodology required for the commissioning, maintenance, and integrity management of natural gas piping systems found at TVA fossil power group properties.

  Full Report

On Monday December 22, 2008, the ash containment area at the Kingston Fossil Plant failed. Approximately 5.4 million cubic yards of fly ash and bottom ash were released onto land and adjacent waterways. As part of the OIG's ongoing commitment to provide oversight of the Kingston ash spill cleanup, we reviewed TVA's non-time-critical Kingston Ash Recovery Project activities.

The objectives of this review were to determine (1) the overall status of the non-time-critical phase of the Kingston Ash Recovery Project and (2) if TVA is meeting the schedule for non-time-critical activities. During our review, we found that TVA has made significant progress in the non-time-critical phase of the Kingston Ash Recovery Project. Specifically, TVA has recently completed the following activities: (1) removing ash from the North Embayment, (2) buttressing of Dike C, (3) transferring a portion of a nearby ball field to the Kingston Fossil Plant, and (4) replacing the skimmer wall in the intake channel. In addition, TVA has ongoing non-time-critical activities that include: excavating ash from the Middle Embayment, constructing the Perimeter Wall Stabilization around the on-site disposal areas, disposing of ash on-site, studying the effects of residual ash on the river system, and creating a master plan for park and recreation areas. While TVA is making progress in the completion of non-time-critical activities, we found that five of nine activities reviewed did not meet the scheduled completion date. If the project continues late completion of activities, there is an increased risk that the overall project completion date of 2015, disclosed in the company's financial statements, could be delayed.

We recommend TVA's Senior Vice President, Generation Construction, evaluate the current schedule to determine if the identified delays have caused overall schedule slippage. If it is determined that the overall schedule will be delayed beyond the date disclosed in the footnotes to TVA's financial statements, then the disclosure should be updated. TVA management agreed with our recommendation and has taken actions to address it.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we audited Westinghouse Electric Company LLC's billed and estimated remaining material escalation costs under Contract No. 65717. In summary, we determined Westinghouse overbilled a net $26,917 in escalation costs and overestimated the remaining material escalation costs by $137,408. In addition, we identified compensation terms in the contract that need to be clarified to reduce the potential for billing discrepancies.

Westinghouse agreed with our findings that escalation costs were overbilled and overestimated. Accordingly, TVA management should ensure (1) TVA recovers $26,917 in overbilled escalation, and (2) the remaining escalation costs are billed in accordance with the contract. TVA and Westinghouse agreed the compensation terms need to be clarified, and the contract is being revised.

(Summary Only)

We initiated a review of the effectiveness of Tennessee Valley Authority's (TVA) Energy Efficiency and Demand Response (EEDR) organization. We conducted this review because energy efficiency and demand reduction initiatives are important components of TVA's plan to meet future power needs in its service territory. The objectives of this review were to determine (1) how TVA measures the effectiveness of its energy efficiency and demand response programs and (2) if its goals in these areas are being met. We found EEDR (1) has contracted with an independent consultant to provide evaluation, measurement, and verification services and (2) achieved its planned energy efficiency and demand reduction for 2011 and only missed its planned demand reduction in 2009 and 2010 by 2 MW and 16 MW, respectively. The Green Power Switch program came close to achieving its goals for 2009 and 2010; however, it fell significantly short of its goal in 2011. This report was issued for informational purposes only.

  Full Report

The Office of the Inspector General performed an audit of the TVA's compliance with the Improper Payment Information Act (IPIA) for FY 2011. In summary, we found TVA was in compliance with IPIA requirements that were applicable to TVA. In our opinion, TVA was only required to comply with the IPIA requirement to conduct a program specific risk assessment. We reviewed the process used by TVA to identify programs susceptible to improper payments and noted it is in compliance with IPIA guidance. TVA performed a risk assessment for FY 2011, and its primary programs susceptible to improper payments are its supply chain programs. IPIA defines an improper payment as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.

While we found TVA was in compliance with IPIA requirements that were applicable to TVA, we noted areas where TVA can improve its process for IPIA reporting and better ensure that it meets IPIA requirements with a more formal process. Specifically, we recommended TVA (1) document all processes related to complying with IPIA (these processes may include, but are not limited to, the identification, calculation, and recapture of improper payments), (2) maintain documentation of all reports used to identify potential improper payments as well as documentation related to actual improper payments, (3) consider posting TVA's Improper Payments Information Report - FY 2011 on the agency Website to increase transparency and better align its policy with that of other agencies, and (4) document a formal review process to help ensure TVA accurately reports improper payments. TVA management generally agreed with our recommendations and has taken or is taking corrective actions.

  Full Report

The OIG audited the electric system of Meriwether Lewis Electric Cooperative (MLEC), a distributor based in Centerville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and MLEC for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, MLEC provided power to approximately 35,000 customers and reported electric sales revenue of approximately $69 million.

Our audit found MLEC generally complied with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power, but we noted noncompliance related to approved use of electric revenues. We also noted a few other less significant issues regarding MLEC's customer contract documentation and internal controls. Additionally, we identified two areas where TVA's oversight of distributors could be enhanced. These areas were (1) discontinuing the practice of allowing distributors to pledge electric system funds as guarantees for customer economic development loans with Rural Development and communicating this to all affected distributors and (2) the lack of guidance related to permitted expenditures. These findings were reported in previous OIG distributor audit reports, and TVA agreed to take corrective action.

MLEC did not provide comments to address the six findings and recommendations in the report. Except for the recommendation regarding the proper accounting for economic development expenditures, TVA management generally agreed with our recommendations. Also, in response to a recommendation made regarding the formal documentation of decisions and approvals by the MLEC Board related to resale rate components and amounts, TVA management stated except with respect to enforcing the nondiscrimination requirement, it currently has no contract mechanism to mandate the recommended requirements related to MLEC's resale rates.

  Full Report

Two significant conditions impacted the OIG's determination of TVA compliance for fiscal year (FY) 2011 with the Improper Payments Information Act of 2002, as amended (IPIA).

• First, as a government corporation, TVA is required to issue an Annual Management Report rather than a Performance Accountability Report (PAR) or Annual Financial Report (AFR), and most IPIA requirements apply to the PAR and AFR.
• Second, TVA's improper payments fell below the IPIA threshold in FY 2011, defined as $10 million of all program activity payments and 2.5 percent of program outlays (TVA's improper payments totaled $7,446,226 million and comprised 0.074 percent of program outlays).

Under the IPIA, TVA was required to conduct a program specific risk assessment for FY 2011. TVA determined its primary programs susceptible to improper payments were its supply chain programs. TVA determined its total amount of payments subject to review under IPIA was $10,098,354,626. The OIG reviewed TVA's process for identifying programs susceptible to improper payments and noted it is in compliance with the IPIA.

  Full Report

As part of the annual audit plan, the OIG audited Coal Quality Adjustment Reports (CQARs). Our objective was to determine if the CQARs were calculated in accordance with contract terms.

During fiscal years 2008 through May 2010, Tennessee Valley Authority (TVA) processed 642 CQARs with net adjustments totaling about $110 million. We assessed the accuracy and compliance with contract terms of 18 CQARs, representing about $24.6 million, or all adjustments over $1 million. In addition, we tested the accuracy and compliance with contract terms of 35 CQARs where adjustments were less than $1 million, totaling $16,285,302. In summary, we found the CQARs were calculated accurately and in accordance with contract terms.

(Summary Only)

We audited $67.9 million in costs billed to TVA between November 2006 and December 2009 for modification, supplemental maintenance, and technical support services provided at TVA nuclear plants by Williams Plant Services, LLC (Williams). Our objective was to determine if the costs billed by Williams were in accordance with the terms of the contract. In summary, we found TVA had been overbilled $1,229,401 as follows:

• $714,288 was overbilled for subcontractor costs for Williams' sister company, Williams Specialty Services. The overbilling included (a) $631,131 in unallowable craft labor costs and associated fees, (b) $99,448 in costs not provided for in Williams' subcontract with Williams Specialty Services, (c) $7,489 in unsupported costs, and (d) a credit of $23,780 for an invoice that was underpaid by TVA.
• $279,288 was overbilled for payroll tax costs on non-manual employees.
• $225,463 was overbilled for labor costs, including (a) $190,804 in fringe benefit costs for non-manual employees who did not receive fringe benefits, (b) $26,349 in unsupported and duplicate labor billings, and (c) $8,310 for non-manual labor costs billed at incorrect markup rates.
• $10,362 was billed for ineligible fees applied to fitness for duty/badging costs.

(Summary Only)

As a result of issues discussed during meetings at Watts Bar Nuclear Plant (WBN), an audit was initiated to (1) assess the process for remediating Problem Evaluation Reports (PER) for the WBN Unit 2 project, and (2) determine the effectiveness of remediation stemming from the PER process.

We identified improvements needed in the effectiveness and efficiency of the PER process. Specifically, we determined the process could be improved to assure Corrective Action Plans (CAP) were closed out timely by tracking Corrective Action Plans (CAP) that were not approved within 30 calendar days of Project Review Committee (PRC) review. Prior to the issuance of our report, WBN U2 issued a PER to address all CAP timeliness issues from a project-wide standpoint. We also identified an opportunity to improve the trending of PERs and recommended the WBN U2 Quality Assurance Manager expand the trending analysis guidelines to include categorizing of PERs by level of importance and analyzing PER trends according to importance as well as quantity.

(Summary Only)

OIG reviewed demurrage costs incurred from October 1, 2004, through June 13, 2011, totaling $14 million to assess why demurrage costs were incurred and what actions, if any, TVA could take to minimize these costs.

We determined (1) $1,036,100 in origin demurrage costs had not been billed back to a contractor as provided for in the contract; (2) TVA had not fulfilled its contractual obligation to provide a contractor with applicable portions of barging agreements, resulting in $537,440 in unrecoverable demurrage costs; (3) $376, 667 in demurrage costs were incurred and billed back to the contractor but had not been paid; (4) TVA's agreement with a contractor lacked the necessary language to hold the contractor accountable for origin demurrage costs until January 1, 2011, when a new contract was put in place, resulting in unrecoverable demurrage costs of $784,000; (5) due to inconsistencies in demurrage contract terms for coal delivered to Cumberland Fossil Plant (CUF), TVA incurred approximately $764,400 in unrecoverable costs; changes to the unload time under this same contract could save TVA about $327,600 annually; (6) a clause in TVA's contract for delivery to Allen Fossil Plant (ALF) was not aligned with the operating conditions at the plant which prevented TVA from using a provision to mitigate demurrage costs; (7) origin and destination demurrage costs were not tracked separately, which prevented TVA from transferring origin demurrage costs to the supplier; (8) eliminating barge damage charges at ALF could reduce costs by at least $145,000 per year; and (9) addressing operational challenges at ALF and CUF could reduce demurrage costs at these plants. As a result of the operational challenge at ALF, we also noted that when the focus of a business unit is on their individual goals rather than TVA goals, the overall strategic business unit's budget and ultimately TVA's expenses can be impacted. This was previously identified in OIG audit, 2002-911E, Review of the Coal Procurement Process.

In addition, we determined that more effective knowledge of the contract demurrage terms, monitoring of the contracts, and communication among terminal, barge, and rail contract administrators, the Coal and Gas Services specialist responsible for demurrage payments, and Yard Operations personnel are needed.

We made recommendations accordingly to the Senior Vice President, Fossil Power Group.

(Summary Only)

We audited $314.9 million of costs billed to TVA by G-UB-MK Constructors for modifications and supplemental maintenance work at TVA fossil and hydro plants and other TVA-controlled facilities. In summary, we determined G-UB-MK's billings to TVA complied with the terms of the contract except for $3,783 in net overbillings for craft labor. The contractor agreed with our findings and plans to issue TVA a credit for the overbilled costs.

(Summary Only)

This review included identifying (1) performance trends based on Institute of Nuclear Power Operations (INPO) reports, (2) major contributing factors affecting performance trends, and (3) patterns of behavior that impact culture. Our review found Nuclear Power Group's (NPG) performance with respect to the INPO index, an industry standard in trending nuclear performance, safety, and reliability, declined through 2007 and then improved through 2010. We found outages, both planned and forced, were a major contributor to changes in performance. The majority of the unplanned outages appeared to be the result of equipment reliability issues. Factors contributing to performance improvement included a gap-based business plan and other new initiatives within the organization, including a focus on equipment reliability. As part of this project, we reviewed the following elements of NPG culture: (1) alignment, (2) progress, (3) standards, (4) accountability, and (5) attitude. We found management had taken actions that enhanced culture through alignment and progress. However, in the areas of standards, accountability, and attitude, we noted that while management had taken some corrective actions, culture could be further enhanced by addressing certain issues. We made recommendations, accordingly, to management.

  Full Report

The OIG audited the handling and processing of personally identifiable information (PII) provided to Cartus Corporation, a contractor for TVA. Our audit evaluated the (1) processes used to safeguard data transmitted from TVA to Cartus (2) handling, processing, and security of the data at Cartus, and (3) compliance with security-related contract terms. Generally, we found TVA controls for transmission of data to Cartus and its security controls for TVA data stored on its systems were effective in protecting the data. However, we identified control improvements that, if implemented, would strengthen Cartus' controls over data protection.

(Summary Only)

We reviewed the TVA compliance with the Federal Information Security Management Act (FISMA) of 2002. In summary, we determined that while TVA has made some progress in implementing information technology controls required by FISMA and work on some previously recommended actions continues, additional efforts were needed to strengthen compliance of TVA's security program with existing controls and address additional concerns. We identified opportunities to improve all control areas that we reviewed, except for TVA programs for incident response and reporting and remote access management. In addition, we identified an opportunity for TVA to improve agency-wide security oversight. TVA management agreed with our recommendations.

(Summary Only)

The OIG audited the electric system of Volunteer Energy Cooperative (Volunteer), a distributor based in Decatur, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and Volunteer for the period July 2008 through June 2010. For fiscal year (FY) 2010, Volunteer provided power to approximately 110,000 customers resulting in electric sales revenue of approximately $200 million. During the period audited, Volunteer also operated a natural gas division and a wholly owned propane subsidiary.

Our audit found Volunteer generally complied with the contract provisions for (1) proper reporting of electric sales and (2) nondiscrimination in providing power. However, we noted instances of noncompliance with other provisions of the power contract. The most important instances were related to the use of electric system revenues and customer classification. We also identified three areas where TVA oversight of distributors could be enhanced. Two areas identified were new oversight issues addressing the lack of (1) guidance related to the due diligence process for cooperatives providing loans to customers from funds provided by Rural Development and (2) review of cooperative distributors' capital credit allocations in the retail rate setting process. The remaining issue, regarding the lack of a current joint cost study, was reported in previous OIG distributor audit reports, and TVA agreed to take corrective action on this issue.

With regard to the 18 recommendations related to Volunteer, Volunteer disagreed with three recommendations, but TVA management agreed with all of the recommendations, stating it planned to investigate one finding further. In regards to the recommendations which were specific to TVA, TVA management stated (1) it planned to recommend formal approval by the TVA Board of Directors of a use of revenues policy which expressly approved distributor participation in the United States Department of Agriculture Rural Economic Development and Grant Program, and (2) consideration of Volunteer's capital credit allocations was inherent in TVA's revised retail ratemaking and approval process.

  Full Report

We reviewed the effectiveness of TVA's budget process. Our objective was to review the adequacy of the processes used in preparing, reviewing, and adopting the fiscal year 2011 budget. In general, we determined the overall design of the budget process was sufficient to achieve the desired results. We found nothing to indicate the benchmarking process was not sufficient to allow TVA to benchmark itself against its peers. We also found nothing to indicate the budget review and approval process was insufficient. However, we did identify opportunities where the process could be strengthened and improved. Specifically, we determined:

• A formal written procedure directing the budget process did not exist.
• Operating and maintenance (O&M) targets were set using historical data rather than tied to fundamental business drivers.
• A control to ensure each submitted business plan aligns resources with strategic goals was not operating as intended.
• The budget process addressed risk management initiatives at the organization level; however, entity-wide risk management was not directly addressed.
• The process for prioritizing capital and O&M projects among organizations could be improved.
• The budget process relied heavily on compiling data from multiple spreadsheets which was manually intensive, time consuming, and error-proned.

(Summary Only)

We performed four agreed-upon procedures that were requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2011.

Results of the procedures applied follow. In summary,

1. The fiscal year (FY) 2011 WP goals were properly approved, including two changes approved on August 15, 2011 and August 24, 2011. These two changes affected 16 scorecards and resulted in increases to the payout.
2. The actual year to date FY 2011 measures for the Strategic Business Unit and Business Unit scorecards agreed with the respective supporting documentation provided.
3. The two actual year to date incentivized TVA Corporate balanced scorecard measures agreed with the underlying support provided.
4. The mathematical accuracy of the payout percentages and subsequent changes were verified by the OIG through recalculation.

(Summary Only)

The OIG evaluated the (1) security controls for protecting TVA data transmitted to and handled by ActiveHealth and (2) adequacy of and compliance with TVA contract terms for security and data protection. In summary, we determined, (1) appropriate controls were in place to effectively protect personally identifiable information and protected health information transmitted to and handled by ActiveHealth, and (2) ActiveHealth complied with the security terms included in the TVA contract. However, we identified opportunities to improve (1) the ActiveHealth control environment, (2) TVA's contract terms for health services, and (3) TVA's communication of ActiveHealth's role in the health benefits package.

(Summary Only)

TVA's challenges are great with the need for financial flexibility to ensure the TVA mission of delivering low cost power is achieved. The current debt ceiling could limit TVA's financial flexibility and require TVA to seek higher cost financing options or require significant rate increases that could adversely affect the economic development of the Tennessee Valley region. Although TVA is in the process of evaluating options, TVA's position is that a financial metric (e.g., something similar to the debt service coverage ratio), rather than a debt ceiling stated in terms of an arbitrary dollar amount, would provide control of TVA's borrowing authority that is tied to TVA's ability to pay outstanding debt, similar to investor owned utilities, while still providing Congress with oversight and control.

The Inspector General agrees with TVA management in their efforts to maintain maximum financial flexibility, including (1) the adoption of sound financial principles, (2) ensuring multiple options and strategies are pursued to achieve the most economical approach, and (3) seeking to ensure that debt remains a viable option in future financing decisions.

TVA should be able to support additional debt to help meet energy demands as long as the TVA Board maintains its ratemaking authority, TVA maintains its service territory and customer base, and TVA uses the debt proceeds to successfully build gen