Emerson Process Management Power and Water Solutions, Inc. – Contract No. 14688

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Emerson Process Management Power and Water Solutions, Inc., (Emerson) under Contract No. 14688 for distributed control systems products and services. Our audit objective was to determine if costs billed to TVA under Contract No. 14688 were in accordance with the contract's terms. Our audit scope included about $8.2 million in costs billed to TVA by Emerson during fiscal years 2022 and 2023. In summary, we reviewed $6,039,332 in invoices billed under the largest 14 purchase orders (POs), all of which were for fixed price projects, and determined the fixed price POs were billed in accordance with the milestone payment schedules that had been authorized. However, we determined Emerson did not comply with the contract requirements to build up its fixed price POs using the contract pricing, resulting in an overstatement of $702,108 to the fixed price POs. Further, about $1.3 million of the pricing was not from Emerson’s pricing books. In addition, we determined (1) TVA project managers did not have enough information to effectively review the fixed price proposals to verify compliance with the contract prior to the issuance of the POs, which could have prevented Emerson’s noncompliance, and (2) the fixed price projects were not competed, although the contract stated it was TVA’s intent to compete any fixed price work awarded under the contract.