Distributor Review of Florence Utilities

The OIG performed an audit of Florence Electricity Department (Florence), a distributor of Tennessee Valley Authority (TVA) power based in Florence, Alabama. Florence also operates water, waste water, and gas departments, and provides billing services for these utilities and other municipalities. Annual revenues from electric sales were approximately $116 million in fiscal year (FY) 2009. The objective of our audit was to determine compliance with key provisions of the power contract between TVA and Florence.Our audit of Florence found improvements were needed in the areas of (1) customer classification, (2) metering, (3) contract compliance, and (4) distributor internal controls.In addition, we found Florence had enough cash on hand at June 30, 2009, to cover actual FY 2010 capital expenditures and provide a cash reserve equivalent to a cash ratio of about 8 percent, which is within TVA's established guidelines for an adequate cash ratio of 5 to 8 percent.Finally, we found two opportunities to enhance TVA's oversight of the distributors that was also reported in previous Office of the Inspector General distributor audits. TVA is in the process of addressing these findings, which include (1) providing definitive guidance for distributors on what constitutes prudent expenditures and (2) updating joint cost allocations in the time period recommended by the TVA Accountants' Reference Manual.Florence and TVA management agreed with our recommendations and have taken or are taking actions to address the recommendations. The target completion date for all corrective actions is September 2012.