Postponed/Cancelled Capital Projects - Nuclear

As part of our annual audit plan, we reviewed the process for postponing and cancelling Nuclear Power Group (NPG) capital projects. Our audit objectives were to determine whether fiscal years (FY) 2007 and 2008 project postponements and cancellations were (1) properly approved, (2) effectively communicated, and (3) monitored to prevent inappropriate charges.Based on our review, we determined that NPG's postponed and cancelled projects contained a capital classification designated by Fixed Asset Accounting (FAA) and that justifications for postponing/cancelling projets were valid. However, we noted control weaknesses that could allow business units to manipulate project costs in order to meet budget goals. Specifically, communication and monitoring controls were not adequately designed to mitigate the risk that project costs were (1) appropriately and accurately charged to the projects, (2) appropriately classified as capital costs rather than operations and maintenance (O&M) costs, and (3) accurately and timely communicated for recording on the financial statements. We determined:Communication by NPG to FAA of one project cancellation occurred prior to the approval of that cancellation.One project cancellation was not communicated to FAA within the required time frame.No reviews independent of NPG project management were performed to determine whether costs were appropriately and accurately charged to projects.No criteria existed defining the process and requirement for (1) allocating capital and O&M costs to a project, (2) allocating costs among projects, and (3) borrowing funds from other projects.Project documentation was not retained in accordance with retention guidelines.We made recommendations to the Chief Nuclear Officer and Executive Vice President, Nuclear Generation, in conjunction with other organizations regarding the above finidngs