Federal Reports

We audited $18.4 million of payments TVA made to a contractor for chemicals and water treatment services during Fiscal Year 2004 and found 23 percent of the payments were authorized by technical contract managers who did not have adequate controls in place to ensure the products or services had been received. Additionally, we found the prices billed by the contractor were in compliance with the contract except for (1) $6,266 of overbillings, and (2) an estimated $322,579 of payments for products with unsupported prices. TVA management plans to (1) implement more effective controls over receipt, (2) recover the $6,266 overbilling, and (3) obtain appropriate documentation for the unsupported prices or recover billings that lack supporting documentation. Summary Only

We reviewed adjustments to provisional billings of indirect costs submitted by a contractor. We determined the contractor's adjustments for calendar years 2002 through 2004 were overstated $80,615 due to errors in the contractor's reconciliation of previously billed costs. Also, we found the contractor owed TVA additional credits totaling $28,829. The contractor agreed with our findings and submitted adjusted invoices that included credit for the questioned amounts. Summary Only

As part of our annual audit plan, we audited the asset retirement obligation (ARO) controls relied on by management to ensure the ARO balances in the TVA's financial statements are accurate and complete. Controls over the balance in this and other related ARO accounts included quarterly reconciliations of the general ledger balances and underlying support for the cost estimates maintained in a worksheet format for each plant. We tested the reconciliations and determined the controls over the ARO process were operating effectively to ensure balances were accurately stated, in all material respects, in TVA's June 30, 2005, financial statements.

Semiannual Report to Congress

Winning Performance is the process TVA uses to manage its performance. It is a single, integrated process that includes strategic planning, operational planning and budgeting, performance monitoring and reporting, and employee development and compensation. We performed procedures agreed-upon by management to assist in determining the validity of the fiscal year 2005 payout. In summary we found (1) changes to the FY 2005 goals were properly approved with one exception which will not impact the payouts, (2) actual year-to-date inputs for each indicator agreed with the respective reason for improvement sheet with one exception which will not impact the payouts, (3) actual inputs for the eight TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, and (4) the payout percentages were mathematically accurate after noted exceptions were corrected. Summary Only

The enclosed report presents the results of the audit of the Commission’s financial statements for the fiscal year

The Office of the Inspector General was requested by the Vice President, BFN Unit 1 Restart, to review tool management associated with the restart project. TVA is providing all necessary tools for the BFN Unit 1 Restart. Work is primarily being completed by engineering and modification contractors, 1,500 of which are craft laborers who have tool needs/requirements. We assessed the processes and key control activities used to track and account for tools purchased for the BFN Unit 1 Restart and on-going BFN operations. We found a significant lack of tool accountability/tracking resulting from (1) noncompliance with TVA Nuclear Business Practice 226, Tool and Equipment Accountability, prescribed processes and key control activities and (2) other process/control weaknesses. Management agreed with our findings and plans to initiate corrective actions.