Federal Reports

In comparison to the fiscal year (FY) 2008 FISMA report, we found TVA had generally improved in the area of establishing its inventory of systems requiring certification and accreditation and general security awareness training for network users. However, we identified several areas during this year's audit in which (1) performance had declined, or (2) TVA had not completed actions from the prior year's audits.During our FY 2009 review we noted improvements were needed in the following areas: (1) the oversight and evaluation of contractor systems; (2) the POA&M process; (3) the C&A process; (4) incident reporting; and (5) security awareness training. Summary Only

We audited $147.7 million of costs billed to TVA by a contractor for providing security services for TVA facilities. In summary, we found (1) TVA made an erroneous payment of $206,531 to the contractor for costs related to another contract, (2) the contractor overbilled TVA an estimated $72,645 due to miscellaneous unsupported and ineligible costs, and (3) the contractor understated its provisional billing adjustments for 2007 and 2008 by $7,705.The contractor subsequently refunded or provided credits for $247,438, including (1) the erroneous payment of $206,531, and (2) $40,907 of the miscellanious unsupported and ineligible expenses. We recommended TVA management recover the remaining overbilled costs. Summary Only

The OIG performed a review of the Princeton Electric Plant Board (Princeton), which is a distributor for Tennessee Valley Authority (TVA) power based in Princeton, Kentucky. Our review of Princeton found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Princeton and TVA would not be material. In addition, we found Princeton did not have enough cash on hand as of June 30, 2008, to cover expenditures for planned capital projects and provide a cash reserve. However, Princeton obtained a loan in August 2009 to provide additional funds for capital expenditures.We also found Princeton (1) did not comply with contract provisions for allocation of joint costs and establishing contracts for customers with demand above 50 kW and (2) could improve internal controls related to the completeness, accuracy, and validity of the billing and metering data. Finally, we have identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include: (1) the absence of a joint cost study being performed, (2) the lack of an adequately defined process to document approval of Small Manufacturing Credits, (3) the lack of guidance related to when a demand meter is required, and (4) the lack of guidance on what constitutes prudent expenditures.Princeton has elected to terminate its power contract with TVA effective January 24, 2010. Consequently, we have no recommendations which require response from either Princeton or TVA. However, we provided specific suggestions to help Princeton strengthen its internal controls and accurately bill its customers in the future. Our suggestions included: (1) remediate classification and metering issues, (2) develop and document a consistent methodology for allocating all joint costs, (3) obtain contracts for customers as appropriate, (4) update the automated system (and manual customer cards, if maintained) with changes, including contract demand, on a timely basis, and (5) identify and utilize exception reports to ensure customers are classified correctly and identify problems that need to be addressed in a timely manner. As noted in the report, Princeton personnel corrected the classification issues and started reviewing additional exception reports.

The OIG performed a review of Tullahoma Utilities Board (Tullahoma) which is a distributor for TVA power based in Tullahoma, Tennessee. Our review of Tullahoma found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Tullahoma and TVA would not be material. In addition, we found Tullahoma had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 29 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. Based on prior distributor audit findings, TVA is in the process of defining criteria for determining when a distributor's cash reserves are excessive. We also noted that Tullahoma used electric system funds to pay for expenses of the fiber optic business prior to obtaining TVA approval to loan funds to the fiber department.We also found improvements were needed to (1) comply with contract provisions regarding the allocation of costs between departments and customer contracts and (2) strengthen internal controls over the completeness, accuracy, and validity of billing system data. Finally, we identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include the (1) absence of a joint cost study being performed in over 20 years, (2) lack of an adequately defined process to document approval of credits, (3) lack of guidance related to when a demand meter is required, (4) lack of guidance on what constitutes prudent expenditures, and (5) lack of criteria for evaluating when a distributor's cash is excessive.We recommended the Group President, Strategy and External Relations, work with Tullahoma to (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. TVA and Tullahoma management generally agreed with and are taking actions to address the recommendations.