Federal Reports

As part of our annual audit plan, we reviewed the process for postponing and cancelling Power System Operations (PSO) 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 PSO's postponed and cancelled projects (1) contained a capital classification designated by Fixed Asset Accounting (FAA), (2) were approved in accordance with Standard Programs and Processes 2.1, and (3) had valid justifications for postponement and/or cancellation. We also noted that project changes were communicated internally using a listing of projects known as the "checkbook," rather than Five Year Project Plans. We determined the use of the checkbook was a reasonable alternative to the Five-Year Project Plan.We also determined that project cancellations required to be communicated to FAA were communicated to FAA in a timely manner. Finally, we noted that while there is no policy governing the splitting of project costs, there is an independent review of project costs performed by Financial Services personnel and an expectation for employees to appropriately charge their time to the specific project(s) they work on.

EAC OIG, through the independent public accounting firm of Clifton Gunderson LLP, audited $54.7 million in funds received by the Tennessee Secretary of State under the Help America Vote Act. The objectives of the audit were to determine whether the Secretary of State (1) used payments authorized by Sections 101, 102, and 251 of HAVA in accordance with HAVA and applicable requirements; (2) accurately and properly accounted for property purchased with HAVA payments and for program income; and (3) met HAVA requirements for Section 251 funds for an election fund and for a matching contribution.

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

We audited $4.27 million of costs billed to TVA by a contractor for providing preemptive full structural weld overlays on Sequoyah Nuclear Plant Units 1 and 2. In summary, we found the contractor billed TVA $320,700 in unsupported and ineligible costs including (1) $271,200 of unsupported delay costs, and (2) $49,500 of ineligible billings for the cleaning and handling of equipment that was contaminated before it was shipped to TVA. We recommended TVA management recover $320,700 in unsupported and ineligible costs from the contractor. Summary Only

This Semiannual Report to Congress summarizes the activities of our office for the 6-month period