Federal Reports

We reviewed the design of a TVA contractor's process for administering subcontracted work for the Watts Bar Nuclear Plant Unit 2 construction project. Specifically, we reviewed the contractor's (1) invoice review process, (2) process for scheduling work, and (3) process for ensuring subcontractor work meets the contractor's specifications. In addition, we made inquiries regarding concerns raised about the management of measuring and testing equipment (M&TE). Although we performed interviews and reviewed documentation to determine how the contractor schedules subcontracted work, we did not test the effectiveness of this scheduling. Our audit determined the design of the invoice review process was sufficient to achieve the desired results, and we found nothing to indicate the contractor's process for ensuring subcontractor compliance with contractor specifications was ineffective. However, we determined (1) invoices were not being approved by the engineering or construction manager as required by the subcontract administration procedure; (2) verification of the qualifications of certain key subcontractor personnel was not performed; (3) subcontractor invoices were not compared to the contractor's invoice concurrence forms to ensure TVA reimbursed the contractor accurately; and (4) shortages of measuring and testing equipment caused work inefficiencies and were identified as a potential cause of future work inefficiencies and/or delays. In addition, we identified one instance where travel time and mileage for a subcontract employee to travel to the job site to prevent their badge from expiring was billed to TVA. TVA management agreed with our recommendations and will ensure the contractor (1) amends the Subcontract Administration Procedure to provide review and approval authority to the Project Director or his designee for subcontractor invoices, (2) reinforces their process related to delegation for subcontract invoice approvals by reviewing subcontract invoice approval authorization letters to verify they are current, and (3) transfers the responsibility for M&TE from Unit 2 to Unit 1. In addition, TVA management agreed to evaluate the conditions surrounding termination of badges for subcontractors on a case-by-case basis to determine the most cost-efficient arrangement and will begin adding subcontractor invoices to the list of randomly reviewed billing data. TVA management agreed with our recommendations and will ensure the contractor (1) amends the Subcontract Administration Procedure to provide review and approval authority to the project director or designees for subcontractor invoices received, (2) reinforces its process related to delegation for subcontract invoice approvals by reviewing subcontract invoice approval authorization letters to verify these are current, and (3) transfers the responsibility for M&TE from Unit 2 to Unit 1. In addition, TVA management agreed to evaluate the conditions surrounding termination of badges for subcontractors on a case-by-case basis to determine the most cost-efficient arrangement and will begin adding subcontractor invoices to the list of randomly reviewed billing data. Summary Only

HUD OIG performed an audit of the Housing Authority of DeKalb County’s use of its net restricted assets based on a request from the Atlanta Office of Public Housing. The request indicated that a significant amount of net restricted assets was used to pay for items other than the required housing assistance payments. The purpose of the audit was to determine how the Authority expended its net restricted assets and what controls were in place to ensure that net restricted assets were not used for non–housing assistance payments.

The Authority used more than $2.5 million of its net restricted assets to pay ineligible program and administrative expenses for other assisted housing programs. The Authority did not (1) maintain separate bank accounts, (2) properly track its net restricted asset funds, and (3) have proper policies and controls in place. As a result, it misused net restricted asset funds that could have provided assistance to eligible families in its housing voucher program.

OIG recommended that the Director of Public and Indian Housing require the Authority to (1) reconcile its books and records to determine the amount of net restricted asset funds used to pay program and administrative expenses for various housing programs, (2) reimburse the net restricted assets fund account from non-Federal funds the $2.5 million or the current amount owed from various housing programs, and (3) implement its established policy for the use of net restricted assets to ensure that net restricted assets are properly used and bank accounts remain separated for the various programs.

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Recommendations

Public and Indian Housing

•   2010-AT-1010-001-B

  $2,591,854.00

   

  Require the Authority to reimburse the net restricted assets fund account from non-Federal funds the $2,583,244 or the current amount owed

The OIG performed a review of the City of Scottsboro Electric Power Board (Scottsboro) which is a distributor for TVA power based in Scottsboro, Alabama. Scottsboro also operates a telecommunications department that offers cable, internet, and telephone services. Also, Scottsboro is one of four distributors to which TVA granted retail rate setting authority. In 2002, TVA Board of Directors approved and made available to distributors six wholesale power contract flexibility options. One of these available options terminated TVA's contract authority and obligations regarding retail rates. Four distributors (Scottsboro, Knoxville Utilities Board, Memphis Light, Gas and Water, and Meriwether Lewis Electric Cooperative) were granted this authority. As a result, these distributors have the authority to determine the retail rates charged to its customers with no or limited oversight by TVA. The TVA Board, however, did not relinquish the responsibility to ensure the power purchased is sold and distributed to the ultimate consumer without discrimination among consumers of the same class, and no discriminatory rate, rebate, or other special concession will be made or given to any consumer. According to agreements with three distributors, the options were provided (1) because the electric utility industry was undergoing changes and restructuring, and (2) to prepare for the prospect of legislation further altering the industry and the relationship between TVA and its distributors. The decision previously made by the TVA Board of Directors to allow the four distributors to regulate their own retail rates significantly increases the reputational risk to TVA surrounding their role as a regulator. The Office of the Inspector General (OIG) will address this issue separately after additional reviews are undertaken.Our review of Scottsboro found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and/or (2) nondiscrimination in providing power to members of the same rate class. We also identified two other potential power discrimination issues related to Scottsboro (1) providing a specialized industrial rate to only one customer and (2) not passing wholesale fuel cost adjustments and wholesale rate increases/decreases to all customers. 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 the one instance where information was available, we estimated Scottsboro owed TVA approximately $88,000 in wholesale demand charges.In addition, we found Scottsboro (1) had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 2 percent; however, this is less than TVA's established guidelines for adequate cash reserves of 5 to 8 percent and (2) used electric system funds to pay for expenses of the telecommunications department without loan documents in place showing principal and interest payments and recourse protections. We also found improvements were needed to comply with contract provisions regarding (1) the comingling of electric department funds and general ledger accounts with the telecommunications department and (2) costs not being allocated according to the most recent joint cost study. Finally, we noted Scottsboro's internal controls could be improved related to the (1) approval of retail rates, (2) documentation of retail rate schedules, (3) billing practices, and (4) customer contracts, monitoring of data changes.In this review, we identified three opportunities to enhance TVA's oversight of the distributors, two, prudent expenditure guidance and performance of a current joint cost study, of which were also identified in previous distributor audits. As mentioned earlier, Scottsboro is one of four distributors to which TVA granted retail rate setting authority. For the four distributors with this authority, we found TVA had not developed guidance regarding necessary controls to ensure retail rates are properly designed, approved, and implemented to prevent discrimination or the perception of discrimination in providing power to customers.We recommended the Group President, Strategy and External Relations, work with Scottsboro to (1) remediate classification, metering and other potential discrimination issues, (2) execute loan documents for internal loans between the electric department and telecommunications department (3) comply with contract provisions and (4) improve internal controls. In addition, the Group President, Strategy and External Relations, should (1) develop and provide guidance on controls over designing, approving and implementing retail rates for distributors who have authority to set their own retail rates and (2) review and recover amounts due to TVA for one customer without a demand meter. Scottsboro and TVA management agreed to take corrective action for some recommendations in this report. For the recommendations where Scottsboro did not agree or did not respond, the OIG maintains the recommendations would be beneficial to Scottsboro. TVA management stated they could not implement several recommendations because TVA does not regulate Scottsboro's resale rates. The OIG, in regards to TVA's contention that because they do not regulate Scottsboro's resale rates they cannot implement the recommendation regarding providing guidance on controls over designing, approving, and implementing retail rates for distributors who have authority to set their own retail rates, the OIG maintains that TVA should provide such guidance as part of its responsibility to ensure nondiscrimination. Also, the OIG concurs with TVA and Scottsboro's planned actions to evaluate the reinstatement of the retail rate regulation provisions in the power contract.