Federal Reports

As part of our annual audit plan, we reviewed the process for postponing and cancelling fossil capital projects. Our objective was to determine whether fiscal years 2007 and 2008 project postponements and cancellations were properly approved, effectively communicated, and monitored to prevent inappropriate charges. We determined that Fossil Generation (FG) projects were approved by the appropriate levels of authority and contained a capital classification designated by Fixed Asset Accounting (FAA). We noted that 15 FG cancelled projects contained a cancellation date prior to Strategic Business Unit approval for cancellation, which project management stated could be attributed to timing issues. In addition, we identified eight projects in which travel costs were split among projects. Although there is no policy governing the splitting of project costs, according to project management personnel, the dollar amount of costs allocated among projects would not be material. We also determined that Business Services is responsible for performing an independent review of project costs for reasonableness.We determined there were 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) accurately and timely communicated for recording in the financial statements and (2) appropriately classified as capital costs, rather than operations and maintenance costs. We determined communication by FG to FAA of project cancellation did not occur for seven of the 24 cancelled projects we reviewed; communication by FG to FAA of an additional four of the 24 cancelled projects we reviewed did not occur within the required time frame; project documentation (1) was not updated with changes in project status as required for four of the 23 postponed and three of the 24 cancelled projects and (2) did not include a detailed reason for the postponement of one of the 23 postponed projects and 11 of the 24 cancelled projects; and several FG project cancellations occurred due to identification of a duplicate scope within other projects.We made recommendations to the FG Senior Vice President (SVP) who responded to our draft report and agreed with our recommendations. The SVP, FG, also provided planned actions to address those recommendations. We concurred with FG management's planned actions.

As part of our annual audit plan, we reviewed the process for postponing and cancelling capital projects. Our objectives were to determine whether fiscal years 2007 and 2008 project postponements and cancellations for River Operations (RO) were properly approved, effectively communicated, and monitored to prevent inappropriate charges. We determined all sampled cancelled capital projects reviewed were approved by the appropriate levels of authority and contained a capital classification designated by Fixed Asset Accounting (FAA). However, we noted that project documentation was not updated with changes in project status as required. In addition, we determined that one project cancellation was not communicated to FAA; however, we noted that costs related to the project were written off in a timely manner. We made recommendations to address the above findings. The RO Senior Vice President responded to a draft report and agreed with our recommendations. The RO Senior VP also provided planned actions in addressing those recommendations.