Federal Reports

We performed an inspection to determine why Tennessee Valley Authority (TVA) has incurred significant coal adjustments stemming from TVA's receipt of coal through Calvert City Terminal (CC). TVA has contracted with CC through 2008 for transloading, stockpiling, and blending coal. We determined that the inventory adjustments on coal received through CC may be a result of several issues, including (1) differences in CC and TVA Fuel Management System recorded weights, (2) CC's rail unloader scale and barge unloader scale not being certified, (3) missing rail cars included in inventory as received because they were still listed on the manifest, and (4) stockpiles continuing to have coal removed and added after lines are drawn for inventory flyovers.However, we also noted CC is now requiring scale certification, and the results of the coal inventory flyovers were within the acceptable margin of error. Accordingly, the report was issued to management for informational purposes, and management has requested a follow-up review one year after scale certification has occurred. Summary Only

TVA contracted with the independent certified public accounting firm of PricewaterhouseCoopers LLP to audit the balance sheets as of September 30, 2005 and 2004, and the related statements of income, changes in proprietary capital, and cash flows for each of the three years in the period ended September 30, 2005. The contract required the audit be done in accordance with generally accepted government auditing standards. Our review disclosed no instances where PricewaterhouseCoopers did not comply, in all material respects, with generally accepted government auditing standards.

This report is Sensitive But Unclassified. To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.

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