Federal Reports

We reviewed the contractor's processes and key controls for tracking and accounting for costs used in invoicing TVA for its work. Based on the review, we believe the contractor's system increases the risk of improper billing. Specifically, the system used for TVA billings (1) has limited design documentation and prescribed controls; (2) requires significant manual data entry; (3) increases the hours spent to prepare project invoices; and (4) results in numerous adjustments which, according to TVA management, have totaled more than $1 million. These adjustments include additional charges and credits to reflect actual expenses.To address the issues, we recommended the Vice President, Watts Bar Nuclear Plant Unit 2, in conjunction with the contractor project director, either (1) further assess the feasibility of amending the billing terms to allow the use of the contractor's standard systems, (2) consider an alternative billing system, or (3) require improvements to the current system and processes to address the (a) systemic issues resulting in billing adjustments, (b) lack of key control activities, and (c) other reconciliation/documentation issues. In addition, we recommended all aspects of the billing process and key control activities be documented and tested. TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.

Based on concerns expressed to the Office of the Inspector General, we initiated an inspection of TVA's easement with the Tishomingo County Development Foundation (TCDF). The objective of the review was to determine whether easement payments were made in accordance with the agreement. We found that while TCDF was not in compliance with amended easement payment provisions, the payment provisions were recently amended for the second time to provide the developer, Pickwick Pines Marina (PPM), an opportunity to develop and operate the marina. We also noted that the minimum investment provision of the easement has not been met. On August 6, 2008, TCDF sent PPM a notice of default.

We reviewed certain Browns Ferry Unit 1 (BFN U1) operating issues that have occurred since the restart in May 2007. We found the operating issues were primarily caused by improper installation of a fitting during the restart project and another fitting during initial construction, original plant design errors, failure to identify the correct root cause of a previous issue in a timely manner, and failure to identify a missing wood support during walkdowns. The root causes for the SCRAMs (safety control rod axe man) appear to not be the result of work performed under project milestones tied to the Unit One Executive Compensation plan. In addition, we found the total cost of the BFN U1 project to be approximately $1.8 billion through fiscal year 2007.