Federal Reports

We are pleased to present our report for the period October 1, 2011, through March 31, 2012. The theme of our semiannual is "Managing Change," and our feature highlights the challenges with managing one particular change-the decision to increase the Tennessee Valley Authority's (TVA) reliance on nuclear energy.In TVA's lengthy history, one thing that has remained constant is change. This is especially true today as TVA works to realign its generation portfolio, which includes constructing new plants and idling others while keeping rates low and continuing high reliability. The utility industry has always faced the need to be nimble in adjusting to a volatile market. Today, however, the challenges for companies like TVA seem to come more quickly. The effective management of change has become even more critical. The role of the Office of the Inspector General (OIG) in this area is: (1) providing an objective, fact-based look at how well TVA is managing change; (2) identifying risk areas associated with managing change; and (3) providing recommendations to reduce risks.As you will see from the results of this semiannual period, the hard work of our OIG team has resulted in about $12 million in recoveries, fines/penalties, potential savings, questioned costs, or funds put to better use. We also identified other monetary losses resulting from a capital project that had no realized benefits. Finally, we have provided numerous recommendations to help TVA improve.

The OIG audited the electric system of Meriwether Lewis Electric Cooperative (MLEC), a distributor based in Centerville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and MLEC for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, MLEC provided power to approximately 35,000 customers and reported electric sales revenue of approximately $69 million.Our audit found MLEC generally complied with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power, but we noted noncompliance related to approved use of electric revenues. We also noted a few other less significant issues regarding MLEC's customer contract documentation and internal controls. Additionally, we identified two areas where TVA's oversight of distributors could be enhanced. These areas were (1) discontinuing the practice of allowing distributors to pledge electric system funds as guarantees for customer economic development loans with Rural Development and communicating this to all affected distributors and (2) the lack of guidance related to permitted expenditures. These findings were reported in previous OIG distributor audit reports, and TVA agreed to take corrective action.MLEC did not provide comments to address the six findings and recommendations in the report. Except for the recommendation regarding the proper accounting for economic development expenditures, TVA management generally agreed with our recommendations. Also, in response to a recommendation made regarding the formal documentation of decisions and approvals by the MLEC Board related to resale rate components and amounts, TVA management stated except with respect to enforcing the nondiscrimination requirement, it currently has no contract mechanism to mandate the recommended requirements related to MLEC's resale rates.

During this semiannual period, we issued several reports across a variety of topics. We reported on the effectiveness of controls for the Library’s financial management system as part of the audit of the Library’s fiscal year 2016 financial statements, the Library’s use of appropriated funds for mass deacidification activities, and the internal controls of the Library’s purchase card program. We also continued our focus on information technology–related issues and reported on the Library’s implementation of System Development Life Cycle processes, completion of the July 2016 power recovery exercise, and data storage needs.

Review of samples of grants to evaluate the processing of grant applications

This report summarizes issue related to ARC policies and procedures and ARC Grant Management System (ARC.net)

Two significant conditions impacted the OIG's determination of TVA compliance for fiscal year (FY) 2011 with the Improper Payments Information Act of 2002, as amended (IPIA).First, as a government corporation, TVA is required to issue an Annual Management Report rather than a Performance Accountability Report (PAR) or Annual Financial Report (AFR), and most IPIA requirements apply to the PAR and AFR.Second, TVA's improper payments fell below the IPIA threshold in FY 2011, defined as $10 million of all program activity payments and 2.5 percent of program outlays (TVA's improper payments totaled $7,446,226 million and comprised 0.074 percent of program outlays).Under the IPIA, TVA was required to conduct a program specific risk assessment for FY 2011. TVA determined its primary programs susceptible to improper payments were its supply chain programs. TVA determined its total amount of payments subject to review under IPIA was $10,098,354,626. The OIG reviewed TVA's process for identifying programs susceptible to improper payments and noted it is in compliance with the IPIA.

The report addresses ARC administered open grants with limited activity and follow up on prior reports

Testimony

This report provides a framework for training grant administrators and recipients of federal grant funds on practices for reducing the risk for grant fraud, including grant training content, additional sources of information for further guidance, and illustrative hypothetical scenarios that provide practical applications of the issues discussed in the report. The report is a product of the Grant Fraud Committee of the Financial Fraud Enforcement Task Force’s Recovery Act, Procurement, and Grant Fraud Working Group. The Committee is chaired by the Department of Justice OIG and includes representatives from the OIGs of the Department of Education; Environmental Protection Agency; Department of the Interior; Department of Health and Human Services; Department of Housing and Urban Development; Department of Labor; National Science Foundation; and the Commander, Navy Installations Command.

The audit objectives were to determine whether program funds were managed in accordance with the ARC and Federal grant requirements

As part of the annual audit plan, the OIG audited Coal Quality Adjustment Reports (CQARs). Our objective was to determine if the CQARs were calculated in accordance with contract terms.During fiscal years 2008 through May 2010, Tennessee Valley Authority (TVA) processed 642 CQARs with net adjustments totaling about $110 million. We assessed the accuracy and compliance with contract terms of 18 CQARs, representing about $24.6 million, or all adjustments over $1 million. In addition, we tested the accuracy and compliance with contract terms of 35 CQARs where adjustments were less than $1 million, totaling $16,285,302. In summary, we found the CQARs were calculated accurately and in accordance with contract terms. Summary Only

The audit objectives were to determine whether program funds were managed in accordance with the ARC and Federal grant requirements