Federal Reports

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.

As part of our annual audit plan, we audited $35.07 million in costs billed to TVA by a contractor for providing quality control inspections and nondestructive examinations under two contracts. In summary, we found TVA had been overbilled $159,662 under one of the contracts, including (1) $136,030 in overstated payroll taxes, insurance, and related performance fees, (2) $18,228 in ineligible labor costs, and (3) $5,404 in duplicate fees. The contractor agreed with our findings and plans to reimburse TVA for the overbilled costs. Summary Only

This review was the fourth in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to environmental performance." In conducting this review we: (1) assessed environmental performance, including key performance measures and, (2) evaluated TVA's performance relative to available benchmark information, and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives. Our report found that overall TVA's results in the area of environmental performance are mixed. In summary:The ash spill at the Kingston Fossil Plant represented one of the largest environmental disasters in U.S history and demonstrated TVA's poor performance in managing coal ash. The ash spill released 5.4 million cubic yards of coal ash containing a number of toxic substances into the environment. As we reported previously, the culture surrounding the management of coal ash at TVA reflected a culture that coal ash was unimportant and relegated to the status of garbage at a landfill. There was very little recognition of the potential hazard to the public and the environment. TVA is now taking steps to clean up the spill, assess the stability of other ash ponds, and improve ash management practices. More importantly, TVA has taken effective steps to address the cultural problems that led to the spill.TVA recently changed its approach to measuring its environmental performance. It now measures twelve industry-accepted metrics identified by the Global Reporting Initiative and six (6) measures for which there are not good industry benchmarks.Through the production of energy by its coal-fired plants, TVA produces a large amount of air pollutants. While it has made advances in the reduction of air emissions over the last several decades, TVA, along with other utilities, is still a polluter based on the nature of its business. TVA has incurred high capital investments to comply with evolving environmental requirements, and the future costs of compliance and pending legislation addressing air pollution and climate change will continue to put upward pressure on power rates.We assigned TVA a rating of "fair" for measures related to clean energy generation and renewable generation. This rating was achieved in large part due to TVA's hydro production efforts. However, pending standards may eliminate the use of hydro production as a renewable generation source. Additionally, hydro production is not a consistent source of generation due to fluctuating precipitation.TVA performs in the middle of the pack compared to its peers with respect to measures such as number of "Reportable Environmental Events," amount of environmental fines, generation of low-level radioactive waste, and office materials recycled. However, TVA lags other utilities in the removal of polychlorinated biphenyl equipment. In two other categories, the amount of coal combustion products recycled and the Certified Clean Marinas, TVA performs comparatively well.It is important to note that TVA faces many significant management challenges in incorporating effective environmental amelioration measures into its operations. Our report discusses the top five challenges that affect environmental performance, including: (1) increased environmental regulations related to sulfur dioxide (SO2), nitrogen oxide (NOx), mercury, carbon dioxide (CO2), and coal combustion waste disposal; (2) cleanup of the Kingston Fossil Plant ash spill; (3) remediation or improving stability of the ash and gypsum impoundments at TVA fossil plants; (4) mandated renewable portfolio standards; and (5) ability to maintain TVA's current low-cost of power while meeting environmental regulations.

We performed an audit $3.3 million in payments made by TVA to a contractor for geotechnical services between January 2003 and July 15, 2009. In summary, we determined the contractor overbilled TVA $395,479 as follows:$216,865 in labor costs, including (1) $110,016 due to the use of hourly billing rates instead of actual wages and markup as specified by the contract's compensation section, (2) $98,681 for overtime costs the company did not incur, and (3) $8,168 for miscellaneous duplicate and unsupported charges.$66,071 in estimated travel costs, because the contractor did not bill actual expenses as required by the contract.$55,524 in estimated drilling, sampling, and equipment costs, due to incorrect billing rates and unsupported costs.$51,224 in vehicle charges, because the contractor (1) billed both daily rates and mileage rates for certain vehicles and (2) could not document the accuracy of the billing rates it used for mileage.$5,795 in subcontractor costs, because the contractor billed more than its actual costs for the subcontracts.The contractor agreed it should reimburse TVA at least $173,162 ($98,681 in labor costs, $66,071 in travel costs, $2,615 in vehicle charges, and $5,795 in subcontractor costs). The contractor also provided additional explanations and documentation for certain costs and requested TVA take into consideration certain extenuating circumstances in determining the total amount that should be reimbursed to TVA. Summary Only

TVA Office of the Inspector General retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the report entitled "Report of Geotechnical Exploration and Slope Stability for Dike C," prepared by Stantec Consulting Services, Inc. (Stantec) of Lexington, Kentucky. In summary, it is Marshall Miller's opinion that Stantec generally performed a reasonable scope of investigation for the portion of Dike C covered in its report and applied appropriate investigative methods and evaluation techniques. However, according to Marshall Miller, Stantec applied site-wide characterization and application of shear strength parameters even though areas of significantly weaker material were identified. In addition, there was a lack of information on seepage and material conditions nearer the downstream toe of Dike C, which caused additional uncertainty about the Stantec study and its associated conclusions and opinions about the Dike C conditions. To address Marshall Miller's report, TVA management had Stantec and AECOM review and respond to the findings in this report. TVA management and its contractors disagreed with many of the findings and recommendations. Marshall Miller provided additional comments in response to AECOM and Stantec responses. In summary, Marshall Miller stands by the findings in the report and disagrees with some of the methodologies used by Stantec to evaluate Dike C. However, Marshall Miller feels that the Dike C improvement planned actions, referenced in the Stantec and AECOM responses, address or will address most of its findings and recommendations. The remaining findings and recommendations not fully addressed were not considered substantial.

We reviewed a contractor's tool program for the Watts Bar Nuclear plant (WBN) Unit 2 construction project. Our objective was to assess the procedures and key control activities used to track and account for tools used in the Watts Bar Nuclear (WBN) Unit 2 construction project. Our review of the WBN Unit 2 tool program determined the contractor's inventory controls were not functioning as intended. Currently, there are significant weaknesses related to tools inventory, checked-out tools, and tools received but not entered into the system processes. Specifically, for the items sampled and reviewed from the contractor's tool inventory system, we could not locate 55 percent of the tools valued at $210,352. In addition, no controls existed to ensure (1) the tools taken from the tool room after hours were properly checked out and (2) random inventories were performed as required by the contractor's procedure. We also identified individuals with tools checked out in their name who (1) had 100 or more tools checked out, (2) had been terminated, or (3) could not locate the tools. Further, we determined 10,948 items totaling $328,137 were paid for but were not received into the contractor's inventory system and we also identified inaccurate information in the inventory system due to keying errors. In addition, we found many issues described above had been cited in previous audit work. We made recommendations to contractor management and TVA. TVA management agreed with most of our recommendations and plans to (1) conduct an inventory count of the tool room and sea land containers, (2) conduct routine cycle counts of large dollar items, (3) implement an exception report to identify inventory with negative quantities or costs in the tool inventory system, (4) properly account for tools removed from the tool room after hours, (5) timely update the tool inventory system for any items issued on paper, damaged, lost, or written off, (6) utilize the tool inventory system's capabilities to identify low inventory items for reorder, (7) perform a periodic review of the Tools Out reports, especially for those individuals with 100 or more tools checked out for large dollar tools, (8) transition the responsibility for managing Measuring & Testing Equipment (M&TE) to Watts Bar Unit 1 personnel and use the Watts Bar Unit 1 program for tracking, (9) create a tool room within the Radiologically Controlled Area (RCA) to track and issue tools, (10) monitor the Tool Crib Clearance process by creating an exception report for identifying all individuals who have been terminated but still have tools checked out in their name, (11) communicate and enforce the use of a lost tool form and update the tool inventory system for damaged, lost, or stolen items timely for large dollar items, and (12) implement a process to ensure all tools on all purchase orders (PO) are processed and received in both the warehouse and the tool inventory system, except consumables. TVA management did not agree with our recommendations to (1) create a formal review process by a second person to verify data entered in the tool inventory system or (2) properly account for all tools from historical POs. In addtion, TVA management did not agree with our recommendation to hold (1) TVA employees and contractors signing out tools accountable for tool loss/theft and/or (2) supervisors with approval authority accountable when the tools were not returned. According to WBN Unit 2 management, the Project Maintenance and Modifications Agreement does not allow employees to be charged for tools used while performing their respective duties. TVA management did not address our recommendation to review the inventories performed by the contractor and any corresponding write-offs. Summary Only

The OIG performed a review of the City of Chattanooga Electric Power Board (Chattanooga) which is based in Chattanooga, Tennessee and a distributor of TVA power. Our review of Chattanooga found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing power to members of the same rate class. In addition, we found Chattanooga had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 13 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. We also found improvements were needed to (1) comply with contract provisions regarding the establishment of written contracts with customers and (2) improve Chattanooga's internal controls related to monitoring of data changes. Finally, we identified certain opportunities to enhance TVA oversight of the distributors. TVA is in the process of addressing these findings which include the lack of (1) guidance on what constitutes prudent expenditures, (2) a joint cost study addressing allocation of costs between the electric department and other municipal lines of business, and (3) criteria for evaluating when a distributor's cash reserves are excessive. We recommended the Group President, Strategy and External Relations, work with Chattanooga to (1) remediate classification and metering issues, (2) better comply with identified contract provisions related to customer contracts, and (3) add additional controls related to certain billing system data. TVA and Chattanooga management generally agreed with and are taking actions to address recommendations (1) and (2). Chattanooga plans to implement an additional quarterly test for misclassifications and quarterly review of customers with demand of 1 MW or more to determine if a contract is on file. The first tests are to be completed by September 30, 2010. Chattanooga believes billing system controls are in place to minimize the risk of a material misstatement in the data.

Software Inventory

We audited $9.5 million of costs billed to TVA by a contractor for providing assistance in implementing a Power System Optimization Project. In summary, we found the contractor had overbilled TVA $234,406 including (1) $227,763 in overstated subcontractor costs and (2) $6,643 in unsupported subcontractor costs. The contractor acknowledged it had not billed in accordance with the contract provisions for subcontractors but stated the rates it had billed were (1) the same as those being charged to TVA by a previous supplier or (2) reasonable because the individuals were acting as employees of the contractor. Summary Only

Grantee audits demonstrated prior weaknesses in ARC's oversight of grantee activities and enforcement of grant requirement.

Examination and Confirmation of the Balance on the PP&E Account

Patching of ITCNet Workstations

We performed an audit of $19.1 million in costs billed to TVA by a contractor for diving services between November 2003 and September 2009. In summary, we determined TVA paid $643,700 in inflated labor costs. Summary Only

We audited $59.5 million of costs billed to TVA by a contractor for the supply of ammonia and urea for TVA's Selective Catalytic Reduction systems. In summary, we found TVA (1) overpaid the contractor $188,231 due to invoice payment errors and the contractor's use of incorrect unit prices, (2) paid $12.4 million for certain charges that could not be validated because of inadequate or missing compensation provisions, and (3) site personnel at a certain fossil plant processed payments for ammonia before the ammonia had been received. Additionally, the quantities of ammonia billed to TVA at this fossil plant were not independently verified. We recommended TVA management recover the overbilled and overpaid costs. Additionally, TVA management should (1) provide training to site personnel on material payment procedures and institute a process for reconciling payments to material receipts, (2) ensure the contract is revised to provide compensation provisions for all costs that are payable by TVA, and (3) revise the receiving procedures at fossil plants to ensure that payments for ammonia are processed after the ammonia has been received and verified. Summary Only

On March 10, 2010, the United States Capitol Police (USCP or Department) Chief of Police (Chief) requested that the Office of Inspector General (OIG) conduct an audit to (1) assess whether the Department has established adequate controls over the budget formulation process to ensure accurate data is collected and developed; (2) if so, determine if staff complied with those controls during the formulation process of the FY 2010 and 2011 budgets; (3) if not, note exceptions and root causes; and (4) determine the reasonableness of the FY 2010 and 2011 revised budgets for personnel compensation and benefits. Our scope included the original and revised/amended FY 2010, and 2011 budget submissions and processes/controls utilized to formulate those submissions.

Report presents the result of the audit of the Commission's financial statement

Evaluation to determine the level of work that occurred during the closure of the NLRB Headquarters due to weather.

At the request of the Chief Executive Officer, we initiated a review of records retention policies and practices at TVA. The objectives of our review were to determine (1) whether records are being maintained in accordance with TVA policies and procedures and (2) if opportunities exist to improve records retention and disposal activities in light of office space consolidation initiatives. Our review found TVA complied with TVA records management policies, practices, and procedures, and records identified in sampling were generally maintained in accordance with the National Archives and Records Administration-approved record schedules. We did note some areas where compliance could be strengthened.In addition, while we found that TVA plans to replace its current electronic management system which should increase the efficiency and effectiveness of records management, areas for improvement exist in the Chattanooga Office Complex pertaining to (1) records management, (2) records retention, (3) disposal of records and material, (4) the maintenance and upkeep of office space, and (5) the identification of records. Summary Only

We completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of CRS' Green Pricing Accreditation Program for the year ended December 31, 2009. The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS. Summary Only

ED OIG Semiannual Report 60 Final 508

We audited $61.92 million in costs billed to TVA by a contractor, under two contracts for performing engineering services between October 2004 and December 2008 and found TVA had been overbilled $683,122 as follows:TVA was overbilled $70,838 because labor costs were billed using hourly billing rates instead of cost reimbursable payment terms as required by the contracts.TVA was billed $558,463 in ineligible and excessive temporary living costs because (1) short-term daily travel rates were paid to employees instead of (lower) long-term temporary living allowances, and (2) unauthorized local mileage costs were paid to personnel receiving temporary living allowances.TVA was overbilled an estimated $40,034 in travel costs due to (1) overstated mileage reimbursement rates, (2) meal costs for unidentified personnel, (3) unallowable rental car expenses, and (4) daily travel costs in excess of daily limits.TVA was overbilled $13,787 because (1) an ineligible markup was added to certain subcontractor costs, and (2) an incorrect billing rate for other direct costs was used.The contractor (via a response submitted by an outside law firm) generally disagreed with most of the audit findings and stated its billings to TVA were correct, fair, reasonable, and in accordance with the plain language of the contracts, the contract manager's interpretation of ambiguous language and/or based upon the parties' pattern and practice of contract performance under both contracts. However, in our opinion, the contractor's comments did not provide additional evidence or documentation to support its claims that TVA had been billed in accordance with the terms of the subject contracts. Accordingly, we recommended TVA management take action to recover $683,122 of overbilled and excessive costs from the contractor. Summary Only

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.

Evaluation of the restoration of annual leave.

Semiannual Report to Congress