Federal Reports

EAC OIG, through the independent public accounting firm of Clifton Gunderson LLP, audited $94.7 million in funds received by the Michigan Department of State under the Help America Vote Act. The objectives of the audit were to determine whether the Department of State (1) used payments authorized by Sections 101, 102, and 251 of HAVA in accordance with HAVA and applicable requirements; (2) accurately and properly accounted for property purchased with HAVA payments and for program income; and (3) met HAVA requirements for Section 251 funds for an election fund and for a matching contribution.

As part of our annual audit plan, we reviewed the process for postponing and cancelling Power System Operations (PSO) capital projects. Our audit objectives were to determine whether fiscal years (FY) 2007 and 2008 project postponements and cancellations were (1) properly approved, (2) effectively communicated, and (3) monitored to prevent inappropriate charges.Based on our review, we determined that PSO's postponed and cancelled projects (1) contained a capital classification designated by Fixed Asset Accounting (FAA), (2) were approved in accordance with Standard Programs and Processes 2.1, and (3) had valid justifications for postponement and/or cancellation. We also noted that project changes were communicated internally using a listing of projects known as the "checkbook," rather than Five Year Project Plans. We determined the use of the checkbook was a reasonable alternative to the Five-Year Project Plan.We also determined that project cancellations required to be communicated to FAA were communicated to FAA in a timely manner. Finally, we noted that while there is no policy governing the splitting of project costs, there is an independent review of project costs performed by Financial Services personnel and an expectation for employees to appropriately charge their time to the specific project(s) they work on.

EAC OIG, through the independent public accounting firm of Clifton Gunderson LLP, audited $54.7 million in funds received by the Tennessee Secretary of State under the Help America Vote Act. The objectives of the audit were to determine whether the Secretary of State (1) used payments authorized by Sections 101, 102, and 251 of HAVA in accordance with HAVA and applicable requirements; (2) accurately and properly accounted for property purchased with HAVA payments and for program income; and (3) met HAVA requirements for Section 251 funds for an election fund and for a matching contribution.

As part of our annual audit plan, we reviewed the process for postponing and cancelling Nuclear Power Group (NPG) capital projects. Our audit objectives were to determine whether fiscal years (FY) 2007 and 2008 project postponements and cancellations were (1) properly approved, (2) effectively communicated, and (3) monitored to prevent inappropriate charges.Based on our review, we determined that NPG's postponed and cancelled projects contained a capital classification designated by Fixed Asset Accounting (FAA) and that justifications for postponing/cancelling projets were valid. However, we noted 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) appropriately and accurately charged to the projects, (2) appropriately classified as capital costs rather than operations and maintenance (O&M) costs, and (3) accurately and timely communicated for recording on the financial statements. We determined:Communication by NPG to FAA of one project cancellation occurred prior to the approval of that cancellation.One project cancellation was not communicated to FAA within the required time frame.No reviews independent of NPG project management were performed to determine whether costs were appropriately and accurately charged to projects.No criteria existed defining the process and requirement for (1) allocating capital and O&M costs to a project, (2) allocating costs among projects, and (3) borrowing funds from other projects.Project documentation was not retained in accordance with retention guidelines.We made recommendations to the Chief Nuclear Officer and Executive Vice President, Nuclear Generation, in conjunction with other organizations regarding the above finidngs

We audited $4.27 million of costs billed to TVA by a contractor for providing preemptive full structural weld overlays on Sequoyah Nuclear Plant Units 1 and 2. In summary, we found the contractor billed TVA $320,700 in unsupported and ineligible costs including (1) $271,200 of unsupported delay costs, and (2) $49,500 of ineligible billings for the cleaning and handling of equipment that was contaminated before it was shipped to TVA. We recommended TVA management recover $320,700 in unsupported and ineligible costs from the contractor. Summary Only

This Semiannual Report to Congress summarizes the activities of our office for the 6-month period

This report summarizes the oversight work performed by EAC OIG during the 6-month period ended March 31, 2010.

The Tennessee Valley Authority continues to live under the cloud of the Kingston ash spill of December 2008. The Office of the Inspector General is reminded of this shadow every day through our continuing review of TVA's efforts to return the Kingston area to its former state. We see TVA making steady progress on the physical cleanup; but more importantly, we see signs of an improvement in the TVA culture that contributed to this unfortunate environmental event.In this semiannual report, we ask the question, Culture: Asset or Liability? The Kingston incident demonstrated that a culture at a TVA fossil fuel plant which treats coal ash management like "taking out the garbage" can be a severe liability. Unfortunately, culture has been treated as a "soft" issue by both TVA and the Office of the Inspector General. While TVA has routinely taken a reading of culture through their "Cultural Health Index" reviews each year, there has been minimal effort until now to correct cultural problems. As one scribe noted in the aftermath of Kingston, "It takes a crisis." It is now clear that culture is not a "soft" issue that only affects employee retention or employee "satisfaction" ratings. Culture, in a very real way, has shown up on TVA's balance sheet. It can literally make or break a company.

In June 2009, the United States Capitol Police (USCP or Department) Office of Inspector General (OIG) received an anonymous complaint alleging an individual in the Hazardous Materials Response Team (HMRT) circumvented the procurement process for sole sourcing high-value purchases for services and supplies. Thus, OIG engaged contract auditors to conduct agreed-upon procedures to determine whether HMRT complied with applicable laws and regulations for procurement procedures regarding the competitive bid process and justifications for sole source solicitations. Our scope included HMRT procurements over $3,500, the threshold for competitive bidding, obligated during fiscal years (FYs) 2007 through 2009.

EAC OIG requested that the Department of Interior OIG investigate the work environment at EAC. The investigation was initiated because of numerous confidential and anonymous complaints received from current and former EAC employees.

We performed an audit of the prices billed to the Tennessee Valley Authority by a contractor for certain equipment related to dry cask storage systems for spent nuclear fuel at Sequoyah Nuclear Plant and Browns Ferry Nuclear Plant (BFN). In summary, we found TVA had been overbilled $276,000 because the contractor overstated the price of a vertical crawler that had been delivered to BFN. The overstatement resulted because the contractor did not follow the contract's pricing criteria which required the price of the BFN vertical crawler to be set at cost plus 10 percent. We recommended TVA management recover the $276,000 overbilling by the contractor.The contractor disagreed it had overbilled TVA $276,000 stating (1) the contract's pricing for the vertical crawler had been changed from cost plus 10 percent to fixed price because the crawler sent to BFN had been diverted from another utility, and (2) the fixed price took into account the companies increased risk associated with a replacement crawler sent to the other utility.Although the contractor stated its price to TVA for the BFN crawler took into account its increased risk associated with the replacement crawler sent to another utility, our audit acknowledged that TVA would probably need to cover the contractor's increased cost for the replacement crawler. Accordingly, our recommendation for TVA to recover $276,000 allowed the contractor to be reimbursed for its cost of the replacement crawler sent to the other utility plus a 10 percent markup. Summary Only

FISMA FY 2009 Performance Audit Report

EAC OIG, through the independent public accounting firm of Clifton Gunderson LLP, audited $29.7 million in funds received by the Arkansas Secretary of State under the Help America Vote Act. The objectives of the audit were to determine whether the Secretary of State (1) used payments authorized by Sections 101, 102, and 251 of HAVA in accordance with HAVA and applicable requirements; (2) accurately and properly accounted for property purchased with HAVA payments and for program income; and (3) met HAVA requirements for Section 251 funds for an election fund and for a matching contribution.

We reviewed TVA's Hearing Conservation Program (the Program) to determine whether (1) the Program complied with Occupational Safety and Health Administration's (OSHA) regulations, and (2) TVA organizations were in compliance with the Program guidelines. We also looked at actions taken to address recommendations in a prior, related OIG report. We found TVA's Hearing Conservation Program complied with significant provisions of 29 CFR Part 1910.95, "Occupational Noise Exposure" issued by OSHA. However, we found certain TVA sites did not (a) perform and/or use sound level surveys in accordance with the Program, (b) adhere to Program hearing protection requirements and/or discipline employees when hearing protection was not worn in designated areas, (c) ensure Program individuals' annual audiogram and training requirements were met, and (d) record loggable Standard Threshold Shifts (STS) on the OSHA 300 log. We also found TVA's current organizational structure does not allow for enforcement of the Program by Corporate Health and Safety. Finally, our review confirmed the existence of an employee culture which promotes the filing of hearing loss claims. This was also included in a report issued by the OIG in March 2009

The OIG performed a review of Murphy Power Board (Murphy), a distributor for TVA power based in Murphy, North Carolina. Our review of Murphy found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. 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 those where information was available, the monetary effect on Murphy and TVA would not be material. In addition, we found Murphy had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 12 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent 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 customer contracts and use of joint cost studies, and (2) strengthen internal controls. Finally, we found one TVA billing error as well as certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include a lack of: (1) guidance related to when a demand meter is required, (2) guidance on what constitutes prudent expenditures, and (3) criteria for evaluating when a distributor's cash reserves are excessive.We recommended the Group President, Strategy and External Relations, work with Murphy to: (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. In addition, we recommended the Group President, Strategy and External Relations: (1) recover amounts incorrectly credited to Murphy, and (2) determine if other Competitive Index Rate (CIR) customers with other distributors have been credited appropriately. TVA and Murphy management generally agreed with and are taking actions to address the recommendations. However, TVA management did not agree with the recommendation to recover incorrectly credited CIR amounts from Murphy since the customer receiving the credit is no longer in business and recovery through litigation is unlikely. In addition, TVA stated they have been focused on putting procedures and processes in place to better assure that TVA rates and pricing programs are implemented and carried out as intended in the future.

To facilitate public understanding of TVA's efforts to promote the use of green power in the Tennessee Valley, we reviewed the Green Power Switch? program. Specifically, we reviewed the program to determine whether (1) the methods used by TVA to market the program disclosed that green power goes into the general power mix, and (2) revenue from the program exceeded related marketing expenses. In summary, while not all advertising materials reviewed directly stated that green power is part of TVA's power mix, they did direct consumers to information disclosing that the green power goes into the general power mix. In addition, for fiscal years 2007 and 2008, the revenue generated from the Green Power Switch? program exceeded the related marketing expenses.

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

As part of our annual audit plan, our office reviewed the risks associated with the Tennessee Valley Authority's (TVA) pension plan and how those risks are mitigated. Our audit covered areas such as (1) controls designed to mitigate pension risk, (2) the TVA Retirement System's (TVARS) financial statement audit performed by their external auditor as it relates to the existence and valuation of assets, (3) the work of TVARS' actuary in determining TVA's pension liability, (4) funding and benefits decisions and other factors impacting the financial status of TVARS, and (5) concerns raised during the audit by TVARS members.Our review determined TVARS' (1) controls were suitably designed and operating with sufficient effectiveness to provide reasonable assurance that the control objectives specified were achieved, (2) external auditor performed the work according to their audit program, and we found nothing to question their work or conclusions, and (3) method used to calculate the pension liability and funding contribution was acceptable.We also determined that a combination of factors resulted in TVARS experiencing a significant shortfall between assets and projected obligations and being funded at a lower level relative to obligations than most other comparison utilities.

We audited $10.16 million in costs billed to TVA by a contractor for providiing professional engineering and technical support services associated with the detailed, scoping, estimating, and planning study related to the potential completion of Unit 2 at Watts Bar Nuclear Plant. In summary, we found (1) the contractor directly billed TVA $175,094 for home office senior management and administrative personnel that should have been recovered through its overhead rate; (2) the contractor overbilled TVA an estimated $9,393 due to miscellaneous unsupported and ineligible billings for payroll additive costs, relocation expenses, and travel costs; and (3) TVA paid the contractor an additional $33,000 in fees due to conflicting contract language regarding the application of fees for travel costs. We recommended TVA management (1) take action to recover the $184,487 in overbilled costs, and (2) determine the appropriateness of including travel costs in the contractor's fee base. Summary Only

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

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

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

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

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

In comparison to the fiscal year (FY) 2008 FISMA report, we found TVA had generally improved in the area of establishing its inventory of systems requiring certification and accreditation and general security awareness training for network users. However, we identified several areas during this year's audit in which (1) performance had declined, or (2) TVA had not completed actions from the prior year's audits.During our FY 2009 review we noted improvements were needed in the following areas: (1) the oversight and evaluation of contractor systems; (2) the POA&M process; (3) the C&A process; (4) incident reporting; and (5) security awareness training. Summary Only

We audited $147.7 million of costs billed to TVA by a contractor for providing security services for TVA facilities. In summary, we found (1) TVA made an erroneous payment of $206,531 to the contractor for costs related to another contract, (2) the contractor overbilled TVA an estimated $72,645 due to miscellaneous unsupported and ineligible costs, and (3) the contractor understated its provisional billing adjustments for 2007 and 2008 by $7,705.The contractor subsequently refunded or provided credits for $247,438, including (1) the erroneous payment of $206,531, and (2) $40,907 of the miscellanious unsupported and ineligible expenses. We recommended TVA management recover the remaining overbilled costs. Summary Only

The OIG performed a review of the Princeton Electric Plant Board (Princeton), which is a distributor for Tennessee Valley Authority (TVA) power based in Princeton, Kentucky. Our review of Princeton 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. 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 those where information was available, the monetary effect on Princeton and TVA would not be material. In addition, we found Princeton did not have enough cash on hand as of June 30, 2008, to cover expenditures for planned capital projects and provide a cash reserve. However, Princeton obtained a loan in August 2009 to provide additional funds for capital expenditures.We also found Princeton (1) did not comply with contract provisions for allocation of joint costs and establishing contracts for customers with demand above 50 kW and (2) could improve internal controls related to the completeness, accuracy, and validity of the billing and metering data. Finally, we have identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include: (1) the absence of a joint cost study being performed, (2) the lack of an adequately defined process to document approval of Small Manufacturing Credits, (3) the lack of guidance related to when a demand meter is required, and (4) the lack of guidance on what constitutes prudent expenditures.Princeton has elected to terminate its power contract with TVA effective January 24, 2010. Consequently, we have no recommendations which require response from either Princeton or TVA. However, we provided specific suggestions to help Princeton strengthen its internal controls and accurately bill its customers in the future. Our suggestions included: (1) remediate classification and metering issues, (2) develop and document a consistent methodology for allocating all joint costs, (3) obtain contracts for customers as appropriate, (4) update the automated system (and manual customer cards, if maintained) with changes, including contract demand, on a timely basis, and (5) identify and utilize exception reports to ensure customers are classified correctly and identify problems that need to be addressed in a timely manner. As noted in the report, Princeton personnel corrected the classification issues and started reviewing additional exception reports.

The OIG performed a review of Tullahoma Utilities Board (Tullahoma) which is a distributor for TVA power based in Tullahoma, Tennessee. Our review of Tullahoma found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. 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 those where information was available, the monetary effect on Tullahoma and TVA would not be material. In addition, we found Tullahoma had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 29 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. Based on prior distributor audit findings, TVA is in the process of defining criteria for determining when a distributor's cash reserves are excessive. We also noted that Tullahoma used electric system funds to pay for expenses of the fiber optic business prior to obtaining TVA approval to loan funds to the fiber department.We also found improvements were needed to (1) comply with contract provisions regarding the allocation of costs between departments and customer contracts and (2) strengthen internal controls over the completeness, accuracy, and validity of billing system data. Finally, we identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include the (1) absence of a joint cost study being performed in over 20 years, (2) lack of an adequately defined process to document approval of credits, (3) lack of guidance related to when a demand meter is required, (4) lack of guidance on what constitutes prudent expenditures, and (5) lack of criteria for evaluating when a distributor's cash is excessive.We recommended the Group President, Strategy and External Relations, work with Tullahoma to (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. TVA and Tullahoma management generally agreed with and are taking actions to address the recommendations.