Federal Reports

We conducted a review to determine whether TVA 's inventory management system, PassPort, accurately reflected the reported $14.3million in inventory housed at the Hartsville facility as of December20, 2006. We compared PassPort data to physical inventory on hand for 93 catalog identification numbers (CAT IDs). We found PassPort accurately reflected the location and quantity on hand for 89, or 95.7percent, of the CAT IDs selected for review. We also compared inventory on hand for 38 judgmentally selected CAT IDs to PassPort and found, (a) inventory held for use was commingled with surplus materials and (b) materials were not always accurately reflected, or were excluded, in PassPort. According to Procurement, it was waiting on plant direction for the disposition of several materials housed at Hartsville, including some items corresponding to the CAT IDs we reviewed. Management agreed with our findings and has taken or plans to take appropriate corrective action.

We reviewed the first FCA that went into effect January 1, 2007. The objective of our review was to determine whether the FCA for the second quarter fiscal year 2007 was calculated correctly and in accordance with the agreed-upon methodology. In summary, we found the FCA was calculated correctly and in accordance with agreed-upon methodology. Summary Only

We surveyed TVA and financial institutions in the Tennessee Valley to identify (1) any TVA-owned cash accounts not currently accounted for by TVA's Treasury and (2) non-TVA-owned cash accounts set up in TVA's taxpayer identification number (TIN). In summary, we identified:One TVA-owned certificate of deposit set up in TVA's TIN and not accounted for by TVA Treasury;Three non-TVA-owned accounts incorrectly reported in TVA's TIN;One account set up in TVA's TIN where sufficient information was not provided to determine if TVA owned the funds; andTen accounts reported by one financial institution where the name on the account included TVA or some derivation thereof; however, the institution would not confirm the TIN and these accounts were not accounted for by TVA Treasury.TVA Treasury agreed to follow up with the financial institutions in these matters. Summary Only

At the request of the Coal Acquisition and Supply, Fossil Power Group, we initiated an inspection to review and obtain information related to a coal company’s cost and profitability assertions. The company leases land from TVA and pays TVA a royalty fee per ton on all coal removed from a mine which is on the leased premises. Due to increased costs and reduced profitability, the company has requested TVA to consider revising the contract to reduce the royalty fee payments.In summary, our review of selected financial and production report information and supporting cost documentation pertaining to the TVA mine found (1) nothing to indicate cost and profitability assertions were not accurate, (2) some costs and coal revenues were a function of market conditions which impacted the company’s profitability, and (3) the company began allocating costs on internal financial reports in August 2006 which more accurately depicted profitability. In addition, the company discovered royalty fee payments were underpaid by approximately $15,000 when providing requested information during our review. Summary Only

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.

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 $5.6 million of costs billed by a TVA contractor for providing construction and modification services for TVA generating plant switchyards, substations, electrical transmission system, and power control communication facilities. We found TVA had been overbilled an estimated $186,378 for (1) craft labor costs that exceeded amounts provided for by TVA’s labor agreements, (2) misclassified subcontractor labor, (3)ineligible subsistence allowance payments, and (4) unsupported costs. The contractor agreed with most of our issues and provided credits to TVA. However, the contractor stated it planned to perform a 100 percent review of craft labor costs associated with the audit period rather than rely on the audit estimate of the overbilling. TVA management plans to work with the contractor to recover the overbilled craft labor costs. Summary Only

TVA provides engineering and technical assistance to the Federal Emergency Management Agency (FEMA) for major disasters and emergencies using TVA retirees who are working for a TVA subcontractor. In April 2006, the Department of Homeland Security requested all Offices of the Inspector General to perform a review of the 2005 Gulf Coast Hurricane Assignments performed by their agency to evaluate their agency's procedures pertaining to the billing and reimbursements for FEMA mission assignments.Our review found TVA (1) did not have adequate controls in place to ensure the accuracy of costs TVA paid to its contractor and subsequently billed to FEMA and (2) could not provide documentation of FEMA's approval of TVA's use of a markup rate to recover its costs of administering the retiree subcontract. TVA management subsequently instituted new procedures to correct the deficiencies identified by our audit. Based on the new procedures, we determined TVA is generally in compliance with federal guidelines pertaining to the billing and reimbursements for FEMA mission assignments. However, we recommended FEMA provide written authorization for TVA's use of a specific markup to recover its costs of administering the retiree subcontract. Summary Only

We audited $22.2 million of costs billed by a TVA contractor for providing construction and modification services for TVA generating plant switchyards, substations, electrical transmission system, and power control communication facilities. We found overbillings and overpayments of about $58,000 including (1) overbillings for small tools due primarily to the contractors application of a recovery rate to an incorrect cost base, (2) craft wages and benefits that exceeded amounts provided for by TVA's labor agreements, and (3) miscellaneous overpaid and unsupported costs. The contractor and TVA management agreed with our findings except for the overbilled craft wages and benefits. In response to that issue, management stated TVA labor relations had decided certain variances from the labor agreements would be allowed and most of the variances identified in this review were within the guidelines established by labor relations. Summary Only

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

EAC OIG audited $39.2 million in funds received by the South Carolina Election Commission under the Help America Vote Act. The objectives of the audit were to determine whether South Carolina (1) expended HAVA payments in accordance with the Act and related administrative requirements and (2) complied with the HAVA requirements for replacing punch card or lever voting machines, for establishing an election fund, for appropriating a 5 percent match for requirements payments, and for maintaining stat expenditures for elections at a level not less than expended in fiscal year 2000. Specifically, we audited claimed expenditures from July 1, 2003, through December 31, 2005, and reviewed controls to assess their adequacy over the expenditure of HAVA funds. We also evaluated compliance with certain administrative requirements for the following activities: accumulating financial information reported to EAC on the Financial Status Reports (standard forms number (269); accounting for property; purchasing goods and services; accounting for salaries; charging indirect costs; and spending by counties. We also determined whether South Carolina had complied with the requirements in HAVA applicable to Section 251 requirements payments for: Establishing and maintaining the election fund; appropriating funds equal to five percent of the amount necessary for carrying out activities financed with Section 251 requirements payments; and sustaining the State's level of expenditures for elections.

EAC OIG audited $134.8 million in funds received by Secretary of the Commonwealth of Pennsylvania under the Help America Vote Act. The objectives of the audit were to determine whether Pennsylvania (1) expended HAVA payments in accordance with the Act and related administrative requirements and (2) complied with the HAVA requirements for replacing punch card or lever voting machines, for establishing an election fund, for appropriating a 5 percent match for requirements payments, and for maintaining state expenditures for elections at a level not less than expended in fiscal year 1999. Specifically, we audited reported outlays shown on page 2 and reviewed controls to assess their adequacy over the expenditure of HAVA funds. We also evaluated compliance with certain administrative requirements for the following activities: accumulating financial information reported to EAC on the Financial Status Reports (standard forms number 269); accounting for property; purchasing goods and services; accounting for salaries; charging indirect costs; and spending by counties. We also determined whether Pennsylvania had complied with the requirements in HAVA for: establishing and maintaining the election fund; appropriating funds equal to five percent of the amount necessary for carrying out activities financed with Section 251 requirements payments; and sustaining the State's level of expenditures for elections.

The Daily Coal Report (DCR) is used to identify variances between vendor/terminal and TVA shipment weights and to graph the identified variances.We performed an inspection to verify that TVA and vendor/terminal shipment weights were accurately entered into the DCR for the period December 1, 2005, through May 3, 2006.Of the 482 tested coal shipments from nine fossil plants, 33 shipments were not recorded in the DCR in accordance with TVA weight documentation and/or vendor/terminal bills of lading.We also found that (1) significant variances exist between TVA coal weights and vendor/terminal shipment weights, based on the weights recorded in the DCR and (2) some practices are inconsistent between fossil plants.We recommended that the general manager, Fossil Fuel Supply, consider developing a standard process and procedure which: (1) defines how to account for missing or extra rail cars, (2) specifies the requirements for the tracking, reconciliation, and reporting of missing and extra rail cars, and (3) emphasizes that comments must be entered in the DCR when events occur that affect TVA and/or vendor/terminal weights.TVA management agreed with our findings and has initiated or plans to initiate corrective action. Summary Only

The Tennessee Valley Authority (TVA) contracted with the independent certified public accounting firm of PricewaterhouseCoopers LLP (PwC) to audit the balance sheets as of September 30, 2006, 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, 2006. The contract required the audit be done in accordance with generally accepted government auditing standards.Our review disclosed no instances where PwC 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 $18.6 million of payments TVA made to a contractor for providing the services of TVA retirees to provide engineering and technical assistance to the Federal Emergency Management Agency for major disasters and emergencies. We found the contractor had overbilled TVA an estimated $149,584 for labor, travel, miscellaneous costs, and administrative fees. Additionally, we noted control deficiencies regarding the authorization and payment of costs by the contractor and TVA. The contractor stated it (1) concurred with our conclusions and recommendations but is continuing to find documentation that should reduce the overbilled amount and (2) has instituted controls regarding payments to employees and subsequent billing of costs to TVA. Summary Only

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.

The enclosed report presents the results of the audit of the Commission’s financial statements for the fiscal

We identified no instance where PricewaterhouseCoopers LLP did not comply in all material respects with Government Auditing Standards in its review of TVA's interim financial information for the second quarter of FY 2006. Summary Only

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 performed four agreed-upon procedures, which were requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2006.In summary, we found:Seven instances where adjustments to the fiscal year 2006 goals were not properly approved. Four of the adjustments required TVA Board approval. Two of these adjustments will result in no payout and related to the Environmental Impact indicator on the TVA scorecard. In three of the four adjustments requiring Board approval, evidence was provided which showed a Board member informally approved the adjustment.Actual year-to-date inputs for each indicator agreed with the respective "reason for improvement" sheet. Actual inputs for the eight TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, with one exception which related to a miscalculation of the Productivity indicator. This one exception will not affect the payout. In addition, we noted actual performance for the Asset Availability indicator was not rounded consistently with that of other indicators, which will affect the payout. We were informed that the actual amount was truncated with the Chief Executive Officer’s approval, rather than rounded. We further noted no formal policy was in place to guide rounding decisions. The payout percentages were recalculated without exception. However, it should be noted that two indicators at Colbert and John Sevier were included in the calculations at target rather than actual. Summary Only

October 25, 2006 - Browns Ferry Nuclear Plant (BFN) Materials Inventory Accounting Practices - 2006-530IAt the request of the TVA’s Chief Nuclear Officer and Executive Vice President, we conducted a review of inventory accounting practices at Browns Ferry Nuclear Plant. Specifically, we were requested to determine whether (1) proper accounting practices and TVA policies were followed when returning material and components (i.e., spare parts) to inventory after being removed from installed locations and (2) existing procedures provide adequate guidance on returning spare parts to inventory. In summary, we found:Noncompliance with Generally Accepted Accounting Principles (GAAP) and TVA policies and procedures.TVA policies and procedures do not adequately address (a) how to account for the return of material/components to inventory from installed locations (i.e., spare parts) and (b) the inventory tracking of spare parts.While we found no indication of intent to manipulate the entries to achieve outage performance goals, the circumstances could create an appearance to do so.TVA management agreed with our findings and has initiated or plans to initiate corrective action.

EAC OIG audited $184.1 million in funds received by the Texas Secretary of State under the Help America Vote Act. The objectives of the audit were to determine whether Texas (1) expended HAVA payments in accordance with the Act and related administrative requirements and (2) complied with the HAVA requirements for replacing punch card or lever voting machines, for establishing an election fund, for appropriating a 5 percent match for requirements payments, and for maintaining state expenditures for elections at a level not less than expended in fiscal year 2000. Specifically, we audited expenditures from May 1, 2003 through December 31, 2005, and reviewed controls to assess their adequacy over the expenditure of HAVA funds. We also evaluated compliance with certain HAVA requirements for the following activities: accumulating financial information reported to EAC on the Financial Status Reports (standard forms number 269); accounting for property; purchasing goods and services; accounting for salaries; charging indirect costs; and spending by counties. We also determined whether Texas had complied with the requirements in HAVA applicable to Section 251 requirements payments for: establishing and maintaining the election fund; appropriating funds equal to five percent of the amount necessary for carrying out activities financed with Section 251 requirements payments; and sustaining the State's level of expenditures for elections.

EAC OIG audited $143.5 million in funds received by the Illinois State Board of Elections under the Help America Vote Act. The objectives of the audit were to determine whether Illinois (1) expended HAVA payments in accordance with the ACT and related administrative requirements and (2) complied with the HAVA requirements for replacing punch card or lever voting machines, for establishing an election fund, and for maintaining state expenditures for elections at a level not less than expended in fiscal year 2000. Specifically, we covered fiscal years 2003 through 2006 and reviewed controls to assess their adequacy over the expenditure of HAVA funds and compliance with certain HAVA requirements for the following activities: accumulating financial information reported to EAC on the Financial Status Reports (standard forms number 269); accounting for property; purchasing goods and services; accounting for salaries; charging indirect costs; and spending by counties. We also determined whether Illinois had complied with the requirements in HAVA for: establishing and maintaining the election fund; appropriating funds equal to five percent of the amount necessary for carrying out activities financed with Section 251 requirements payments; and sustaining the State's level of expenditures for elections.

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

This report is Limited Official Use. 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.

EAC OIG issued this memorandum to alert the EAC Executive Director to noncompliance with the Federal Information Security Management Act (FISMA).

I am pleased to present to you our semiannual report for the six-month period beginning April 1, 2006, and ending September 30, 2006. The efforts of the men and women of the TVA OIG resulted in almost$14 million in recoveries, fines/penalties, potential savings, questioned costs, or funds which could be put to better use during this reporting period. Our staff continues to provide wide coverage of the many programs and operations of a very diverse and complex organization. TVA, the nation’s largest public power company, produces power through its fossil, hydroelectric, nuclear, and green power facilities for a seven-state region; revenues from power sales total approximately $8 billion. The focus of the OIG continues to be one of promoting excellence across all of TVA’s programs and operations.Our reviews during this period illustrate both the significance of our work and the cooperation and responsiveness of TVA management. Our reviews encompass TVA contracts, Information Technology security such as the Federal Information Security Management Act, financial-related audits including testing for compliance with the Sarbanes-Oxley Act, inspections, and investigations. As discussed in this report, we addressed topics such as the inherent conflict in TVA serving as a regulator over municipal utilities and cooperatives to which TVA sells electricity, the contracting process at TVA, and TVA’s policy on land disposal. In each case, management took our findings seriously, and we are monitoring their corrective actions.Our work was also recognized by the President’s Council on Integrity and Efficiency (PCIE). I note with pride that the PCIE recognized our Contract Audit department and fraud risk assessment team with awards of excellence. The Contract Audit department has found average cost savings of $32 million per year over the last ten years. Their consistent large dollar findings have led to TVA management both asking for numerous contract audits and seeking advice and training on contracting best practices. Our fraud risk assessment team successfully implemented a novel approach to fraud detection and prevention. This program works because of the willingness of TVA management to embrace its responsibility to protect TVA against fraud by workinghand-in-hand with the fraud risk assessment team.I appreciate the ongoing support of the TVA Board. I look forward to continuing to work with them and their newest member, William Graves, as we move forward.

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 September 30, 2006.

TVAN's CRP was designed to help ensure all TVA and contractor employees supporting TVAN "are free to express safety issues, concerns, or differing views to TVAN management without fear of reprisal and all such concerns and issues are investigated and resolved in a timely manner." We performed an inspection which assessed the willingness of TVA employees and contractors to report nuclear safety and quality issues through various avenues, including TVA's CRP. The scope of the review corresponded to the TVAN workforce, employees and contractors with unescorted access to TVA's nuclear facilities. Overall, we determined:TVAN's workforce (i.e., TVA employees and contractor employees with unescorted access to TVA's nuclear facilities) generally felt free to raise nuclear safety and quality issues. However, many of the responses were not as affirmative as the prior survey.Issues associated with the closed CRP files were generally addressed.The number of allegations made directly to the Nuclear Regulatory Commission by TVAN's workforce has increased in the last three years. Despite this increase, the number of allegations remains lower than the high years 1996 ? 1997. Based on these findings, we believe the fundamental mission of the CRP is being met.

TVAN CRP was designed to help ensure all TVA and contractor employees supporting TVAN "are free to express safety issues, concerns, or differing views to TVAN management without fear of reprisal and all such concerns and issues are investigated and resolved in a timely manner." We performed an inspection which assessed the willingness of TVA employees and contractors to report nuclear safety and quality issues through various avenues, including TVAN's CRP. The scope of the review corresponded to BFN contractors and TVA employees with unescorted access to BFN's nuclear facilities.

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