Federal Reports

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.

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 reviewed $84.9 million in funds received by the Office of the Attorney General, New Jersey Department of Law and Public Safety under the Help America Vote Act. The objectives of the review were to assess New Jersey's administration of HAVA funds and compliance with certain HAVA requirements. Specifically, we focused on fiscal year 2005 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; accounting for property; purchasing goods and services; accounting for salaries; charging indirect costs; and spending by counties. We also determined whether New Jersey 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.

We conducted a review to determine what TVA has done to address challenges arising from TVA's aging workforce, retirements, and the resulting knowledge loss. Challenges facing power utilities as a result of the aging workforce include the loss of critical knowledge, the inability to find replacements with utility-specific skills, and the lack of bench strength within the organization. We determined TVA has adopted an Integrated Staffing Plan Principle, as well as several initiatives to support this principle which address the challenges arising from TVA's aging workforce. These initiatives include (1) Strategic Talent Management, (2) Work Force Planning, (3) Knowledge Retention, (4) Training Pipeline, and (5) Recruiting. We also determined that TVA's succession planning initiatives include many recognized best practices, and TVA is a recognized best practice organization related to knowledge retention.While TVA has taken actions to address the issues arising from an aging workforce, the implementation of TVA Corporate HR initiatives by the business units can be improved. We recommended the Executive Vice President, Administrative Services:Consider educating employees on the importance of self-reported retirement dates and how that information is used, along with providing on-going education on retirement benefits and planning from early in a TVA employee's career; Ensure complete implementation of the Knowledge Retention Initiative, which supports compliance with and the success of the Integrated Staffing Plan Principle; and Emphasize the importance of pipeline hiring to move TVA more towards being a developmentally oriented business. TVA management agreed with our findings and has initiated or plans to initiate corrective action.

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 reviewed the Office of Personnel Management (OPM) guidance/requirements regarding a potential influenza pandemic to determine if TVA is in compliance with OPM requirements and/or has taken other proactive solutions. We found that OPM has issued some guidance for Federal agencies to follow in the event of a pandemic; however none are mandatory for agencies to implement. TVA is currently reviewing OPM guidance and has taken other proactive actions by adopting and adapting the Nuclear Energy Institute guidelines. Based on our presentation to management, subsequent to the issuance of the pandemic plan, we may be requested to verify implementation of key pandemic plan initiatives.

Our overall objective was to determine the effectiveness of the actions to account for all employees based on whether the Postal Service (1) located employees in the days after Katrina and (2) tracked employees’ locations as they changed addresses in the days and months following the hurricane. We also determined what, if any, responsibility employees had to inform the Postal Service of their locations as they moved about the country. We reviewed the facilities in the Southeast Area’s Mississippi District and the Louisiana District’s New Orleans Processing and Distribution Center (P&DC) located in the Southwest Area.

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

We audited the costs invoiced by a contractor for retroactive rate adjustments and determined the adjustments were overstated by about $12,000 due to miscellaneous billing errors. The contractor agreed with our findings. Summary Only

We reviewed TVA's contracting process and noted several areas where improvements could result in better contract management and greater contractor compliance with commercial terms and conditions. Although we noted many instances of good practices being performed by various individuals in Procurement and TVA's Strategic Business Units, these practices were not universal. Overall, we noted (1) deficiencies in 40 percent of the 64 contracts reviewed; (2) technical contract managers were approving payments without adequately reviewing pricing on 25 percent of the invoices reviewed; and (3) internal controls were not always followed. Additionally, we surveyed Procurement's contract managers and purchasing agents and a representative sample of TVA's technical contract managers to ask for their input regarding weaknesses and areas of improvement in the contracting process. The survey results were most negative in areas concerning (1) training, (2) workload, and (3) communications. TVA management instituted several initiatives to address most of the issues identified in the report. Summary Only

We audited $3.2 million of costs billed to TVA by a contractor for welding services performed at Browns Ferry and Sequoyah Nuclear Plants by one of its subcontractors and determined TVA had been billed $450,165 for unsupported and ineligible costs. The overbilling included (1) per diem payments that exceeded limitations or were ineligible under the contract, (2) ineligible mobilization/demobilization and travel expenses, (3) unsupported small tools and consumable costs, (4) labor costs that were either unsupported or billed at incorrect rates, and (5) unsupported subcontractor costs. TVA management is reviewing our findings and recommendations. Summary Only

We audited $32.7 million of costs billed to TVA by a contractor providing reload fuel fabrication services for Browns Ferry Nuclear Plant and determined TVA had been overbilled $5,545 due to the contractor's use of overstated hours and incorrect labor rates. Additionally, the contract did not have a formal authorization process for certain services to be performed by the contractor and the contractor could not provide documentation of TVA's authorization for some of the services it had billed TVA. The contractor agreed to credit TVA for the overbilled amount. TVA management agreed with our findings and is (1) reconciling the deliverables it received with the compensation paid for the services in question and (2) issuing a contract supplement to confirm how work will be released under the contract. Summary Only

We determined a TVA contractor providing nuclear security services was incurring a high level of overtime due to work schedules and headcount limitations. The headcount limitations had resulted in TVA paying $1.84 million in extra labor costs during 2004 and 2005. We estimated if the trend continued TVA would pay an extra $3.5 million over the planned three-year remaining term of the contract. TVA management stated they had reviewed the contractor's staffing levels and determined additional full-time positions were needed to man the security posts. Also management stated they had taken action regarding the contractor's security manning requirements and shift scheduling that will reduce overtime to acceptable levels. Summary Only

At the request of TVA Occupational Health and Workers' Compensation, we performed a limited scope review to assess whether policies, procedures, and key control activities ensure compliance with TVA's Prescription Safety Eyewear Program requirements. In summary, we determined TVA's policies and procedures adequately address the eligibility requirements and process to be followed in order to obtain prescription safety eyewear. However:Policies and procedures regarding prescription safety eyewear (1) do not address the retention of supporting documentation for purchases of prescription safety eyewear and (2) are not being complied with by all the Safety Eyewear Coordinators. Policies and procedures could be strengthened to clearly identify the time frame constraints for obtaining replacement eyewear. Current identifiers used for employees are not unique to a single employee. TVA management agreed with our findings and recommendations and has taken or plans to take corrective action.

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 compared Gallatin Fossil Plant (GAF) coal receipts using TVA and terminal shipment weights to identify whether any significant variances exist. Our review covered December 1, 2005, to May 3, 2006. We determined (1) coal receipt information input into FuelWorx (FWX) and the Daily Coal Report (DCR) were generally accurate and (2) significant variances exist between vendor/terminal invoiced weights and TVA delivered weights. Specifically:All but 1 of the 64 tested coal shipments were input into FWX and the DCR accurately. The net effect of all terminal versus TVA weight variances shows that TVA received approximately 31,000 tons more coal than reported on the terminal shipping notices. We also noted that when TVA weights are unavailable, terminal weights are input as TVA weights. Two additional issues cited by GAF personnel were that (1) the responsible individual is not always informed when TVA weights are unavailable and (2) not all scale personnel receive formalized training.TVA management agreed with our findings and recommendations and has taken or plans to take corrective action.

At the request of TVA Nuclear (TVAN), we reviewed Stone and Webster Engineering Corporations' (SWEC) craft labor time reporting associated with the October 2005 Unit 1 Restart craft labor switch to five eight-hour straight-time work schedules. In 2005, TVA and the Tennessee Valley Trades and Labor Council modified their memorandum of understanding, including Attachment A, Mandatory ? Eight/Ten Straight-Time Attendance Agreement (LRS-54). The change was made to increase productivity (e.g., to curtail absenteeism and tardiness). To comply, SWEC switched to five eight-hour days straight-time work schedules in October of 2005. SWEC developed the following key control activities to ensure compliance with LRS-54.The AnalyzeTime application evaluates payroll data to identify inconsistencies and potential errors in time calculations. Timesheets, which support payroll payments, are prepared and signed by a foreman and then approved by an applicable supervisor. Gate-log reports are available to identify time reporting variances for employees working inside the secured area. We determined (1) the AnalyzeTime application is working as intended, (2) over 99 percent of timesheets reviewed contained all required signatures, and (3) gate-log reviews are being conducted; however, these reviews provide only limited information for monitoring. We also noted that:Absences are not tracked when an employee is temporarily assigned to another unit. No process exists to ensure that excused absences are monitored to identify potential abuse.

EAC OIG reviewed $77.3 million in funds received by the Georgia Secretary of State under the Help America Vote Act. The objective of the review was to determine whether Georgia (1) managed HAVA funds in accordance with the Uniform Administrative Requirements for Grants and Cooperative Agreements with State and Local Governments (the Common Rule) and the Cost Principles for State, Local and Indian Tribal Governments (Office of Management and Budget Circular A-87) and (2) complied with HAVA requirements for maintaining the election fund and sustaining the State's level of expenditures for elections.

FLRA Inspector General FY 2006 Evaluation of FLRA’s Compliance with the Federal Information Security Management Act of 2002

KPMG LLP, the auditor under contract having performed the audit of the United States Mint’s Fiscal Year 2005 Financial Statements, has withdrawn its opinion on the financial statements as a result of subsequent discovery of material errors. Accordingly, the previously issued independent auditors' report and management letter associated with the financial statements have been removed from the OIG websiteand Oversight.gov): Audit of the United States Mint's Fiscal Year 2005 Financial Statements, report number OIG‐06‐031, dated June 28, 2006 (RECALLED BY AUDITORS)

We conducted a review to assess the TVA role as rate regulator over municipal utilities and cooperatives (collectively "distributors") which purchase TVA power. The TVA Act imposes only one regulatory requirement, prohibiting discrimination between consumers of the same class. The TVA Act, however, also gives the Board authority to include terms and conditions in power contracts as needed to carry out the purposes of the Act, which include keeping rates as low as feasible. Pursuant to this authority, most power contracts include, in addition to the required nondiscriminatory provision, terms and conditions related to resale rates, use of revenues, and financial and accounting requirements. In summary, we determined the following:TVA is in a unique position as both a seller of electric power and a regulator over the rates charged by many of its customers. We believe there is an increasing inherent conflict in TVA serving as a regulator while working to ensure good customer relations. TVA routinely reviews and approves resale rates and use of funds for nonelectric system purposes. We determined TVA should develop additional guidelines to assist in their reviews. Thirteen distributors used electric system funds for nonelectric purposes, while the joint use agreements may not have been modified to permit such use. TVA management agreed with our recommendations, and we concur with their planned actions.

We performed a limited scope review to determine if claims are being adjudicated in accordance with the provisions of the TVA Dental Benefit Plan. While the majority of claims reviewed were adjudicated properly, we did identify an adjudication error associated with charges for preventive services. TVA Employee Benefits had also discovered the error and subsequently addressed the issue. The dental claim administrator had reimbursed TVA in the amount of $5,353.22 and reimbursement for 16 additional charges identified by our review was pending. Summary Only

We audited the employee recognition costs billed to TVA by a contractor under two contracts for engineering services provided in support of BFN Unit 1. In summary, we found the contractor had (1) not refunded TVA for $71,406 of unspent funds under one contract and (2) billed TVA $49,093 for employee recognition costs under the second contract. Although the second contract did not provide for TVA to receive a refund, the amounts paid by TVA had been agreed to based on the contractor's representations that it would be incurring employee recognition costs. TVA management plans to pursue recovery of the unspent funds under the two contracts. Summary Only

We audited $12.4 million of costs billed to TVA by a contractor for performing welding services for fossil and hydro projects. In summary, we found TVA had been overbilled $539,194 for (1) labor costs due to unsupported records and the contractor's use of incorrect labor rates; (2) mobilization, travel, and per diem costs that were ineligible or billed at incorrect rates; (3) duplicate costs and invoice calculation errors; (4) equipment costs due to the contractor's use of incorrect billing rates; and (5) unsupported costs. TVA management (1) has instructed the contractor to provide any additional or clarifying documentation to support its billings and (2) is planning to recover any overbilled and unsupported costs. 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

We reviewed $59.2 million of costs paid by TVA to a contractor for providing managed security services for TVA Nuclear and security support for other TVA organizations. We found the contractor had overbilled TVA $104,599, including (1) $84,799 for leased vehicle costs that included billings past lease expiration dates and reductions in the lease costs that had not been passed through to TVA, (2) $16,221 for labor costs and associated fees because certain straight time hours were billed to TVA at overtime rates, and (3) $3,599 of estimated travel costs that were either unsupported or ineligible. TVA concurred with our findings and is planning to recover the overbillings. Summary Only

We reviewed $5.7 million of payments TVA made to a contractor for providing analysis and licensing support for tritium production at Sequoyah Nuclear Plant and determined the contractor had overbilled TVA $78,653. The overbilling included (1) an estimated $76,075 in unsupported labor costs and (2) $2,578 for travel and material costs that were either unsupported or ineligible. TVA management is planning to recover the overbilled costs. Summary Only

We assessed TVA's compliance with applicable policies, procedures, and laws/regulations when conducting land disposal transactions. TVA's land disposal actions include easements, sales, abandonments, deed modifications, transfers, and leases. The TVA Act grants TVA authority to transfer land to government agencies, corporations, partnerships, or individuals. TVA's overall policy on the use, acquisition, and disposal of land is contained in TVA Code V, which was last updated in 1982. With regard to reservoir property:TVA maintains 293,000 acres of reservoir property. River Systems Operations and Environment (RSO&E) manages reservoir property and maintains Board-approved Land Management Plans for the major reservoir properties. In summary, we determined:TVA's policy on land disposals does not clearly articulate (1) criteria for considering which property is subject to disposal, (2) criteria for accepting or rejecting proposals, and (3) provisions for land swaps. RSO&E generally complied with their land disposal processes including (1) obtaining appropriate reviews and approvals, (2) ensuring independent appraisals of land value, and (3) receipt of payment for appraised values. However, we found documentation could be improved related to the non-requirement of public notice. Documentation is not required or being maintained for withdrawn or rejected Land Use Applications. RSO&E has scheduled reassessment of TVA's Land Management Plans beyond their planned ten-year horizon. No non-compliance with applicable laws and regulations. TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.

We reviewed TVA's contracts with a contractor that provided boiler pressure parts and burner parts and determined the contracts' compensation clauses were not adequate for determining and evaluating prices to be billed for the parts. We recommended TVA management (1) incorporate specific pricing criteria in the contracts for use in determining and evaluating prices and (2) revise/supplement the cost reimbursable payment terms under one of the contracts to specifically address costs/rates to be paid by TVA. TVA management agreed the contracts' pricing criteria should be revised and took appropriate action. Summary Only

We assessed the adequacy of controls applicable to the accounting for costs associated with non-nuclear insurable losses. TVA has negotiated and obtained insurance to cover two areas of non-nuclear operations: (1) non-nuclear property and (2) unplanned outages. The unplanned outage insurance covers Fossil's nine baseload units. In summary, we found that the Corporate Insurance Risk & Analysis Group (CIR&A) is in the process of developing policies and procedures to ensure identification of non-nuclear insurable losses and the accounting for associated costs. According to CIR&A, interim actions have been undertaken to capture the costs of non-nuclear insurable losses, including:The Risk Management Information System was implemented in 2002 for the purpose of capturing insurable loss information as it relates to TVA's non-nuclear operations.Insurable loss incidents are identified by maintaining contact with designated site personnel. CIR&A also reviews various reports and data generated within TVA to identify potential insurable loss incidents. CIR&A has trained TVA business managers and designated site personnel to identify the costs that need to be captured in the event an insurable loss occurs. Since this process is currently in a development stage, we plan to defer any further audit work until the process is fully implemented.

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

This is my first report to TVA’s newly constituted Board since the new Board members were sworn in on March 31, 2006. Legislation signed by President Bush in 2004 expanded the Board from three full-time members to nine part-time members, with a full-time chief executive officer to run TVA on a day-to-day basis. As has been noted by many, this is a historic change to the governance structure of TVA.The impetus for this change was a growing sentiment over the years that TVA’s governance structure had become anachronistic. For 73 years, TVA was managed by three full-time board members. United States Senate Majority Leader Bill Frist, who introduced and helped secure passage of the restructuring legislation, has commented that the change is a matter of “common sense.” As the nation’s largest public utility, TVA will now have a corporate structure similar to that of its competitors. The hope is that the new governance structure will help position TVA to compete on a level playing field if as expected the traditional “fence” that has historically protected TVA’s market disappears.The focus of this governance change is accountability. We also focus on accountability as well as economy and efficiency. The OIG performs audits, inspections, and investigations that are designed to assist TVA in achieving its mission of providing affordable, reliable power, being a good steward of the environment, and fostering economic development. The work highlighted in this report is indicative of the efforts we take to help TVA achieve its goals. I am pleased to report that my experience has been that TVA management works collaboratively with the OIG and conscientiously implements our recommendations. There is a demonstrable commitment to excellence at TVA.I offer my sincere congratulations to the new board members and acting Chief Executive Officer Tom Kilgore. I want to extend my personal thanks to Directors Harris and Baxter who have demonstrated a commitment to supporting an independent OIG at TVA. I look forward to experiencing the same spirit of cooperation and partnership with the new board members.The challenges facing TVA are great, but the honor to serve the citizens of the Tennessee Valley is even greater. On this historic occasion, the OIG renews our pledge to provide independent, objective, and competent reports as TVA moves forward into a new era.

As a result of our review of the procedures and key control activities used to track and account for tools at Browns Ferry Nuclear Plant (Inspection No. 2005-526I), we performed an inspection to assess the processes and key control activities used to track and account for tools at SQN. TVA Nuclear (TVAN) Business Practice 226 (BP-226), Tool and Equipment Accountability, dated August 27, 2000:Established and implemented a plant accountability system for tools and equipment.Strengthened and standardized existing tool and equipment accountability practices. Provided for periodic reporting to control and minimize equipment losses. Our inspection identified a significant lack of tool accountability/tracking resulting from (1) noncompliance with processes and key control activities prescribed by TVAN BP-226 and (2) other process/control weaknesses. However, two control mechanisms were implemented to enhance tool room security -- access to the tool room was restricted using hand geometry and closed circuit cameras were installed in the tool room. Management agreed with our findings and has initiated corrective actions.

TVA's previous contract for administration of dental benefits went into effect on January 1, 1999. In April 2005, TVA's Employee Benefits and Procurement sent out a Request for Proposal for quotes from seven companies interested in providing administrative services for dental benefits to TVA's employees. Beginning January 1, 2006, a new dental administrator began administering TVA's dental benefit program.We assessed whether Employee Benefits/Procurement adequately considered the costs/benefits of switching to the new dental administrator for administration of the dental benefits program. In summary, we determined that it appears Employee Benefits/Procurement adequately considered the costs/benefits of switching. However, documentation could be improved. Specifically, no documentation was maintained supporting (1) the rationale behind the technical evaluation scoring methodology and (2) key assumptions used in the cost analysis (i.e., network penetration and average discount rates). Our review of the proposals also noted nothing to question the recommendation of the new dental administrator as the dental plan administration provider, assuming the unsupported network penetration and average discount rates used in Employee Benefits/Procurement's cost analysis were accurate. Management agreed with our findings and has taken or plans to take appropriate corrective actions. 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 a limited scope review to assess the processes and controls over the sale of TVA assets on eBay, including how eBay is chosen for the sales mechanism, reserves are determined, and payments are received and accounted for. Our review of the TVA Investment Recovery (IR) procedures for eBay sales (eBay Sales), dated December 6, 2005, identified several opportunities for improvement. Specifically, the procedures did not adequately address the minimum acceptable price and payment processes/controls and provided TVA organizations, which may not have IR's expertise, the ability to sell TVA assets on eBay. Management agreed with our findings and has taken or plans to take appropriate corrective actions. 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