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Brought to you by the Council of the Inspectors General on Integrity and Efficiency
Federal Reports
Report Date
Agency Reviewed / Investigated
Report Title
Type
Location
Tennessee Valley Authority
Audit of PwC's Review of TVA's FY 2005 Third Quarter Financial Information
We found no instance where TVA's external auditor's reviews of TVA interim financial information for the third quarter of FY 2005 did not comply with Government Auditing Standards in all material respects, including required communications to appropriate parties.
We assessed the extent COO organizations were complying with the work management requirements outlined in COO SPP 7.0, COO Work Management. The work management process includes the "establishment of Program elements required to manage work in a safe, reliable, environmentally conscious, and efficient manner." In general, organizations were complying with the requirement to complete a work package. However, (1) most work package documentation was not retained, (2) inconsistencies exist in the development and use of work packages, and (3) multiple computer applications contribute to inconsistencies. The COO agreed with our findings and plans to initiate corrective actions. Summary Only
We reviewed TVA's ethics practices and identified industry best practices which TVA could implement including (1) an ethics committee to oversee the ethics initiative, (2) a communication strategy that ensures all employees have ethics information, (3) requiring all employees to complete ethics training, (4) assessing and rewarding ethical conduct,(5) assessing the extent to which employees accept organizational values and policies, and (6) communicating to all employees that ethics standards are a high priority with top management. We provided this information to the President and Chief Operating Officer for his consideration.
We audited $33.6 million of costs billed to TVA by a contractor for the administration of TVA's dental benefit program. We questioned $381,392, including (1) unsupported and duplicate claims, (2) claims paid for ineligible individuals, (3) claim payments that exceeded plan limits, and (4) ineligible orthodontic benefits. TVA is negotiating resolution of the overbillings with the contractor. Summary Only
We determined TVA had been overbilled $103,007 (out of $10.9 million that had been billed) for services performed at BFN Unit 1 by a subcontractor. The overbilling included (1) unsupported labor hours, (2) ineligible fees that had been applied to travel and relocation costs, and (3) ineligible jury duty hours. TVA is assessing our recommendations. Summary Only
We determined market value payments (MVPs) to distributors for installed water heaters and heat pumps were generally applied correctly and total invoice amounts were generally accurate, including adjustments to applicable invoices. However, (1) the energy right ? Information System (erIS) does not provide the means to document and track adjustments, (2) some MVPs were paid without complete and/or accurate erIS information, (3) no verification occurred to ensure MVPs were made to distributors as approved by CS&M district specialists, and (4) distributors' noncompliance with certain energy right ? Program process/documentation requirements increased TVA's financial risks. Management agreed with the findings and is taking corrective actions.
Agreed-Upon Procedures Review of Corporation for National and Community Service Grant Awarded to the Haddock AmeriCorps Cadet Program by the Georgia Commission for Service and Volunteerism
We determined a contractor overbilled TVA $563,773 (out of $6.2 million that had been billed) for providing welding services for various nuclear projects. The overbilling included (1) labor costs due to the contractor's use of incorrect labor rates, misclassifications of personnel, and unsupported labor hours; (2) ineligible or unsupported mobilization, travel, and per diem costs; (3) direct billed overhead labor; and (4) duplicate costs. TVA agreed with most of our findings and is working with the contractor to resolve the overbillings. 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, 2004. The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS. Summary Only
We reviewed $148.9 million billed to TVA by a contractor for providing uranium hexafluoride and enrichment services. We determined (1) TVA would need to revise the contract if it intended to pay the contractors actual market price for enrichment services and (2) the contractor could not comply with a contract requirement for determining a final price for enrichment services within 30 days after the end of TVA's fiscal year. TVA subsequently decided a contract revision would not be needed to ensure payment of the contractor's actual market price for enrichment services. However, TVA executed an amendment to the contract that outlines the billing process, including the timing of interim and final billings. Summary Only
We determined controls related to the identification and reduction of inventory and financial reporting could be improved. Specifically, we determined (1) policy and procedure documentation were not complete, (2) business unit reviews for surplus/obsolete inventory were not effective, (3) signatory authorization of approval by the business units for inventory write-offs was not obtained, (4) inventory purchases were made for items held as surplus, and (5) inventory reserve calculations were incorrect, however, corrections were made for quarterly reporting accuracy).
We determined (1) current inventory cycle count controls may not ensure inventory on-hand is accurately counted and entered into PassPort; (2) in some warehouses, access to plant inventories is not restricted to Material Management Services (MMS) personnel or MMS-escorted personnel during non-standard work hours as required by policy; and (3) TVA's Risk Control Tracking System could be updated to more accurately reflect key financial controls of the manage site materials process. TVA management agreed with our findings and is implementing planned actions.
We determined a wireless carrier issued credits to TVA employees due to an internal system error. The credits pertained to inactive accounts and therefore had no impact on TVA's master account. The carrier was unable to validate (1) who the checks were issued to, (2) how many checks were issued, and (3) the total amount of the credits. Summary Only
We determined TVA's depreciation policy and procedures do not accurately reflect (1) control activities described in TVA's Risk Control Tracking System and (2) current management practice. TVA management is assessing our recommendations.
We reviewed $104.4 million in costs paid by TVA to a contractor for providing construction services for the restart of BFN Unit 1. We found the contractor overbilled TVA $1.5 million due to (1) the use of a craft labor category, incentive fee, and safety awards not provided for by the contract, (2) wrong indirect cost markups and unsupported labor costs, and (3) other miscellaneous overbillings. Additionally, we estimated TVA would save $995,000 by disallowing the use of an unauthorized labor classification. TVA subsequently decided to disallow $1,087,914 of the questioned costs and to discontinue use of the labor classification. Summary Only
We determined TVA's inventory receiving and inspecting (R&I) process controls were designed to prevent or detect material misstatements in significant accounts and the related inventory disclosures on a timely basis. However, TVA's Risk Control Tracking System could be updated to more accurately reflect key financial controls of the R&I process. TVA management agreed with our findings and has completed final action.<br><br>
We found no evidence of fraud in connection with different vendors sharing the same bank account. Most vendors were related and there was no evidence that non-related vendors bid on contracts under different names, double billed TVA, or appeared to be shell companies. We noted, however, that some vendor records in Passport appeared to be inactive, and we suggested Procurement periodically purge inactive vendor records.<br><br>
At the Chief Financial Officer organization's request, we assessed the cost effectiveness of the actual travel expense reimbursement program and the Chief Operating Officer (COO) flat rate reimbursement program. We determined that the COO flat rate method of travel expense reimbursement cost about $115,000 more than the actual expense reimbursement method during a 3-month period that we reviewed. We also identified control weaknesses, including a lack of system edits to prevent flat rate reimbursements which exceeded the allowable rate, and numerous instances where employees were reimbursed for direct billed hotel expenses under both methods of travel reimbursement. TVA management is considering appropriate corrective actions.<br><br>
We found no instance where TVA's external auditors' reviews of TVA interim financial information for the second quarter of FY 2005 did not comply with Government Auditing Standards in all material respects, including required communications to appropriate parties.<br><br>
We reviewed $109.8 million in costs paid by TVA to a contractor for providing engineering services associated with the restart of Browns Ferry Nuclear Plant (BFN) Unit 1. We questioned $2.5 million, including (1) the contractor's inclusion of the labor costs of its affiliate company in its performance base and (2) overcharges for labor and related costs and other direct costs. TVA decided to (1) allow the contractor to include the labor cost of its affiliate in its performance fee base and (2) recover any remaining costs that were not directly billable under the contract. Summary Only
J-1 Visa Waiver program provides a waiver of the requirements for foreign physician to return to his/her home country after completion of Medical training.
We determined TVA's contributions totaled $1.261 million and $1.646 million for FYs 2003 and 2004, respectively. TVA's Corporate Contributions organization administered about 51 percent of the contributions in FY 2003 and 36 percent in FY 2004; other TVA organizations administered the remaining contributions. In reviewing a sample of contribution transactions, we noted (1) the Contributions Committee did not review numerous transactions as required by policy and (2) several transactions, including $160,580 in purchasing card payments that appeared to be contributions, were charged to incorrect cost classifications. Also, TVA's Contribution Tracking System is not reconciled and may not reflect all TVA contributions. Management agreed with the findings and has taken or plans to take appropriate corrective actions.<br><br>
As reflected in this semiannual report to Congress, the OIG continues to better enable TVA to preparefor expected changes in its business environment. TVA’s strategic plan has identified four key areas that areessential to success in a more competitive market: (1) developing new price structures, services, and contractterms that are better suited for a more competitive market; (2) addressing issues that affect TVA’s transmissionbusiness, including how to interface with surrounding markets to ensure reliability and how to charge fortransmission services when distributors can choose other suppliers; (3) accelerating TVA’s debt reduction toprovide increased financial flexibility in a more dynamic, competitive market; and (4) maintaining and operating theTVA power system so customers can count on having a safe and reliable power supply.These four key areas are impacted by the audits, investigations, and inspections conducted by the TVAOIG. We are charged in the Inspector General Act to “provide leadership and coordination and recommendpolicies for activities designed to promote economy, efficiency, and effectiveness . . . and to prevent and detectfraud and abuse.” This semiannual report to Congress demonstrates a concentration of effort by the OIG toidentify areas where TVA can improve efficiency and better protect its operations from fraud and abuse.The nature of the work of the OIG is to naturally focus on aberrations. We focus our efforts based onrisks to the organization and we then look for vulnerabilities. Our semiannual reports to Congress thereforeappear to reflect a compendium of “problems.” What they do not fairly represent are all the many programs andprocesses that are working well at TVA. Neither do our reports fully capture the cooperative spirit of TVAmanagement who year after year implement our recommendations because they truly want TVA to be better. Inthis semiannual reporting period perhaps nothing exemplifies this more than the way in which Jacky Preslar,General Manager of Fossil Fuel Supply, and his team implemented the first fraud risk assessment at TVA. Whilethe OIG introduced this process to TVA, Fossil Fuel Supply embraced it as their own and enthusiasticallyidentified fraud vulnerabilities and provided the necessary remediation.While I am immensely proud of the financial savings realized by TVA this reporting period because of thehard work of our OIG staff, I am equally proud of the healthy professional relationship that exists between ouroffice and TVA management. The TVA Board continues to demonstrate an appreciation for the work of the OIGwhich engenders this spirit of cooperation. I am grateful for the opportunity we all have to work together to builda better TVA.
Independent Evaluation of the Corporation for National and Community Service Compliance with the Federal Information Security Management Act for Fiscal Year 2004
This semiannual report summarizes the work of the OIG from April 1 through September 30, 2004. The audits, investigations, and inspections highlighted in this report illustrate our continuing commitment to helping TVA promote economy, efficiency, and effectiveness in its programs and operations.During the past six months, our audits, investigations, and inspections continued to add to TVA’s “bottom line.” We identified over $4.8 million in potential savings or recoveries, and TVA used our findings from this and prior reporting periods to save over $7 million. The amount of realized savings illustrates how effectively the OIG and TVA work together both in identifying potential problems and resolving those problems. I appreciate the cooperation and support we receive from the TVA Board, management, and employees in our work.As part of our efforts to focus our resources on major areas, we increased our manpower devoted to the Browns Ferry Nuclear Plant (BFN) Unit 1 Restart Project. Audit, investigation, and inspection resources are being dedicated to BFN to conduct reviews designed to promote cost control and to identify on a proactive basis fraud, waste, or abuse that may be occurring. We also have numerous projects underway to ensure integrity in our contract administration process and to look for cost savings opportunities. As an example, during this reporting period we determined, among other things, that a contractor providing engineering services for the BFN Unit 1 restart had overbilled TVA $602,611. We will continue to examine the major contracts andsubcontracts to ensure TVA is getting the benefit of its bargain.Finally, I note that the OIG is losing one of its founding fathers. G. Donald Hickman, one of the first people to start this office in 1986, has retired. Mr. Hickman was the Acting Inspector General (IG) before my appointment and the Assistant Inspector General for Investigations for ten years. He has been heralded through- out the IG community for his work––in 2000 he received an Award of Excellence from the IG community, and this year he received an Individual Accomplishment Award for his work on the OIG investigation peer review process. Mr. Hickman’s contributions to both the IG community and to the TVA OIG will be long remembered. He has our best wishes for a well-deserved retirement.It is truly an honor to work alongside the many dedicated men and women who pull together to make TVA successful. They are aided, as are we, by the continued leadership and support of the TVA Board and the United States Congress. Together we can build a better TVA for future generations.
Audit of Costs Incurred under the Corporation’s Training and Technical Assistance Cooperative Agreement with America’s Service Commissions (Agreement No. 00CADC0011)
