Semiannual Report

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.