Office of the Inspector General

Semiannual Repor t

April 1, 2001 – September 30, 2001

2 0 0 1
Tennessee Valley Aut hority , 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1401

Richard F. Chambers

Inspector General

October 31, 2001

TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

I am pleased to submit this semiannual report on the accomplishments of the OIG for the six-month period ending September 30, 2001.

Consistent with our newly adopted strategic plan, we made significant progress during the period in aligning the

organization to better support the needs of our stakeholders. In this regard, we reorganized our audit operations

to provide better emphasis on the core business processes of TVA, including energy operations. In addition, we

created a separate team to provide advisory services to TVA officials and members of Congress with questions

about TVA operations. We also realigned our investigative resources to facilitate our role in ensuring integrity in

TVA operations.

We have featured the United States flag on the cover of this report as a reflection of our sympathy and solidarity

with those directly affected by the tragic events beginning with the September 11, 2001, terrorist attacks on

America. We stand ready to assist fellow law enforcement agencies in any way possible during this time of

national crisis.

This will be my final semiannual report to Congress as the Inspector General of TVA. I recently announced my

intention to retire from federal service in January 2002. I am extremely grateful for the support I have received

from all of our stakeholders during the past year. It has been an honor and privilege to conclude my career in

public service as the TVA Inspector General.

Pursuant to the Federal Vacancies Reform Act, my First Assistant, Donald Hickman, will assume the role of

Acting Inspector General for TVA upon my retirement.

On behalf of Mr. Hickman and myself, I pledge the continued support of the OIG to those we serve.

Sincerely,

Richard F. Chambers
SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Executive Summary 1

TVA Profile 2

Office of the Inspector General 3

Special Features 5

Audits 9

Investigations 14

Legislation and Regulations 18

Highlights 30

Appendices

Appendix 1 Audit Reports Issued by Subject Area 21

Appendix 2 Audit Reports Issued With Questioned Costs and Recommendations for Better Use of Funds 25

Appendix 3 Investigative Referrals and Prosecutive Results 27

Appendix 4 Audit Reports With Corrective Actions Pending 28

Appendix 5 Index of Reporting Requirements Required by the Inspector General Act of 1978, as amended 29
TVA / OFFICE OF THE INSPECTOR GENERAL 1

During this reporting period, we began

implementing our strategic plan and our

new vision––to illuminate today’s challenges and tomorrow’s solutions. Steps

taken to implement our strategic objectives include a realignment of our organization to better meet customer needs,

focus on high risk areas, and make optimal use of our resources.

Our efforts to support TVA through quality audits and investigations helped TVA

management avoid unnecessary costs,

recover funds, confirm many programs

were working effectively, and correct

identified weaknesses. We also supported task forces operating in the

Tennessee Valley. 

During this reporting period, management took numerous actions in response

to our recommendations. In addition, we

identified over $21 million in recoveries,

fines/penalties, potential savings, questioned costs, or funds which could be

put to better use.

We completed 47 audits and identified

over $3.5 million in questioned costs and

over $10.4 million in funds that could be

used more effectively. Representative

audits included the following:

(1) preaward and post-award contract

audits, (2) TVA’s managed agency

account, (3) hospitality program, (4) contributions program, (5) TVA debt administration, and (6) congressional advisory

reviews.

We closed 59 investigations, including

multi-agency task force projects which

led to over $7 million in recoveries, projected savings, and fines/penalties;

administrative or disciplinary action taken

against 8 individuals; and other corrective action in 3 cases. We also completed 61 OIG employment suitability

background investigations. Matters we

investigated included alleged workers’

compensation fraud, environmental

crimes, fraudulent contractor claims for

temporary living expenses, health care

fraud, and employee misconduct. Our

investigations led to five individuals or

entities being indicted and seven

convicted.
2 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

TVA is a federal corporation established

in 1933 to provide flood control, navigation, and electric power in the Tennessee

Valley region. Today, TVA is the nation’s

largest public power company and a

regional development agency that supplies low-cost reliable power, supports a

thriving river system, and stimulates sustainable economic development in a

service area that covers 80,000 square

miles in the Southeastern United States,

including almost all of Tennessee and

parts of Mississippi, Kentucky, Alabama,

Georgia, North Carolina, and Virginia.

TVA generates power at 11 coal-burning

plants, 3 nuclear plants, 29 hydroelectric

dams, and 1 pumped storage plant.

TVA also produces energy from three

renewable sources––sun, wind, and

methane gas from waste. It provides

electric power to 158 local power distributors, 54 large industries, and 8 federal

agencies through a network of 17,000

miles of transmission lines.

TVA manages the nation’s fifth largest

river system. TVA’s dams are part of a

totally integrated resource management

system where each dam operates in

relationship to the others and are used

for multiple purposes and public benefits.

These include navigation, flood control,

power supply, land use, water quality,

and recreation.

TVA also contributes to the Valley economy, chiefly by keeping power rates competitive, which helps attract and retain

industries that provide quality jobs in the

region. By providing assistance in the

form of capital investment, support of

business incubators, specialized technical services and advice, and industrial

recruitment for new and existing industries, TVA helps communities promote

sustainable economic development

through creating and retaining jobs and

improving business and workforce

productivity.

TVA’s power system pays its own way by

selling electricity and issuing bonds. The

system does not use tax dollars. In

addition, TVA no longer receives congressional appropriations to help fund its

activities in navigation, flood control,

environmental research, and land management. These programs are now

funded by power revenues.

TVA is governed by a three-member

Board of Directors. Directors are

appointed by the President and

confirmed by the Senate. Current Board

members are Glenn L. McCullough, Jr.,

and Skila Harris. During this reporting

period, the President designated Director

McCullough as Board Chairman and

nominated William Baxter to fill the

remaining Director’s position.
Office Authority

TVA’s OIG was created by the TVA Board

of Directors in October 1985. It became

statutory under the Inspector General

Act Amendments of 1988. Those

amendments established OIGs at TVA

and 32 other agencies with Inspectors

General appointed by the agency heads.

The authority to appoint the TVA

Inspector General was transferred to the

President in November 2000 by Public

Law 106–422.

The Inspector General is responsible for

conducting audits and investigations

relating to TVA programs and operations,

while keeping the TVA Board and

Congress fully and currently informed

about problems and deficiencies relating

to the administration of TVA’s programs

and operations. TVA’s Inspector General

is independent and subject only to the

general supervision of the TVA Board of

Directors. The Inspector General’s

authority includes conducting any audits

or investigations the Inspector General

deems necessary or desirable, issuing

subpoenas, administering oaths, and

granting confidentiality.

TVA / OFFICE OF THE INSPECTOR GENERAL 3

Organization

The OIG consists of two major operational units––Audits and Investigations.

The OIG’s Audit Operations unit consists

of four departments––(1) Advisory

Services, focusing on preaward audits

and management and congressional

request work; (2) Corporate Operations

and Control, focusing on contract compliance reviews and corporate programs;

(3) Energy Operations, focusing on TVA

core business operations; and

(4) Information Technology, focusing on

computer security and system reviews

and managing the OIG’s independent

computer network. 

The OIG’s Investigations unit consists of

three major areas––(1) Business Integrity,

focusing on nuclear issues, workers’

compensation fraud and abuse, employee misconduct, and OIG employment

suitability background investigations;

(2) Business Protection, focusing on contract fraud, contract-related misconduct,

and environmental crimes; and

(3) Computer Crimes and Electronic

Commerce, focusing on computer intrusion and fraud issues, health care fraud,

and workplace violence prevention.
Staffing and Budget

The OIG’s offices are in the TVA headquarters in Knoxville, Tennessee. The

OIG also has a satellite office in

Chattanooga, Tennessee.

The OIG’s fiscal year 2001 budget was

$8.6 million with a budgeted headcount

of 90 employees.

4 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

INSPECTOR GENERAL

Richard F. Chambers

Legal Counsel

Richard P. Levi

Deputy Assistant

Inspector General

(Audit and Support)

Lewis M. Ogles

Assistant Inspector

General (Audits)

Ben R. Wagner

Manager

(Human Resources)

Kay T. Myers

Assistant Inspector

General (Investigations)

G. Donald Hickman

❏ Advisory Services

David P. Wheeler

Manager

❏ Corporate Operations

and Control

Jill M. Matthews

Manager

❏ Energy Operations

Paul E. Ivie

Manager

❏ Information Technology

Deborah M. Thornton

Manager

Business Integrity ❏

C. Dale Hamilton

Manager

Business Protection ❏

Ron W. Taylor

Manager

Computer Crimes and ❏

Electronic Commerce

Curtis D. Phillips

Manager
OIG’s Strategic Planning

Initiatives

In order to position ourselves to better

serve our customers/stakeholders in the

twenty–first century and provide a clear

path forward for the OIG, we began a

strategic planning process in January

2001 called Vision XXI. As part of that

process, the OIG Leadership Team:

n Reexamined OIG customers/

stakeholders and their needs,

n Rearticulated our mission and identified our key values,

n Identified and discussed trends and

assumptions about the future,

n Forged an organizational vision,

n Discussed performance gaps,

n Outlined goals and strategic objectives, and

n Identified action steps needed to

achieve the strategic objectives.

In the last semiannual report, we reported on our new vision, ...illuminating

today’s challenges and tomorrow’s solutions.... Since then, we defined our

goals, strategic objectives, and action

steps and began implementing the plan.

Our goals, based on the requirements of

the Inspector General Act of 1978, as

amended, are to (1) foster efficient and

effective operations within the agency;

(2) assess enterprise risks and conduct

audits, investigations, and other reviews

of programs and operations within TVA;

(3) promote integrity and continuous

improvement while preventing and

detecting fraud, waste, and abuse; and

(4) keep the Board of Directors and

Congress fully informed about significant

problems and deficiencies we identify.

We selected five strategic objectives we

must accomplish to succeed in meeting

these goals. They are to:

n Cultivate and retain a highly skilled,

innovative, and motivated workforce;

n Enhance communications with stakeholders and deliver services that meet

their needs;

n Leverage OIG resources to optimize

productivity and results;

n Focus on areas of high risk to TVA;

and

n Envision change affecting TVA and

identify effective solutions.

We have already taken several major

steps to implement our strategic

objectives.

n We realigned our organization to better meet customer needs, focus on

high risk areas, and make optimal

use of our resources. The realignment, effective October 1, 2001,

shifts OIG support functions under a

new position––Deputy Assistant

Inspector General (Audit and

Support)––redefines responsibilities

for the four audit departments,

realigns existing investigative department responsibilities and adds a third

investigative department to

TVA / OFFICE OF THE INSPECTOR GENERAL 5
concentrate on computer crime and

electronic commerce issues, and

shifts the focus of human resources

activities from day-to-day program

administration to organizational

strategies and development. (See

the Organization narrative on page 3

for additional detail on department

alignment.)

n We interviewed TVA managers for

their views on TVA challenges and

risks. An assessment of probability

was added to the OIG risk assessment model, and the interview results

and model were used to develop the

fiscal year 2002 annual audit

workplan. 

n We established a career track program for entry-level auditors to facilitate recruitment and retention of the

"best and brightest" college graduates. The program is designed to

develop fully trained auditors capable

of planning, leading, and executing

audits of TVA programs, functions,

and operations.

We will continue to implement the

Vision XXI plan. During the year, we will

track performance to gauge our

progress.

6 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001
PCIE/ECIE Awards

Each year, the President’s Council on

Integrity and Efficiency (PCIE) and the

Executive Council on Integrity and

Efficiency (ECIE) present awards for outstanding achievements within the

Inspector General community in promoting economy and efficiency in preventing

and fighting fraud, waste, and abuse in

federal operations. Three OIG audit

teams and one OIG investigative team

received ECIE Awards for Excellence. In

addition, two OIG special agents were on

the Health Care Fraud Joint Task Force

Team which received a PCIE/ECIE Award

for Excellence.

TVA / OFFICE OF THE INSPECTOR GENERAL 7

PCIE/ECIE Joint Award for Excellence - Investigations

(left to right) Elizabeth Sherrod, Richard Chambers,

Bill McBee

ECIE Award for Excellence - Audit

(Back, left to right) Cheryl Liles, Richard

Chambers, Ben Wagner

(Front, left to right) Doug Jackson, Jill Matthews,

Jacqueline Rowan (not pictured--Tom 

Johnson, Rick Taylor, and Mike Ogles)

ECIE Award for Excellence - Audit

(Back, left to right) Joe Bowditch, Richard Chambers,

Curt Hudson, Karen Pickard

(Front, left to right) Dave Wheeler, Melissa Neusel,

Karen Boone, Deborah Kearnaghan

(not pictured--Mike Blair and Paul Ivie)
8 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

ECIE Award for Excellence - Multiple Disciplines

(Back, left to right) Cindy Stansberry, Richard Chambers,

Don Hickman, Dale Hamilton

(Front, left to right) Donna Griffin, Anne Ferrell,

Phyllis Palmer, Rick Levi

(not pictured--Beth Thomas)

ECIE Award for Excellence - Audit

(Back, left to right) Cheryl Liles, Sylvia Whitehouse,

Chad Bube, Richard Chambers, Doug Jackson

(Front, left to right) Lisa Hammer, Patsy Foster, Greg Jaynes, Karen Pickard

(not pictured--Mike Ogles and Tom Johnson)
TVA / OFFICE OF THE INSPECTOR GENERAL 9

Summary of

Representative Audits

Audits are initiated from (1) the OIG

annual workplan, (2) issues identified by

the OIG subsequent to the annual workplan, (3) issues identified by cooperative

efforts with TVA management, or (4) concerns raised by TVA management or others. During this reporting period, we

completed 47 audits which identified

over $3.5 million in questioned costs and

over $10.4 million in funds which could

be put to better use (see Appendix 1).

We also identified numerous opportunities for TVA to improve program

operations.

Our audits included preaward and postaward audits of TVA contractors, performance reviews of TVA operations, and

congressional advisory reviews.

PREAWARD CONTRACT AUDITS

We completed nine preaward audits to

support TVA management in negotiating

procurement actions. These audits identified $2.1 million in potential savings.

During this reporting period, TVA management successfully negotiated total

savings of $4.7 million as a result of

audits issued during this and previous

reporting periods. TVA management is

continuing negotiation of other contracts

we audited during this reporting period.

Highlights of the more significant

preaward audits follow.

n We reviewed the contractor’s proposed rates for direct labor, indirect

costs, equipment, and laboratory

costs under a three-year, $3.5 million

contract for industrial hygiene services. We determined the contractor

overstated various markup and billing

rates. Accordingly, TVA negotiated

terms that could save about

$958,000.

n We reviewed a contractor’s proposal

to provide modification and supplemental maintenance services under a

planned three-year, $531.6 million

contract extension. We determined

the contractor overstated the proposed fringe benefit rate and suggested TVA implement certain rate

discounts provided on a previous

contract. TVA management negotiated savings of about $362,000.

n We reviewed proposed labor

markups, pay ranges, and insurance

rates for a four-year, $220 million

extension of a modification and supplemental maintenance contract. We

suggested TVA negotiate a reduced

fringe benefit markup rate to the

company’s actual rate. TVA management successfully negotiated a

$316,000 savings.

CONTRACT COMPLIANCE AUDITS

We completed 16 contract compliance

audits and questioned $3.4 million in

ineligible and unsupported costs. Our

audit findings included questioned costs

related to:
10 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

n Overbilled labor charges,

n Unsupported and ineligible labor

costs, 

n Unsupported and ineligible travel

costs, 

n Provisional billings greater than actual

costs, and

n Invoice errors and duplicate billings.

Management generally agreed with our

findings and has taken or plans to take

action to recover questioned costs

where appropriate. Highlights of the

more significant contract compliance

audits follow.

n In reviewing costs billed for technical

and clerical staff augmentation services provided by a TVA contractor

under three contracts, we identified

ineligible and unsupported labor

charges. TVA management plans to

recover the ineligible costs and work

with the contractor to improve record

keeping.

n We reviewed labor, material, and

other costs billed by a contractor in

support of TVA’s hydro system under

a $19.7 million contract. We determined the contractor overbilled labor

costs and had some unsupported

and/or ineligible labor, travel, and

other direct costs. TVA management

successfully negotiated a recovery

totaling $327,948.

n We reviewed $10.9 million in costs

billed to TVA for security services.

We determined the contractor’s provisional billing for payroll taxes, fringe

benefits, and paid time off was higher

than actual costs. Also, the contractor overbilled TVA due to miscellaneous billing errors. The contractor

agreed with the findings and issued

credits to TVA.

TVA’S MANAGED AGENCY ACCOUNT

We reviewed $4.7 million in costs paid by

TVA from an agency account between

January 1, 1996, and May 31, 2000.

This account was used to fund, among

other things, a rural studies program and

contributions to a graduate school of

business. In summary, we determined

TVA had numerous control weaknesses

associated with (1) payments made as

contributions rather than cost–

reimbursements, (2) assessing the benefits of work performed, and (3) reviewing

and approving cost billings.

TVA management has acted to address

our findings including the termination of

the Rural Studies Program and improving

controls related to contracts with colleges and universities.

HOSPITALITY PROGRAM REVIEW

TVA incurs hospitality expenses for official visitors, candidates for employment,

guests, employees, and contract

employees as part of its business

activities. 

We reviewed TVA’s hospitality program

and determined the internal controls

were adequate except for TVA’s process

for classifying hospitality expenses. We
TVA / OFFICE OF THE INSPECTOR GENERAL 11

estimated $1.2 million of the reported

$9.2 million was misclassified as hospitality. We made no recommendations

because TVA was taking appropriate

corrective actions.

TVA CONTRIBUTIONS PROGRAM

TVA contributed approximately $9.7 million to various outside organizations during fiscal years 1999 and 2000. TVA

established guidelines for its corporate

contributions program in 1999 to better

focus contribution activities on its business interests. Our audit determined

that TVA had not established sufficient

guidance and practices to comprehensively manage all contributions.

We also identified $8 million of funds that

had been set aside for future contributions since fiscal year 1999. However,

TVA no longer had plans to use these

funds. TVA management agreed with

our findings and is taking action to

(1) institute a comprehensive business

practice for contributions, (2) improve

related accounting, and (3) initiate the

release of the $8 million to TVA’s general

fund.

TVA ADMINISTRATION OF

LONG-TERM DEBT

In a review of TVA's long-term debt

administration, we determined that TVA

has made significant progress in reducing interest cost. As of September 30,

2000, TVA's actions have, among other

things, reduced (1) annual interest costs

by about $230 million, (2) interest

expenses as a percentage of total costs

from 34 percent to 26 percent, and

(3) the average interest rate on long-term

debt from 7.4 percent to 6.5 percent.

Congressional Advisory

Reviews 

UPDATE ON SELECTED

MANAGEMENT PRACTICES

At the request of Congressman Zach

Wamp, we performed an update review

of TVA management practices in five

areas––consulting contracts, advertising,

special events (including barge events),

executive air transportation, and the relocation of personnel and programs to

Nashville, Tennessee. In summary, since

our initial series of reports to

Congressman Wamp in 1997, TVA has:

n Competed or eliminated several longterm consulting contracts, implemented enhanced contracting

procedures, and developed and

implemented a training program to

improve contractor oversight. Annual

expenditures for active consulting

and training contracts of $100,000 or

more have decreased by 45 percent.

In addition, we estimated TVA has

reduced the percentage of training

and consulting contracts awarded

without competition from about

80 percent as noted in our 1997

review to about 45 percent during fiscal year 2000.
12 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

n Increased its advertising expenditures

every year through fiscal year 2000,

but decided to reduce advertising

expenditures for fiscal year 2001 by

about 70 percent.

n Increased the number of special

events, excluding barge events, from

18 in 1995 to 33 events in fiscal year

2000, and increased total special

event expenditures from $848,000 in

1995 to about $2 million in 1999 and

$1.8 million in 2000.

n Reduced the number of barge events

from a high of 19 in 1996 to only 1

event in fiscal year 2000, and

reduced related expenditures from a

high of about $179,000 in 1997 to

only $28,000 in fiscal year 2000.

n Experienced minimal change in the

usage of charter and King Air flights

used for executive travel, with the

annual cost of flights increasing.

n Transferred 28 employees to

Nashville and filled additional vacant

Nashville positions via internal

employee selections and new hires

from outside TVA. 

SELECTED POWER RATE AND COST

ISSUES

At the request of Senator Mitch

McConnell, we reviewed selected issues

related to TVA’s power rates and costs.

In summary, we determined:

n The average 1999 revenue per kilowatt hour sold by TVA and its distributors was lower than the average for

the investor-owned utilities.

n The types of costs giving rise to the

power rates were similar for both TVA

and the investor-owned utilities, but

the relative amounts associated with

each cost type differed. 

n TVA's rate base included some

expenditures that either were not

incurred or might not be allowed in

the rate base of an investor-owned

utility; however, the impact of these

expenditures on TVA's power rates

was minimal.

n TVA had no specific Board-approved

policy for recovering stranded costs

when a distributor or direct-serve

customer leaves TVA. Instead, TVA

relied on its power contracts and

Federal Energy Regulatory

Commission Order No. 888 for

recovery of any stranded costs.

n TVA’s rates for its direct-serve customers were significantly lower than

the rates provided to the distributors

because direct-serve customers were

predominately industrial customers

which (1) are highly reliant on lower

cost interruptible power and (2) have

more stable and predictable energy

requirements.

COMPLIANCE WITH THE NATIONAL

ENERGY CONSERVATION POLICY

ACT

At the request of the Senate Committee

on Governmental Affairs, we assessed

TVA’s progress in meeting federal energy

management goals and identified additional actions or opportunities available
TVA / OFFICE OF THE INSPECTOR GENERAL 13

to further reduce TVA’s energy consumption and costs. We determined TVA:

n Was generally ahead of or on schedule for meeting target goals established by the National Energy

Conservation Policy Act, as amended, and Executive Order 13123; and

n Had historically demonstrated leadership in promoting energy management, including taking numerous

energy conservation initiatives not

addressed by the legislation or executive order. 

Although TVA had demonstrated considerable success, we identified opportunities for improvement in the areas of

sustainable building design and model

lease provisions. TVA management

agreed to take appropriate corrective

action. 

HIGHLAND RIDGE TOWER

On August 31, 1999, TVA entered into a

lease agreement for 134,466 rentable

square feet of space in the Highland

Ridge Tower (HRT), a facility then under

construction near the Nashville

International Airport. At the request of

Senator Jeff Sessions, we assessed the

reasonableness of TVA’s decision to consolidate operations into HRT, as well as

the reasonableness of HRT build-out

costs incurred by TVA. In summary, we

found: 

n TVA’s decision to select HRT was not

the least costly alternative.

Furthermore, the decision was not

supported by TVA’s (1) economic

analysis, (2) evaluation of lease proposals, (3) changes in office space

requirements, (4) capital project justification process, or (5) recent estimate

of savings resulting from consolidating operations into HRT.

n TVA incurred some costs associated

with the HRT build-out that we

believe were unnecessary and/or

unreasonable, especially considering

(1) many of the amenities paid for by

TVA are not subject to removal upon

expiration of the lease and (2) TVA’s

right for continued occupancy is limited to a maximum of 10 years. 

We recommended that TVA management (1) adhere to its project review

process in future evaluations or document that deviations are in the best interest of TVA and (2) avoid significant

capital expenditures involving short-term

lease agreements, unless the amenities

associated with the expenditure are

removable upon expiration of the lease.

TVA management subsequently completed a TVA-wide facilities strategic plan,

which addressed these

recommendations. 
14 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Summary of

Representative

Investigations

During the last six months, we substantiated allegations in 16 of 59 investigations

we closed––over 27 percent. In addition, we completed 61 OIG employment

suitability background investigations.

Our investigations, including task force

projects, resulted in (1) $7,176,068 in

recoveries, projected savings, and

fines/penalties; (2) five individuals or entities being indicted; and (3) seven individuals convicted. Representative

investigations are highlighted below.

WORKERS’ COMPENSATION 

BENEFITS INVESTIGATIONS

Investigations of allegations involving

Federal Employees’ Compensation Act

fraud led to projected long-term savings

to TVA exceeding $400,000.

n Investigation revealed a former TVA

Nuclear (TVAN) employee receiving

total disability benefits was actively

involved in the management and dayto-day operation of a restaurant/bar.

Although the United States Attorney’s

office declined prosecution in this

case, we submitted a report to the

Office of Workers’ Compensation

Program (OWCP) describing the

results of our investigation. As a

result, OWCP reassessed the former

employee’s ability to work and

reduced his compensation accordingly. The reduction in benefits will

save TVA over $8,800 per year or

more than $250,000 in long-term

benefits.

n As a result of another inquiry, OWCP

referred a former TVA employee to a

physician to assess his ability to

work. The physician concluded the

former employee could perform certain job duties. Based on the physician’s opinion, OWCP determined the

individual did not have a loss of wage

earning capacity and terminated the

individual’s OWCP benefits, resulting

in a projected long-term savings

exceeding $240,000.

TEMPORARY LIVING EXPENSES

We continued our efforts to reduce TVA

contract costs by identifying fraudulent

and ineligible temporary living expenses

(TLE) paid to TVA contractor employees.

Our investigations resulted in a settlement agreement with a former TVAN

contractor employee. The employee had

received TLE and demobilization expenses based on his certifications that he

maintained a permanent residence over

100 miles from his worksite. The

claimed permanent residence, however,

was purchased after the individual began

working at the TVAN facility and was

used as rental property. The individual

never resided at the home and sold it

after his TVAN assignment ended.
TVA / OFFICE OF THE INSPECTOR GENERAL 15

The individual agreed to pay $100,000

restitution to TVA under the False Claims

Act.

EMPLOYEE MISCONDUCT

Results of our employee misconduct

investigations included one employee’s

suspension without pay and another’s

resignation as described below.

n Evidence developed during an OIG

investigation showed a TVA employee

knowingly violated TVA policy by

(1) improperly obtaining and using a

restricted TVA password; (2) having

over 50 unauthorized programs on

his TVA computer, including "hacker"

programs, password retrieval programs, and programs to allow him to

bypass TVA’s blocks on internet sites;

and (3) using TVA resources in connection with his personal business.

Based on our findings, TVA management placed the employee in nonwork, nonpay status for 30 days. He

was returned to work based on the

stipulations that he complete specified training, pass a background

security check, and discontinue outside computer consulting while

employed at TVA.

n Investigation revealed an employee

made comments of a sexual nature in

the workplace and showed sexually

related images to subordinates. The

employee also was involved in other

inappropriate conduct, including falsification of timesheets, which resulted

in laborers being paid for hours they

did not work.

Based on our findings, the individual

resigned.

ENVIRONMENTAL CRIMES JOINT

TASK FORCE

We continued our participation in the

Environmental Crimes Joint Task Force

(ECJTF), which is comprised of members

from numerous state and federal agencies, including the Federal Bureau of

Investigation, Environmental Protection

Agency, Department of Justice, and

TVA’s OIG.

ECJTF focuses enhanced law enforcement resources against individuals and

companies by applying the most effective federal and state criminal and civil

statutes. Highlights of the task force’s

work reported during this period include

the following.

n Investigation revealed an individual

illegally stored at least 33 drums of

hazardous waste at the site of his former Chattanooga, Tennessee, business, which closed during 1997.

(The business produced and distributed industrial cleaning solvents.)

The drums, which were stored on the

site until their 1999 disposal, contained ignitable and corrosive wastes.

The individual pled guilty to one count

of storing a hazardous waste without

a permit, in violation of the Resource

Conservation and Recovery Act, and
16 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

was sentenced in federal court to

eight months’ imprisonment and

three years’ probation. In addition,

he was ordered to pay $25,000 to

the Tennessee Department of

Environment and Conservation for

environmental protection and a

$10,000 fine.

n Pursuant to a plea agreement, a railway company doing business in

Chattanooga agreed to spend over

$4 million to remediate a basin located at its Chattanooga diesel shop.

(The company pled guilty to one

count of violating the Migratory Bird

Treaty Act.)

Locomotives were fueled, serviced,

washed, and painted at the company’s diesel shop. Wastewater and

stormwater entered the shop’s onsite

wastewater treatment plant, which

removed petroleum contaminants

from the water before discharging it

into a Chattanooga municipal wastewater treatment plant. Although the

basins that feed the onsite treatment

plant were in compliance with environmental regulations, evidence indicated that several geese had been

contaminated by oil in one of the

basins.

The company agreed to implement a

remediation plan at an estimated cost

of $4.1 to $7.4 million to remove the

accumulated oil in the problem basin

and to install a permanent, fixed oil

removal system to prevent the accumulation of oil on the basin’s surface.

HEALTH CARE FRAUD TASK FORCE

We continued to support health care

fraud task forces and working groups

sponsored by the United States

Attorney’s offices in Tennessee’s Eastern,

Middle, and Western federal districts.

As a result of a task force investigation

during an earlier period, an indictment in

the Eastern federal district charged a

physician with 57 counts of mail fraud,

15 counts of health care fraud, and 6

counts of making false statements relating to health care matters. (One of the

57 counts of mail fraud was subsequently dismissed.) The indictment alleged the

physician defrauded Blue Cross Blue

Shield of Tennessee (BCBST) private

insurance plans and TVA’s medical plan

(administered by BCBST) of over

$123,000 during an approximate threeyear period. The task force investigation

found evidence the physician mailed

claim forms containing false information

to obtain payment for services not rendered and for supplies not used. The

physician pled not guilty to the charges.

In April 2001, while the physician’s trial

was in progress, he entered a plea of

guilty to all 77 remaining counts. In

August 2001, he was sentenced in federal court to pay over $200,000 in restitution and to serve 2 years in a

correctional facility, 3 years’ supervised
TVA / OFFICE OF THE INSPECTOR GENERAL 17

probation, and 150 hours’ community

service. 

The investigation was conducted by OIG

special agents from TVA, the Department

of Defense (Defense Criminal Investigative Services), Department of Labor,

and investigators from BCBST’s Special

Investigations Unit.

Administrative and Disciplinary Actions

October 1, 1996 - September 30, 2001*

Total = 243

Reemployment

Flagged

24%

Counseling/

Management 

Techniques

33.5%

Resignations/

Terminations

13%

Suspensions/

Demotions/

Transfers

9.5%

Oral/Written 

Warnings

20%

*Prosecutive referrals are shown in Appendix 3

Closed Cases by Area

April 1 - September 30, 2001

Total = 59* 

River System 

Operations &

Environment

13.5%

TVA Nuclear

24%

Human Resources

18.5%

Fossil Power

17%

Other

27%

*Figures do not include OIG employment suitability background investigations

closed during this period.

Sources of Hotline Calls Warranting

Further OIG Action 

April 1 - September 30, 2001

Total = 39

TVA Employees

36%

Former TVA/

Contractor

Employees

18%

General Public

46%
18 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

We continued to follow issues of interest

to the OIG and TVA, including funding for

the Inspector General academy, organization and structure of the Inspector

General councils, law enforcement

authority, utility deregulation, and structure of the TVA Board. Effective

October 1, 2001, the TVA OIG became a

member of the PCIE.
TVA / OFFICE OF THE INSPECTOR GENERAL
20 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

APPENDICE S
TVA/OFFICE OF THE INSPECTOR GENERAL 21

Audit Reports Issued by Subject Area

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2000-026C-01

04/02/2001 Adecco Technical $729,400 $691,400 

2000-026C-03

04/02/2001 Adecco Technical 1,452,689 1,451,400 $7,600 

2001-014C

04/16/2001 Review of Consulting Contracts

2000-067C

04/17/2001 Review of TVA Managed

Agency Account 2,742 266,400 

2000-077C

04/17/2001 Towers Perrin

2001-022C

04/30/2001 Midpoint International

2001-025C

05/09/2001 Cormetech, Inc.

2001-026C

05/14/2001 Steag, LLC 275,000 

2000-042C

05/16/2001 Siemens Westinghouse Power

Corporation 838,199 135,192 

2001-047C

05/30/2001 Pinkerton Government Services, Inc. 240,759 240,759 

2001-046C

06/06/2001 Alpine Environmental & Safety, Inc. 98,465 

2001-058C

06/06/2001 Preaward Audit of Analytical

Industries, Inc.

2001-045C

06/12/2001 EHS Services, LLC

2001-055C

06/12/2001 Providence Rotating Electrical

Services, Inc. 14,396 14,396 

2001-063C

07/09/2001 General Electric Company -

Gallatin Field Labor Cost

Adjustment Fossil Plant 103,553 103,553 

2001-001C

07/23/2001 KPMG 9,770 

2001-042C-01

07/31/2001 Peabody Coal Company 3,763 

Contrac t
22 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Audit Reports Issued by Subject Area

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2001-050C

08/09/2001 Union Pacific Railroad Company

2001-062C

08/09/2001 Team Associates, Inc.

2001-044C

08/10/2001 PSC Safety and Health

Services, Inc. $982,000 

2001-069C

08/13/2001 Day & Zimmermann NPS, Inc. 316,000 

2001-004C

08/21/2001 Roberts & Schaffer Company

2001-082C

09/11/2001 Hartford Steam Boiler 60,250 

2001-073C

09/18/2001 G-UB-MK Constructors 362,000 

2001-075C

09/18/2001 SSC Service Solutions

2001-078C

09/18/2001 S&C Electric - Circuit Switchers

and Interrupter Switches

2001-079C

09/18/2001 Weststaff (USA), Inc.

2001-020C

09/28/2001 BOC Gases $78,100 32,800

2001-010F

04/16/2001 Pre-Implementation Review

of System and Data

Conversion Plans for TVA’s Fuels

Management System

2001-033F

06/14/2001 Selected Power Rate and Cost Issues

2001-028F

06/20/2001 Review of TVA's Contributions Program 8,000,000 

2000-053F

07/12/2001 Pre-Implementation Review

of Internal Controls for the Fuels

Management System

Contract (continued)

Financia l
TVA / OFFICE OF THE INSPECTOR GENERAL 23

Audit Reports Issued by Subject Area

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2001-018F

07/31/2001 Review of TVA's

Hospitality Program

2001-007F

08/17/2001 Review of TVA's Long-Term 

Debt Administration

2001-914C

04/02/2001 Update on Selected Management

Practices

2001-037P

04/23/2001 Highland Ridge Tower

2001-054P

05/23/2001 Review of TVA Workers’ Compensation

Department Internal Controls Over

Prescription Reimbursements

2001-039P

06/07/2001 Materials Management at the Colbert

Fossil Plant

2001-015P

06/28/2001 TVA Office Space

2001-081P

08/24/2001 TVA's Compliance With the National

Energy Conservation Policy Act

2001-072P

08/28/2001 Outage Tools and Consumables

Management at Colbert Fossil Plant

2001-036P

09/12/2001 Expanded Review of TVA Coal

Quality Adjustment Report

Payments $45,789 

Operationa l

Financia l (continued)
24 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Audit Reports Issued by Subject Area

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2001-061T

06/29/2001 Follow-up Review of Controls Over

Systems Management Server

Remote Control Tools

2001-068T

07/16/2001 Pre-Implementation Review of System

and Data Conversion Plans for TVA’s 

New Supply Chain System

2001-070T

08/16/2001 Pre-Implementation Review of TVA’s New

Supply Chain System Testing

2001-034T

09/07/2001 TVA Planning and Implementation for

Critical Infrastructure Protection

2001-067T

09/07/2001 Review of Supply Chain System

Internal Controls

TOTAL 47 $3,519,160 $2,636,700 $10,400,515*

* This figure includes $98,465 identified in preaward audits of proposals for contracts that were not

subsequently awarded.

Information Technology
TVA / OFFICE OF THE INSPECTOR GENERAL 25

Audit Reports Issued With Questioned Costs

Questioned Costs

Number Total Unsupported

A. For which no management decision has been

made by the commencement of the reporting period 1 $929,000 $0

B. Which were issued during the reporting period 11 $3,519,160 $2,636,700

Subtotals of A and B 12 $4,448,160 $2,636,700

C. For which a management decision was made during

the reporting period 11* $4,344,607 $2,533,147

(i) Dollar value of disallowed costs 10 $1,235,995 $390,347

(ii) Dollar value of costs not disallowed 6 $3,108,612 $2,142,800

D. For which no management decision has been made by

the end of the reporting period 1 $103,553 $103,553

E. For which no management decision was made within

six months of issuance 0 $0 $0

* The total number of reports differs from the sum of C.1 and C.2 when the same reports contain both costs disallowed

and not disallowed by management.
26 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Audit Reports Issued With Recommendations for Better Use of Funds

Number Dollar Value

A. For which no management decision has been

made by the commencement of the reporting period 3 $1,412,000*

B. Which were issued during the reporting period 10 $10,400,515

Subtotals of A and B 13 $11,812,515

C. For which a management decision was made during

the reporting period 11 $11,477,265

(i) Dollar value of disallowed costs 9 $10,154,865

(ii) Dollar value of costs not disallowed 2 $1,322,400

D. For which no management decision has been made by

the end of the reporting period 2 $335,250

E. For which no management decision was made within

six months of issuance 0 $0

* The number differs from the prior report’s ending number due to classification errors on management decisions in the

prior report.
TVA / OFFICE OF THE INSPECTOR GENERAL 27

Investigative Referrals and Prosecutive Results

Referrals This Period

Subjects Referred to United States Attorneys 13

Subjects Referred to Other Agencies for Investigative or Administrative Action 0

Results This Period

Subjects Indicted 5

Subjects Convicted 7

Referrals Declined 6

OWCP reduced benefits for one individual and terminated benefits for

another, creating projected savings totaling $495,575.
28 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2000-016P

February 23, 2001 The report contained two recommendations regarding the internal controls associated with TVA

coal quality adjustment report payments. TVA has resolved one of the recommendations and is

currently implementing the recommendation to design additional automated controls for these

payments.

2000-063F

March 7, 2001 The report contained five recommendations regarding the internal controls over agent officer

payments. TVA has resolved two of the recommendations and is currently implementing their

planned actions for the remaining recommendations.
TVA / OFFICE OF THE INSPECTOR GENERAL 29

Index of Reporting Requirements Required by the Inspector General

Act of 1978, as amended

Reporting Requirement Page

Section 4(a)(2) Review of Legislation and Regulations 18

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 5-17

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies 5-17

Section 5(a)(3) Recommendations Described in Previous Semiannual Reports on Which

Corrective Action Has Not Been Completed Appendix 4

Section 5(a)(4) Matters Referred to Prosecutive Authorities and the Prosecutions and Convictions

That Have Resulted Appendix 3

Section 5(a)(5) Summary of Instances Where Information Was Refused None

and 6(b)(2)

Section 5(a)(6) Listing of Audit Reports Appendix 1

Section 5(a)(7) Summary of Particularly Significant Reports 9-17

Section 5(a)(8) Status of Management Decisions for Audit Reports Containing Questioned Costs Appendix 2

Section 5(a)(9) Status of Management Decisions for Audit Reports Containing Recommendations

That Funds Be Put to Better Use Appendix 2

Section 5(a)(10) Summary of Unresolved Audit Reports Issued Prior to the Beginning of the

Reporting Period None

Section 5(a)(11) Significant Revised Management Decisions None

Section 5(a)(12) Significant Management Decisions With Which the Inspector General Disagreed None
30 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2001

SEPT 30, MAR 31, SEPT 30, MAR 31, SEPT 30,

2001 2001 2000 2000 1999

ANNUAL BUDGET (In Millions of Dollars) 8.6 8.6 7.2 7.2 7.3

CURRENT STAFFING 86 74 77 79 78

AUDITS IN PROGRESS

Carried Forward 45 43 48 36 34

Started 44 52 38 59 41

Canceled (4) (7) (8) (2) (3)

Completed (47) (43) (35) (45) (36)

In Progress at End of Reporting Period 38 45 43 48 36

AUDIT RESULTS (Thousands)

Questioned Costs $3,519 $2,613 $1,800 $952 $1,678

Disallowed by TVA 1,236 3,010 379 820 673

Recovered by TVA 1,634 821 390 1,333 580

Funds to Be Put to Better Use $10,401 $70,422 $12,862 $5,296 $9,861

Agreed to by TVA 10,155 37,450 12,499 5,509 7,612

Realized by TVA 8,277 30,918 17,340 5,775 1,834

SPECIAL PROJECTS (Thousands)

Completed 0 13 8 12 11

Cost Savings Identified/Realized 0 0 $233 $345 0

INVESTIGATION CASELOAD

Opened 94 86 132 107 88

Closed 120 83 99 111 81

In Progress at End of Reporting Period 147 173 170 137* 140

INVESTIGATIVE RESULTS (Thousands)

Recoveries $6,527 $214 $179 $3,758 $1,772

Savings 542 532 521 988 1,422

Fines/Penalties 105 250 11 25 5

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 13 14 13 21 21

Actions Taken (# of Subjects) 8 30 11 13 17

Counseling/Management

Techniques Employed (# of Cases) 3 9 6 5 3

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 13 7 32 7 8

Indicted 5 19 5 6 7

Convicted 7 14 5 9 5

* Adjusted from previous semiannual reports.

AUDITS & SPECIAL PROJECTS

INVESTIGATIONS
The OIG Vision:

. . . illuminating today’s challenges

and tomorrow’s solutions . . .

OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401