APRIL 1, 2000 ~ SEPTEMBER 30, 2000

OFFICE OF THE INSPECTOR GENERAL

SEMIANNUAL REPORT

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TVA

INSPECTOR

GENERAL

Call toll free:

1-800-323-3835

865-632-3550 (Knoxville)

Tennessee Valley Authority

400 West Summit Hill Drive ET 4C

Knoxville, Tennessee 37902-1401 Hotline

Hotline

The Office of the Inspector General

(OIG) is an independent organization

charged with reporting to the

Tennessee Valley Authority (TVA) Board

of Directors and Congress on the

overall efficiency, effectiveness, and

economy of TVA programs and

operations. The OIG meets this

responsibility by conducting audits,

investigations, and other reviews.

The OIG focuses on the prevention,

identification, and elimination of

(1) waste, fraud, and abuse; (2) violations of laws, rules, or regulations; and

(3) inefficiencies in TVA programs and

operations.

If you want to report any matter

involving TVA programs, operations, or

employees, you should call the OIG

Hotline or write the Inspector General's

office.
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

Tennessee Valley Authority, Tennessee Valley Authority 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1401

Richard F. Chambers

Inspector General

October 31, 2000

TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

As the newly appointed Inspector General for TVA, I am pleased to submit this semiannual report on the

accomplishments of the OIG for the six-month period ending September 30, 2000.

This reporting period has been one of significant change for the OIG. In July 2000, George Prosser, who

served as the TVA Inspector General for six years, announced his decision to retire. The TVA Board of

Directors appointed me as the new Inspector General, and I transferred in August from the U.S. Postal

Service where I served as Deputy Inspector General. Mr. Prosser will serve as an advisor until his formal

retirement in December 2000.

My initial impressions of the OIG have been extremely positive. The staff is a highly motivated group of

seasoned professionals as reflected in the quality of their work. During this reporting period, OIG audits,

investigations, and special projects continued to identify opportunities for TVA to save or recover money or

to make process improvements, and TVA continued to respond favorably to OIG recommendations.

We are allocating OIG resources for the coming year based on an assessment of business and operating

risks faced by TVA. During the next six months, we will undertake extensive reviews of OIG internal

processes, and we also will review and revise our strategic plan as necessary to ensure we are aligned with

needs of our key stakeholders.

I am proud to be a part of TVA’s OIG and to be associated with so many qualified and dedicated professionals. I look forward to a positive and productive working relationship with TVA management, the Board,

and the Congress.

Sincerely,

Richard F. Chambers
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

1 Executive Summary

2 TVA Profile

3 Office of the Inspector General

5 Special Feature

Appendices

1. OIG Audit Reports Issued During the Six-Month Period Ending September 30, 2000

2. OIG's Report on Management Decisions for the Six-Month Period Ending September 30, 2000

3. Investigative Referrals and Prosecutive Results

4. Audit Reports With Corrective Actions Pending

5. OIG Reporting Requirements

8 Audits

14 Investigations

20 Special Projects

21 Legislation and Regulations

OFFICE OF THE

INSPECTOR

GENERAL

SEMIANNUAL

REPORT

APRIL 1 THROUGH

SEPTEMBER 30, 2000

CONTENTS ■
TVA/OFFICE OF THE INSPECTOR GENERAL

This report

summarizes the

activities and

accomplishments

of TVA's OIG

during the

six-month period

ending

September 30,

2000.

■ EXECUTIVE SUMMARY

We continued our efforts to support TVA

by providing quality audits, investigations,

and special projects. During this

reporting period, we identified over

$15 million in recoveries, potential

savings, questioned costs, or funds

which could be put to better use.

Management took numerous actions in

response to our recommendations.

We completed 35 audits and 8 special

project reviews. We identified $1.8 million

in questioned costs and about $12.9 million in funds that could be used more

effectively. Representative audits

included the following areas:

(1) preaward and postaward contract

audits, (2) reviews of material management practices at two TVA fossil plants,

(3) TVA performance measures under the

Government Performance and Results

Act, (4) a review of controls on the use of

cash subvouchers, and (5) reviews of

material management practices at a TVA

1

fossil plant. Representative special

projects included review of: (1) hospitality

and entertainment policies, (2) TVA’s

development of new procedures in the

bulk power trading program, (3) a

contractor’s claim of unbilled labor

totaling over $230,000, and (4) TVA’s

implementation of a new prescription

drug plan.

We closed 99 investigations, which led to

over $700,000 in savings and recoveries,

administrative or disciplinary action taken

against 11 individuals, and other corrective action in 6 cases. Matters we

investigated included workers’ compensation fraud, environmental crimes,

contractors’ fraudulent claims for

temporary living expenses, health care

fraud, alleged falsifications in background

investigations performed by a TVA

contractor, and employee conduct

issues. Our investigations also led to five

subjects being indicted and five

convicted.
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

TVA's 13,145

employees serve

an 80,000-squaremile region

spanning seven

states.

TVA PROFILE ■

29 hydroelectric dams, 4 combustion

turbine plants, and a pumped storage

plant. These plants provide over

28,000 megawatts of net dependable

generating capacity. TVA’s electric power

business is entirely self-funding.

TVA’s major functions include (1) multiple

purpose management of the Tennessee

River system; (2) generation, sale, and

transmission of electricity to wholesale

and large industrial customers; (3) investment in economic development activities

that generate a higher standard of living

for citizens of the Tennessee Valley;

(4) stewardship of TVA assets and

provision of recreation opportunities on

federal lands entrusted to TVA; and

(5) research and technology development

that addresses environmental problems

related to TVA’s statutory responsibilities

for river and land management and power

generation.

TVA is governed by a three-member

Board of Directors appointed by the

President and confirmed by the Senate.

Craven Crowell is the Chairman, and Skila

Harris and Glenn L. McCullough, Jr., are

Directors.

TVA is a federal corporation, the nation’s

largest wholesale producer of electric

power, a regional economic development

agency, and a national center for environmental research. TVA’s statutory

responsibilities include management of

the nation’s fifth largest river system.

TVA’s mission, as stated in its Annual

Performance Plan, is “to develop and

operate the Tennessee River system to

minimize flood damage and improve

navigation, and to provide energy and

related products and services safely,

reliably, and at the lowest feasible cost to

residents and businesses in the multistate Tennessee Valley Region.”

TVA’s programs fall into two separate but

interrelated activities—the power

program and the resource management

programs. TVA’s power system consists

of 11 coal-fired plants, 3 nuclear plants,

Chattanooga

•

•

•

•

•

•

• •

Knoxville

Columbus

Nashville

Jackson

Memphis

Huntsville

Muscle

Shoals

Bowling Green•

Bristol •

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3 TVA/OFFICE OF THE INSPECTOR GENERAL

■ OFFICE OF THE INSPECTOR GENERAL

The OIG’s New Leadership

Effective August 14, 2000, Richard F.

Chambers became TVA’s Inspector

General. Mr. Chambers came from the

U.S. Postal Service where he served as

the Assistant Inspector General for

Audits and then Deputy Inspector

General. Prior to that position,

Mr. Chambers worked for over 20 years

in positions of increasing audit and

management responsibility, primarily with

the U.S. Army, including 5 years as

Director, U.S. Army Internal Review, and

5 years as Chief, Internal Review and

Audit Compliance, U.S. Forces

Command.

Mr. Chambers replaced George T.

Prosser, who announced he would retire

at the end of December. Mr. Prosser will

remain in an advisory role to

Mr. Chambers until that time.

Office Authority

The TVA Board of Directors administratively established the OIG during

October 1985. When the Inspector

General Act Amendments of 1988 were

enacted, TVA's OIG became one of the

statutory offices whose Inspector

General is appointed by the agency head.

TVA's Inspector General is independent

and subject only to the general supervision of the Board of Directors.

Richard F. Chambers
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

OFFICE OF THE INSPECTOR GENERAL

Staffing and Budget

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

OIG also has an investigative satellite

office in Chattanooga, Tennessee.

The OIG's fiscal year 2000 budget was

about $7.2 million with a budgeted

headcount of 82 employees.

4

OFFICE OF THE INSPECTOR GENERAL

9/30/00

Legal Counsel

■

Richard P. Levi

Manager

(Human Resources)

■

Kay T. Myers

INSPECTOR GENERAL

■

Richard F. Chambers

Financial

Investigations

James M. Reed

Manager

Internal

Investigations

Ron W. Taylor

Manager

■

Assistant

Inspector General

(Investigations)

■

G. Donald Hickman

Financial and

ADP Audits

Deborah Meyers Thornton

Manager

Contract

Audits

Paul E. Ivie

Manager

Operational

Audits

and Special

Projects

Lewis M. Ogles

Manager

■

■

■

Assistant

Inspector General

(Audits)

■

Ben R. Wagner

■
5 TVA/OFFICE OF THE INSPECTOR GENERAL

■ SPECIAL FEATURE

TVA OIG EMPLOYEES AND TEAMS

RECEIVE AWARDS

On September 14, 2000, the Executive

Council on Integrity and Efficiency (ECIE)

honored George T. Prosser, former

Inspector General, for outstanding

contributions to the Inspectors General

community. Several employees in the

TVA OIG also were recently recognized

for their outstanding accomplishments.

On September 29, 2000, the President’s

Council on Integrity and Efficiency (PCIE)

and the ECIE presented annual awards

for outstanding achievements within the

Inspector General community in promoting economy and efficiency in government and fighting fraud, waste, and

abuse in federal operations. TVA OIG employees and teams recognized for their contributions were:

■ G. Donald Hickman, Assistant

Inspector General, Investigations,

received an ECIE Award of Excellence

for his leadership and sustained

contributions to the law enforcement

community. Mr. Hickman’s contributions included his (1) support for the

OIG’s participation in interagency task

forces, (2) work in the development of

the Inspector General Academy,

(3) efforts towards initiating audit and

investigation automated tracking

systems, and (4) ongoing leadership

contributing to the significant results

of OIG investigations.

George T. Prosser

From left to right, George T. Prosser, G. Donald Hickman, and

Richard F. Chambers
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

SPECIAL FEATURE

■ Special Agent James F. Farr and

Senior Auditor Jerry D. Stover were

recognized with an ECIE Award of

Excellence for their outstanding

teamwork and efforts in a complex

audit/investigation of fraud related to

TVA’s Tool Management Program,

which was administered by a private

contractor. Their efforts revealed a

conspiracy to steal over $1 million in

TVA-owned tools, resulting in the

criminal convictions of three

individuals.

■ Senior Special Agent Michael G.

Duncan and Harriet A. Miller, former

OIG Senior Auditor who is now a

Team Leader with Financial Standards, River System Operations and

Environment, received an ECIE Award

of Excellence for their work in resolving

a complex product substitution case,

which included reconstructing

destroyed records and obtaining a

major fraud conviction. Mr. Duncan

and Ms. Miller worked together to

uncover a scheme under which a coal

company provided TVA with

147,000 tons of coal blended with

petroleum coke, an oil refinery

product. TVA paid more than $3 million for the blended coal.

6

From left to right, Harriet A. Miller, George T. Prosser,

Richard F. Chambers, and Michael G. Duncan

From left to right, George T. Prosser, James F. Farr, Paul E. Ivie

(accepting the award for Jerry D. Stover), and Richard F. Chambers
7 TVA/OFFICE OF THE INSPECTOR GENERAL

SPECIAL FEATURE

■ The OIG’s Workers’ Compensation

Team, composed of Special Agents

James E. Hunter and Craig A. Yates,

and Financial Investigations Manager

James M. Reed, received an ECIE

Award of Excellence in Investigations

for their achievements in identifying

and eliminating fraud in TVA’s

workers’ compensation program.

Their work from July 1, 1999 to

June 30, 2000, led to (1) the suspension, reduction, or termination of

benefits for six individuals and a

projected savings to TVA of over

$2.5 million and (2) three convictions

for making fraudulent statements to

receive federal workers’ compensation

benefits.

■ A joint PCIE/ECIE Award of Excellence

in Investigations was awarded to the

Environmental Crimes Joint Task

Force for outstanding work in fighting

environmental crimes. Representatives from several agencies serve on

the task force, including the

U.S. Attorney’s Office of the Eastern

District of Tennessee, the Federal

Bureau of Investigation (FBI), the

Environmental Protection Agency

(EPA), the Department of Energy

(DOE), and the Tennessee Highway

Patrol. Joseph P. Boehr, an OIG

Senior Special Agent, and Arthur A.

Schettini, Lieutenant, TVA Police,

serve on the task force. From July 1,

1999 to June 30, 2000, the task

force’s efforts contributed to six

convictions and savings, fines,

penalties, and restitution totaling over

$2.7 million.

From left to right, George T. Prosser, Joseph P. Boehr, and

Richard F. Chambers

From left to right, George T. Prosser, James M. Reed, Craig A.

Yates, and Richard F. Chambers (not pictured James E. Hunter).
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

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 issued 35 audit

reports which identified $1.8 million in

questioned costs and about $12.9 million

in funds which could be put to better use

(see Appendix 1).

Summary of

Representative Audits

Our audits included preaward and

postaward audits of TVA contractors as

well as computer security reviews and

performance reviews of TVA programs.

RECOMMENDATIONS FOR

POTENTIAL COST SAVINGS IN

CONTRACT NEGOTIATIONS

We conducted six preaward audits to

assist TVA management in negotiation of

procurement actions. These audits

identified opportunities for TVA management to negotiate savings totaling about

$12.9 million. Our preaward findings

included suggestions for using costreimbursable contract terms and reducing or eliminating certain indirect costs.

Highlights of the more significant

preaward audits follow.

■ We reviewed proposed non-manual

labor and indirect cost rates for a

planned $135 million contract

extension related to TVA’s clean air

initiative. We found TVA could save

about $8.6 million by negotiating costreimbursable contract terms and

reducing or eliminating certain indirect

cost markups.

■ We reviewed proposed labor billing

rates included under a subcontract

arrangement worth about $28 million

for a portion of the engineering

services related to TVA’s clean air

initiative. We found TVA could save

about $4.2 million by negotiating a

reduction in the subcontractor’s billing

rates from market-based rates to

actual costs plus a reasonable profit.

During this reporting period, TVA

management successfully negotiated

total savings of over $17 million as a

result of audits issued during this and

previous reporting periods.

8
TVA/OFFICE OF THE INSPECTOR GENERAL

AUDITS

9

CONTRACT COMPLIANCE AUDITS

We completed 18 contract compliance

audits and questioned $1.8 million in

overbillings and excessive costs to TVA.

Our audit findings included questioned

costs related to:

■ Overhead and payroll tax rates applied

to inappropriate labor rates.

■ Overrecovery of payroll taxes, insurance, and fringe benefit costs.

■ Unsupported and overbilled labor

costs.

■ Overstated material costs.

■ Overstated and ineligible per diem

costs.

■ Overbilled other direct costs.

■ Failure of contractor to provide

contractually agreed volume

discounts.

Highlights of the more significant

contract compliance audits follow.

■ We reviewed costs billed by a transmission steel pole vendor under its

$45 million contract with TVA. The

contract provided for price adjustments based on a published index.

However, we found the contractor

adjusted its prices based on its

claimed raw material costs rather than

the published index stipulated in the

contract. Accordingly, of the

$22.6 million TVA had paid the vendor,

we estimated TVA overpaid more than

$900,000 for the poles.

■ We reviewed costs billed for security

services provided by a security

personnel contractor under its

$33 million contract with TVA. The

contract provided for the contractor to

bill for estimated payroll taxes, fringe

benefits, and paid time off costs

subject to periodic adjustment to

actual costs. Of the $10.4 million

billed during the audit period, we

found the contractor’s estimated

costs were about $470,000 greater

than the contractor’s actual costs.
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

AUDITS

10

■ We reviewed labor and other costs

billed by a nuclear plant modification

and supplemental maintenance

services contractor under its

$383.7 million contract with TVA. We

found of the $149 million audited, the

contractor’s billings were generally in

accordance with the contract except

that the contractor did not reduce its

general and administrative cost markup

after exceeding certain labor-hour

thresholds. Accordingly, we found

TVA was owed about $243,000 due to

overrecovery of the markup.

Management generally agreed with our

findings and has taken or plans to take

action to recover questioned costs where

appropriate.

CONTROLS OVER SYSTEMS

MANAGEMENT SERVER REMOTE

TOOL USAGE

In January 2000, TVA began implementing the System Management Server

(SMS) remote control tools to assist in

managing TVA’s desktop computer

resources. These tools allow TVA to

deliver software and repair computers by

remotely accessing another computer.

While remote control tools allow TVA to

better manage its computing resources,

the misuse of these tools presents a risk

to the security of TVA’s sensitive

information.

We reviewed the adequacy of the

internal controls for the SMS remote

control tools. We found TVA’s data

collection was incomplete and insufficient to allow for proper monitoring of

the remote control usage. We made

specific recommendations to TVA

management to improve the data

collection and ensure all necessary

information is collected to allow for

monitoring. TVA management agreed

with the findings and is taking action to

implement the recommendations.
TVA/OFFICE OF THE INSPECTOR GENERAL

AUDITS

11

ACCESS CONTROLS OVER

EMPLOYEE SelfService SOLUTIONS

TVA implemented an intranet-based

application—Employee Self Service

Solutions (ESSS)—to enable employees

to access personal and TVA information.

The ESSS allows TVA’s approximately

13,000 employees access to payroll,

benefits, training, and travel information.

We reviewed the access controls to

determine if ESSS information was

protected from unauthorized access. We

reviewed such access controls as (1) the

process for changing pin numbers,

(2) UNIX permissions and Oracle privilege

controls pertaining to ESSS files, and

(3) Oracle privileges of Data Base

Administrators granted to the ESSS

system files. We found the access

controls to the ESSS could be improved

by (1) changing the process for revising

pin numbers and (2) removing Oracle

privileges granted to a certain user

identification. TVA management took

immediate action to correct the problems

identified.

GOVERNMENT PERFORMANCE AND

RESULTS ACT OF 1993

TVA developed 24 performance indicators as part of the Annual Performance

Plan submitted to Congress in response

to the Government Performance and

Results Act of 1993 (GPRA). During this

semiannual period, we completed five

audits pertaining to GPRA performance

indicators. The five indicators audited

were (1) Reportable Environmental Event

(REE), (2) Wholesale Customers With

Continuing Contracts (WCCC), (3) Aeration System Availability (ASA), (4) Minimum Flow Achievement (MFA), and

(5) Summer Lake Level Attainment

(SLLA). The objective of each audit was

to determine if the (1) information

systems that provide source data for the

indicator are reasonably accurate and

reliable and (2) indicator is reported

correctly. We found the information used

to support the REE, WCCC, and SLLA

indicators was accurate and reliable, and

the indicators were reported correctly.

However, we could not assess the
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

AUDITS

adequacy of the data and information

systems supporting the remaining two

indicators because the:

■ MFA indicator was not measured in

accordance with the criteria given in

the Annual Performance Plan.

■ ASA was not calculated as defined in

the Annual Performance Plan, and

TVA did not maintain sufficient

documentation to verify the indicator.

TVA management has agreed to take

action to correct the deficiencies found

and ensure that adequate documentation

is maintained.

REVIEW OF CASH SUBVOUCHERS

Cash subvouchers are an alternative

procurement procedure used when

negotiation of a contract is not practical

and the vendor will not accept TVA

Procurement VISA cards. TVA uses

subvouchers for small dollar (typically

under $5,000) or infrequent transactions.

For the period June 1 through December 28, 1999 (7 months), TVA paid

12

1,285 subvouchers totaling about

$1.6 million for advertising, hospitality,

corporate membership dues, materials,

and services.

We found that subvouchers were

properly prepared and authorized by TVA

organizations and were reviewed by

Accounts Payable prior to payment.

However, we found that Accounts

Payable internal controls to prevent

duplicate payments could be improved.

Accounts Payable immediately took

appropriate action to improve detection

of duplications.

MATERIALS MANAGEMENT AT BULL

RUN FOSSIL PLANT

We reviewed the materials management

process at Bull Run Fossil Plant (BRF)

and noted several conditions that

increase the risk of (1) plant personnel

not having material when needed or

(2) material being needlessly purchased.

In summary, we found:
TVA/OFFICE OF THE INSPECTOR GENERAL

AUDITS

13

■ Inventory shortages totaling $184,580

and inventory overages totaling

$166,765. The absolute dollar

difference of $351,345 was 5.7 percent of the inventory’s $6.2 million

value.

■ A significant amount of material stored

at BRF was not recorded in any BRF

inventory account. Although we did

not estimate the value of this noninventory material, several items

appeared to have considerable value.

■ Virtually all BRF employees had card

key access to the BRF storeroom. In

addition, 25 TVA Procurement

employees, 29 other TVA employees,

and 4 individuals not employed by TVA

had access.

■ Succession planning had not been

initiated even though the two BRF

storeroom employees are expected to

retire within the next two years.

A team of BRF and Procurement personnel, along with an OIG representative, has

been established to address the

conditions.
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000 14

INVESTIGATIONS ■

During the last six months, we substantiated allegations in 19 of the 99 investigations we closed—almost 20 percent.

Our investigations resulted in over

$700,000 in savings and recoveries, 5

subjects indicted, and 5 convicted. In

addition to investigations discussed

previously in the special feature, other

representative investigations are highlighted below.

Summary of

Representative

Investigations

FALSE CLAIMS—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.

To receive TLE, generally a contractor

employee must incur duplicate expenses

for a temporary residence near the TVA

worksite and a permanent residence

more than 100 miles from the worksite.

During this reporting period, our TLE

investigations led to recoveries or

questioned costs of over $100,000.

Highlights of these investigations follow.

■ During the previous reporting period, a

former contractor employee pled guilty

to three counts of submitting false

claims for living expenses. The

individual worked for two contract

firms at TVA sites in southeastern

Tennessee. Although his permanent

residence was within commuting

distance of his TVA worksites, he

claimed it was in Ohio. The individual

produced false property tax documentation and a fraudulent rental agreement to support his TLE claims.

(During this reporting period, the

former contractor employee was

sentenced to three years’ probation

and ordered to pay TVA $36,199

restitution for the TLE reimbursement

he fraudulently received.)

■ Our investigation revealed two

employees of a TVA contractor were

not entitled to TLE reimbursement

totaling over $70,000.

To receive reimbursement for TLE, one

of the contractor employees claimed

his permanent residence was a home

in a neighboring state, which he

purchased from his parents. However, evidence showed the parents,

not the contractor employee, were the

permanent residents of the home, and

the contractor employee had a

permanent residence in commuting

distance of his TVA workstation.
TVA/OFFICE OF THE INSPECTOR GENERAL

INVESTIGATIONS

15

The second contractor employee

claimed an out-of-state residence to

receive TLE reimbursement. Evidence

revealed the individual no longer

possessed that home but maintained

a permanent residence within commuting distance of the TVA site at

which he worked.

TVA has agreed to seek recovery of

these claims.

FALSE CLAIMS—OFFICE OF

WORKERS’ COMPENSATION

PROGRAMS

To receive benefits through the Federal

Employees’ Compensation Act (FECA),

recipients must periodically submit forms

to the Office of Workers’ Compensation

Programs (OWCP) that require the

recipient to report all employment

activities (including self-employment).

OWCP uses the forms to determine a

recipient’s continuing eligibility for FECA

benefits. Failure to disclose employment

information to OWCP violates state and

federal laws.

During this reporting period, our FECA

fraud investigations led to current and

long-term savings and recoveries of over

$500,000, one subject indicted, and two

convicted. Highlights of investigative

results follow.

■ A former TVA pipefitter was sentenced

in federal court on two counts of mail

fraud and two counts of making a

false statement to obtain federal

workers’ compensation. The former

TVA employee was sentenced to one

month in federal prison, three years’

supervised release, and was ordered

to pay $8,839 in restitution to TVA.

(During a previous period, our investigation found the individual was

employed by three different businesses performing welding, fabricating, mechanic work, and general

labor—including operating mowers

and tractors—but did not report this

employment while he was receiving

total temporary disability benefits.)

■ As a result of our investigation of a

former TVA painter, TVA saved over

$300,000. Our investigation found

the former employee was jailed in a

Tennessee county facility after

pleading guilty to three felony offenses.

Under FECA, no benefits can be

provided to any individual confined to a

correctional facility following felony

conviction(s). As a result of our

finding, workers’ compensation

benefits were stopped during the

individual’s incarceration, saving TVA

over $40,000.
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

Further, we found he was not paying

court-ordered child support, even

though (when not incarcerated) he

received a higher rate of benefits

because he claimed dependent

children. The individual’s benefits

were reduced following his release,

creating an estimated long-term cost

avoided to TVA of over $290,000.

■ An OIG employee pled guilty to a

misdemeanor charge of workers’

compensation fraud. The employee,

who resigned from TVA, admitted

engaging in a pattern of falsifications

in connection with her medical visits.

More specifically, she requested

reimbursement for more hours of lost

time from OWCP than she claimed as

leave without pay on her TVA leave

forms, resulting in her receiving pay for

certain hours from both TVA and

OWCP. She was placed on probation

for one year and fined. Based on this

conviction, OWCP terminated her

workers’ compensation benefits. In

addition, the former OIG employee

reimbursed TVA for the lost time

payments and other questioned travel

claims.

CONTRACTOR EMPLOYEE

SECURITY ISSUE

An OIG investigation found an employee

of a TVA contractor falsified information

provided to TVA concerning background

investigations conducted by the contractor. The contractor provided trained,

experienced nuclear employees to TVA,

and the employee was responsible for

processing contractor employees. These

responsibilities included conducting

background investigations and documenting the results.

We reviewed several background

investigations performed by the individual

and found references who contradicted

documentation provided to TVA by the

contractor. We also found evidence

indicating some information provided to

TVA was fabricated.

Based on our investigation, TVA Nuclear

(TVAN) management took action, which

included the following.

■ Suspended clearances and badge

cards for current workers affected by

the issue, then re-screened the

employees.

■ Placed a TVAN internal alert to notify

responsible personnel should

currently inactive workers affected by

this issue request access to TVAN

facilities in the future.

■ Informed Nuclear Regulatory Commission inspectors of the situation and

requested the Nuclear Energy Institute

issue a bulletin regarding the issue.

INVESTIGATIONS

16
TVA/OFFICE OF THE INSPECTOR GENERAL

INVESTIGATIONS

17

■ Issued a letter to all current approved

contractor security screening companies reemphasizing the importance of

providing factual information in

background investigations.

ASSISTANCE TO TVA MANAGEMENT

To assist TVA and at the request of TVA

management, we continued to perform

background investigations for sensitive

positions and for national security

clearances. These investigations ensure

individuals being hired for sensitive

positions meet applicable requirements.

By using the OIG to perform these

inquiries, rather than the U.S. Office of

Personnel Management, TVA saved over

$2,000 per investigation.

HEALTH CARE FRAUD TASK FORCE

We continued to support health care

fraud task forces and working groups

sponsored by the U.S. Attorney’s offices

in Tennessee’s Eastern, Middle, and

Western federal districts.

In the Eastern federal district, a physician

was indicted on 57 counts of mail fraud,

15 counts of health care fraud, and

6 counts of making false statements

relating to health care matters.

The indictment alleged the physician

defrauded Blue Cross Blue Shield of

Tennessee’s (BCBST) private insurance

plans and TVA’s medical plan (administered by BCBST) of over $123,000 during

an approximate three-year period.

The investigation found evidence the

physician mailed claim forms containing

false information to obtain payment for

services not rendered and supplies not

used.

The investigation was conducted by OIG

special agents from TVA, the U.S.

Department of Defense (Defense Criminal

Investigative Services), U.S. Department

of Labor, and investigators from

BCBST’s Special Investigations Unit.

The physician is awaiting trial.

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 FBI, EPA, Department

of Justice, and TVA’s OIG.

ECJTF focuses enhanced law enforcement resources against individuals and

companies involved in environmental

crimes and prosecutes those individuals

and companies by applying the most
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000 18

INVESTIGATIONS

effective federal and state criminal and

civil statutes. Highlights of the task

force’s work include the following.

Fish Kill - Guilty Plea

A Kentucky coal company and one of its

officers pled guilty (one count each) to

violating the Clean Water Act.

The company violated the terms of a

permit covering a mining and reclamation

operation in Campbell County, Tennessee. Investigation revealed the company

improperly pumped mine wastewater into

a nearby creek, adversely altering its pH

levels and reducing the oxygen in the

creek. A significant number of dead and

dying fish were found 200-300 feet

downstream from the discharge point.

(The mining company officer admitted

responsibility for the discharge, and the

pumping was immediately stopped.)

The company and its officer are awaiting

sentencing.

Illegal Transport of Hazardous

Material - Sentencing

We previously reported an environmental

services business (licensed hazardous

waste transporter) and its president pled

guilty (one count each) to violating the

Resource Conservation and Recovery

Act.

Our investigation revealed the company

picked up used carburetor cleaner

without an appropriate EPA waste

manifest and did not properly dispose of

or recycle the waste. Additionally, the

company’s president misled investigators

by stating the material had been shipped

to a reclamation site when it had not.

A federal judge ordered the company

placed on probation for three years and

ordered it to create, maintain, and effect

an environmental protection safety policy

and plan for its management and

employees. The company’s president

was sentenced to 1 year probation and

150 hours of community service.

DOE subsequently debarred the company from government contracting and

government-approved subcontracting for

a period of three years.
19 TVA/OFFICE OF THE INSPECTOR GENERAL

TVA/Contractor

Employees &

Contractor Companies

General

Public

Former TVA/Contractor

Employees

15%

52%

28.5%

Referrals for OIG Investigations

 or Audit Action

Total = 46

INVESTIGATIONS

14%

Chief Administrative Officer/

Business Services

14%

12%

Fossil

Power

TVA Nuclear 31.5%

28.5%

Other

River System

Operations &

Environment

The breakdown of the 99 closed investigations involving

TVA organizations are shown below.

*Prosecutive referrals are shown at Appendix 3.

16.5%

27%

Resignations/

Terminations Suspensions/

Demotions/

Transfers

Administrative and Disciplinary Actions Since

October 1, 1995*

Total = 254

Oral/Written

Warnings

Reemployment

Flagged

11% 15.5%

30%

Counseling/

Management Techniques

4.5%

Anonymous
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

In addition to conducting audits and

investigations, our office continues to

perform special projects upon request by

our customers, primarily the Board of

Directors, TVA management, and

Congress. During this reporting period,

we conducted eight special projects. The

most significant projects are summarized

below.

HOSPITALITY AND ENTERTAINMENT

We compared TVA’s hospitality policy,

which includes entertainment, with the

hospitality and entertainment policies of

14 other agencies created by the federal

government that receive a substantial

portion of their revenues through

nonappropriated sources. We found that

other agencies’ entertainment and

hospitality polices were generally more

restrictive than TVA’s policy. In addition,

TVA appeared to spend significantly more

on entertainment and hospitality than the

surveyed agencies that provided cost

data.

BULK POWER TRADING

IMPLEMENTATION OF NEW POWER

PRODUCTS

At the request of the Vice President, Bulk

Power Trading (BPT), we worked with

BPT staff to review draft procedures for

implementing several new power

products, including Firm/Fixed Price

Buybacks, Market Days Variable Price

Interruptible Power, and the Wholesale

SPECIAL PROJECTS ■

20

Energy to Market Program. We developed flowcharts in an iterative process

based on draft procedures and discussions with responsible program managers, which resulted in refinements to the

BPT procedures.

CONTRACTOR’S CLAIM FOR

UNBILLED LABOR

We reviewed a $233,000 claim for

unbilled labor submitted by a former TVA

contractor. We found none of the

contractor’s claim was properly supported, and in fact, the contractor had

actually billed TVA for more total hours

than they could support. TVA and the

contractor have agreed to settle the

matter through arbitration.

TVA PRESCRIPTION DRUG PLAN—

PHARMACEUTICAL BENEFITS

MANAGER IMPLEMENTATION

At the request of TVA’s Compensation

and Benefits staff, we served as an

advisor to the Pharmaceutical Benefits

Manager (PBM) Implementation Team.

Effective September 1, 2000, a different

company became TVA’s PBM. Our input

focused on (1) TVA’s and PBM’s

processes and responsibilities and (2) the

adequacy of billing, eligibility, and claims

data. Specifically, we provided input

regarding the internal control processes

and data fields necessary to ensure

billing, eligibility verification, claims

adjudication, and reporting accuracy.
TVA/OFFICE OF THE INSPECTOR GENERAL

■ L E G I S L A T I O N A N D R E G U L A T I O N S

During this reporting period, we continued to follow several bills relevant to the

OIG community, including the Government Information Security Act and a bill

to make the TVA Inspector General

presidentially appointed.

21
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

■ A P P E N D I C E S
TVA/OFFICE OF THE INSPECTOR GENERAL

OIG AUDIT REPORTS ISSUED DURING

THE SIX-MONTH PERIOD ENDING SEPTEMBER 30, 2000

The following table summarizes final audit reports issued by the OIG from April 1 through September 30, 2000.

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

4/4/2000 2000-029C-04 Scientific Sales, Inc.

4/7/2000 2000-033F Reportable Environmental

Event Performance Indicator

4/7/2000 2000-036F Review of Subvouchers

4/7/2000 2000-040C Arclar Company LLC -

Contract 97P01-199325

4/10/2000 2000-051C American Aquatics -

Overhead Review

4/14/2000 1999-037P-01 Review of the Effect of

Automation on TVA Dam Security

4/18/2000 2000-007C Cataract - Contract TV-95293V $32,322

4/18/2000 2000-018C Canus - Contract TV-95292V 4,945

4/18/2000 2000-052C Fish & Wildlife Associates -

Overhead Review

4/20/2000 1999-037P-02 Review of TVA Police Incident

Data for Hiwassee Plant

Group Dams

4/20/2000 1999-068C Alcan Cable -

Contract 98P8D-220675 759

5/9/2000 2000-056F Wholesale Customers With

Continuing Contracts

5/15/2000 2000-029C-01 Ecolochem, Inc. - Source One

5/16/2000 1999-078C McDaniel Fire Systems -

Limited Cost Compliance Review 74,101 $29,002

5/25/2000 2000-025C Stone & Webster Construction

Company Contracts

96N5B-161365-02 &

96NNX-161365-03 243,023 243,023

5/25/2000 2000-029C-05 Betz Dearborn, Inc. 4,693

6/2/2000 2000-050F Access Controls Over Employee

SelfService Solutions

6/5/2000 2000-029C-03 PB&S Chemical Company, Inc. 5,515

6/7/2000 2000-047C Electrical Supply Alliance

Appendix 1

Page 1 of 2
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

Appendix 1

Page 2 of 2

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

6/16/2000 2000-004C Valmont Industries $929,000

6/22/2000 2000-057C Chem-Nuclear Price Increase

6/22/2000 2000-062C Primacy Relocation

6/22/2000 2000-069C Chem-Nuclear Systems, Inc. -

Review of Amounts Billed

7/12/2000 2000-072F Review of Summer Lake Level

Indicator

7/14/2000 2000-009C Pressures On, Inc. -

Contract 97PA1-185965-06 25,000

8/2/2000 2000-006C Alstom Power, Inc. -

Environmental Systems

Division - SCR Alliance Project $8,624,582

8/7/2000 1999-080C Allied Welding and Safety LLC

8/10/2000 2000-060F Aeration System Availability

Indicator

8/11/2000 2000-064C Burns International Security

Services 480,712 $480,712

9/11/2000 2000-008C Siskin Steel and Supply Co. -

Contract 96XBL-165618-00

9/11/2000 2000-055C Neill & Gunter - Preaward Audit 4,224,822

9/11/2000 2000-073P Materials Management at

Bull Run Fossil Plant

9/28/2000 2000-075C Conoco 12,500

9/29/2000 2000-061F Controls Over Systems

Management Server Remote

Tool Usage

9/29/2000 2000-071F Review of Minimum Flow

Achievement Indicator

TOTAL 35 $1,800,070 $752,737 $12,861,904

* Questioned costs include $25,000 for unreasonable or unnecessary expenditures not recoverable.

*
TVA/OFFICE OF THE INSPECTOR GENERAL

OIG’S REPORT ON MANAGEMENT DECISIONS FOR THE

SIX-MONTH PERIOD ENDING SEPTEMBER 30, 2000

The following Tables I and II summarize management decisions made by TVA management on OIG

recommendations contained in final audit reports. The tables reflect amounts which were questioned and

recommended to be put to better use and track the disposition of these amounts through management decision.

TABLE I

TOTAL QUESTIONED AND UNSUPPORTED COSTS

NUMBER QUESTIONED UNSUPPORTED

AUDIT REPORTS OF REPORTS COSTS COSTS

A. For which no management

decision has been made by

the commencement of the period 1 $13,100 $0

B. Which were issued during

the reporting period 10 1,800,070 752,737

Subtotal (A + B) 11 $1,813,170 $752,737

C. For which a management

decision was made during

the reporting period 9 403,458 272,025

1. Dollar value of

disallowed costs 7 378,591 272,025

2. Dollar value of

costs not disallowed 3 24,867 0

D. For which no management

decision has been made by

the end of the reporting

period 2 1,409,712 480,712

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.

Appendix 2

Page 1 of 2

*
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

TABLE II

FUNDS TO BE PUT TO BETTER USE

NUMBER FUNDS TO BE PUT

AUDIT REPORTS OF REPORTS TO BETTER USE

A. For which no management

decision has been made by

the commencement of the period 2 $227,000

B. Which were issued during

the reporting period 3 12,861,904

Subtotal (A + B) 5 $13,088,904

C. For which a management

decision was made during

the reporting period 5 13,088,904

1. Dollar value of

disallowed costs 4 12,498,677

2. Dollar value of

costs not disallowed 4 590,227

D. For which no management

decision has been made by

the end of the reporting

period 0 0

E. For which no management

decision was made within

six months of issuance 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.

Appendix 2

Page 2 of 2

*
TVA/OFFICE OF THE INSPECTOR GENERAL

INVESTIGATIVE REFERRALS AND PROSECUTIVE RESULTS

INVESTIGATIVE REFERRALS SUBJECTS RESULTS THIS PERIOD

Subjects referred to U.S. Attorneys 32 5 Indicted

5 Convicted

22 Referrals Declined

Subjects referred to other agencies 9 OWCP terminated and/or suspended

for investigative or administrative action benefits of three individuals, creating

current and long-term savings

TOTAL 41 totaling $505,057.

Appendix 3

Page 1 of 1
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

Appendix 4

Page 1 of 1

AUDIT REPORTS WITH CORRECTIVE ACTIONS PENDING

Final corrective actions of recommendations in two contract compliance reports, five operational audits,

and three financial-related audits have not yet been fully implemented; however, all are being

implemented in accordance with currently established milestones.

Report 1996-037C-01 issued August 11, 1998

The report contained one recommendation regarding the contractor’s ability to produce adequate

documentation for billed costs. TVA is assessing what action is needed.

Report 1996-037C-02 issued September 3, 1998

The report contained two recommendations—one regarding overpayments and one regarding the

contractor providing supporting documentation for billed costs. TVA is pursuing recovery of

overpayments and resolution of unsupported costs.

Report 1999-031P issued October 15, 1999

The report contained two recommendations regarding overpayment of direct billed hotel charges.

TVA is currently implementing its planned actions.

Report 1999-001C-01 issued October 18, 1999

The report contained nine recommendations to improve the internal controls over the VISA

Purchasing Card Program. TVA has resolved six of the recommendations and is in the process of

improving program controls.

Report 1999-001C-02 issued December 9, 1999

The report contained 11 recommendations to improve the internal controls over the VISA

Gold Card Program. TVA has resolved five of the recommendations and is in the process of revising

and communicating guidelines to more clearly define program requirements and organizational roles

and responsibilities.

Report 2000-005F issued December 16, 1999

The report contained four recommendations to improve the internal controls over the VISA

Purchasing Card Pilot Program. TVA has resolved three of the recommendations and is currently

implementing their planned action on the other recommendation.

Report 1999-028P issued January 28, 2000

The report contained two recommendations regarding TVA’s Environmental Executive authorizing

Environmental Auditing to (1) perform environmental management system reviews and (2) follow up on

corrective actions and assess closure decisions. TVA is currently implementing their planned actions.

Report 1999-081F issued March 10, 2000

The report contained two recommendations regarding the internal controls associated with J-type

contracts. TVA has resolved one of the recommendations and is implementing their planned actions

for the other recommendation.

Report 2000-021F issued March 17, 2000

The report contained two recommendations regarding the internal controls associated with Material

Safety Data Sheets. TVA has resolved one of the recommendations and is implementing their planned

actions for the other recommendation.

Report 2000-037F issued March 21, 2000

The report contained one recommendation regarding retention of documentation to support

calculations. TVA is currently implementing their planned actions.
TVA/OFFICE OF THE INSPECTOR GENERAL

OIG REPORTING REQUIREMENTS

Information required by the Inspector General Act of 1978, as amended, is included in this semiannual report as

indicated below.

Section 4(a)(2) Review of Legislation and Regulations Page 21

Section 5(a)(1) Significant Problems, Abuses, and Pages 5-20

Deficiencies

Section 5(a)(2) Recommendations With Respect to Pages 5-20

Significant Problems, Abuses, and

Deficiencies

Section 5(a)(3) Recommendations Described in Previous Appendix 4

Semiannual Reports on Which Corrective

Action Has Not Been Completed

Section 5(a)(4) Matters Referred to Prosecutive Appendix 3

Authorities and the Prosecutions

and Convictions That Have Resulted

Sections 5(a)(5) Summary of Instances Where Information None

and 6(b)(2) Was Refused

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

Section 5(a)(7) Summary of Particularly Significant Reports Pages 8-20

Section 5(a)(8) Status of Management Decisions for Appendix 2

Audit Reports Containing Questioned Costs

Section 5(a)(9) Status of Management Decisions for Appendix 2

Audit Reports Containing Recommendations

That Funds Be Put to Better Use

Section 5(a)(10) Summary of Unresolved Audit Reports None

Issued Prior to the Beginning of the

Reporting Period

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

Section 5(a)(12) Significant Management Decisions With None

Which the Inspector General Disagreed

Appendix 5

Page 1 of 1
SEMIANNUAL REPORT/APRIL 1, 2000 ~ SEPTEMBER 30, 2000

FOR SEMIANNUAL REPORTING PERIODS

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

2000 2000 1999 1999 1998

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

CURRENT STAFFING 77 79 78 81 83

AUDITS & SPECIAL PROJECTS

AUDITS IN PROGRESS

Carried Forward 48 36 34 40 46

Started 38 59 41 42 34

Canceled (8) (2) (3) (11) (13)

Completed (35) (45) (36) (38) (27)

In Progress at End of Reporting Period 43 48 36 33 40

AUDIT RESULTS (Thousands)

Questioned Costs $1,800 $952 $1,678 $1,137 $1,769

Disallowed by TVA 379 820 673 946 1,656

Recovered by TVA 390 1,333 580 607 110

Funds to Be Put to Better Use $12,862 $5,296 $9,861 $1,402 $220

Agreed to by TVA 12,499 5,509 7,612 980 5,169

Realized by TVA 17,340 5,775 1,834 389 136

SPECIAL PROJECT RESULTS (Thousands)

Completed 8 12 11 18 11

Cost Savings Identified/Realized $233 $345 0 0 $14,704

INVESTIGATIONS

INVESTIGATION CASELOAD

Opened 132 107 88 59 78

Closed 99 111 81 66 81

In Progress at End of Reporting Period 170 137 140 133 140

INVESTIGATIVE RESULTS (Thousands)

Recoveries $179 $3,758 $1,772 $1,145 $284

Savings 521 988 1,422 1,912 3,388

Fines/Penalties 11 25 5 27

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 13 21 21 19 20

Actions Taken (# of Subjects) 11 13 17 11 22

Counseling/Management

 Techniques (# of Cases) 6 5 3 4 8

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 32 7 8 4 12

Indicted 5 6 7 6 5

Convicted 5 9 5 9 9

* Adjusted from previous semiannual reports.

** Category added to Highlights during reporting period indicated.

H I G H L I G H T S

**

**

*

*
OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401