OCTOBER 1, 1999 ~ MARCH 31, 2000

OFFICE OF THE INSPECTOR GENERAL

SEMIANNUAL REPORT

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TVA

INSPECTOR

GENERAL

Call toll free:

1-800-323-3835

423-632-3550 (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/OCTOBER 1, 1999 ~ MARCH 31, 2000

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

George T. Prosser

Inspector General

April 28, 2000

TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

This semiannual report describes the accomplishments of our office for the six-month period ending

March 31, 2000.

During this reporting period, I was returned by the TVA Board of Directors to my duties as the Inspector

General. I look forward to continuing my tenure as Inspector General and working with the TVA Board of

Directors to help TVA move into the 21st century. The OIG’s vision is to be a “catalyst for excellence,” and I

intend to renew our efforts to focus the office on achieving this vision.

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. I am proud to be associated with so many qualified and dedicated

employees.

Sincerely,

George T. Prosser
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

1 Executive Summary

2 TVA Profile

3 Office of the Inspector General

5 Special Features

Appendices

1. OIG Audit Reports Issued During the Six-Month Period Ending March 31, 2000

2. OIG's Report on Management Decisions for the Six-Month Period Ending March 31, 2000

3. Investigative Referrals and Prosecutive Results

4. Audit Reports With Corrective Actions Pending

5. OIG Reporting Requirements

10 Audits

14 Investigations

19 Special Projects

21 Legislation and Regulations

OFFICE OF THE

INSPECTOR

GENERAL

SEMIANNUAL

REPORT

OCTOBER 1, 1999

THROUGH

MARCH 31, 2000

CONTENTS ■
TVA/OFFICE OF THE INSPECTOR GENERAL

This report

summarizes the

activities and

accomplishments

of TVA's OIG

during the sixmonth period

ending

March 31, 2000.

■ EXECUTIVE SUMMARY

We continued our efforts to support TVA

by providing quality audits, investigations,

and special projects. During this

reporting period, our reviews identified

over $11 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 45 audits and 12 special

project reviews. We identified over

$950,000 in questioned costs and more

than $5.6 million in funds that could be

used more effectively. Representative

audits included the following areas:

(1) preaward and postaward contract

audits, (2) TVA performance measures

under the Government Performance and

Results Acts, (3) TVA’s year 2000

readiness, (4) TVA credit card programs,

(5) effectiveness of TVA’s environmental

audit program, (6) combustion turbine

incremental cost calculations, and

1

(7) aspects of TVA’s safety program for

hazardous materials. Representative

special projects include: (1) a review of

TVA’s compliance strategy for Phase II

emissions reductions, (2) a review of

contractor’s proposed fee for medical

benefits administrative services, and

(3) participation in a review of the supply

chain business processes.

We closed 111 investigations which led

to over $4.7 million in savings and

recoveries, administrative or disciplinary

action taken against 13 individuals, and

other corrective action in 5 cases.

Matters we investigated included an

attempted bombing, workers’ compensation fraud, environmental crimes,

contractors’ fraudulent claims for

temporary living expenses, health care

overpayments, and employee conduct

issues. Our investigations led to six

subjects being indicted and nine

convicted.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

TVA's 13,253

employees serve

an 80,000-squaremile region

spanning seven

states.

TVA PROFILE ■

29 hydroelectric dams, 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 electric power producer, 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

Organization

The OIG consists of two major operational units—Audit and Investigative.

The OIG’s Audit Operations unit consists

of three departments. One is devoted to

contract-related audits, both preaward

and postaward reviews; the two other

departments focus, respectively, on

(1) performance and special projects and

(2) financial and ADP-related issues.

The OIG’s Investigative Operations unit

consists of two investigative departments—Financial Investigations and

Internal Investigations. Both departments work a variety of cases, including

employee integrity and environmental

issues. Financial Investigations focuses

on contract and workers’ compensation

cases, while Internal Investigations

focuses on employee conduct issues

and benefits and entitlement programs.

In addition, an Investigative Services and

Hotline group reports to the Assistant

Inspector General for Investigations.

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.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 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.

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OFFICE OF THE INSPECTOR GENERAL

03/31/00

Legal Counsel

■

Richard P. Levi

Manager

(Human Resources)

■

Kay T. Myers

INSPECTOR GENERAL

■

George T. Prosser

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 FEATURES

Joint Projects Produce

Results

During this reporting period, we conducted numerous joint projects which led

to significant results. Our joint efforts

included pairing auditors and investigators and working with other organizations. Some of our joint projects are

described more fully below.

ATTEMPTED BOMBING OF TVA

SUBSTATION—INDICTMENT

On or about October 27, 1993, an

explosive device, consisting of dynounigel and a homemade timer, was found

affixed to a breaker at a TVA substation in

Erin, Tennessee. Although the device

malfunctioned and failed to detonate, had

it exploded, it would have resulted in a

significant regional electric power outage,

equipment destruction, and environmental damage.

After an extensive joint OIG and TVA

Police investigation, a Clarksville, Tennessee, man was indicted in federal court on

four charges of destruction of government property by means of an explosive

device.

TOOL THEFT CONSPIRACY—

SENTENCING

During a previous reporting period, as a

result of a joint investigation/audit, two

individuals formerly assigned to key

positions in TVA’s Tool Management

Program as well as the brother of one of

the individuals pled guilty in federal court

to conspiring to steal TVA industrial

power and pneumatic tools valued at

over $737,000.

During November 1999, one of the

former managers and his brother were

sentenced to 18 months in federal

prison, and both were ordered to pay

restitution of $100,000 to TVA.

During March 2000, the remaining

individual, who cooperated with our

investigation, was sentenced to

12 months’ incarceration in federal

prison. In addition, he was ordered to

make restitution to TVA of $75,000.

PRODUCT SUBSTITUTION—

GUILTY PLEAS/SENTENCING

During an earlier reporting period, our

audit and investigative efforts revealed

that a Tennessee coal corporation

fraudulently supplied TVA a blend of coal

and petroleum coke (petcoke), which was

prohibited by contract. (Petcoke is similar

in appearance to coal but contains a

higher sulfur content, among other

differences.)

During this reporting period, the corporation pled guilty to one count of mail fraud

and one count of major fraud against the

United States. Additionally, the

corporation’s owner pled guilty to theft.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

SPECIAL FEATURES

The corporation and its president are

awaiting sentencing; however, under a

plea agreement, the corporation agreed

to pay TVA $40,000 in restitution—the

estimated amount of its profit from using

petcoke in TVA’s coal shipments.

ENVIRONMENTAL CRIMES JOINT

TASK FORCE (ECJTF)

During this reporting period, we continued our participation in ECJTF, which

is comprised of members from numerous

state and federal agencies, including the

Federal Bureau of Investigation, Environmental Protection Agency (EPA), Department of Justice (DOJ), 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

effective federal and state criminal and

civil statutes. Highlights of the task

force’s work during this reporting period

include the following.

$2,750,000 Recovery

In part because of an ECJTF criminal

investigation, a Fortune 500 chemical

company located in Tennessee settled an

administrative enforcement action for

alleged violations of the Resource

Conservation and Recovery Act (RCRA).

The Consent Agreement and Consent

Order (CACO) required the company to

pay a civil penalty of $2,750,000 to the

United States Treasury.

Federal and state regulations required the

company to measure the composition

and monitor the hourly flow rate of

hazardous waste delivered to seven

boilers which burn a combination of

hazardous waste and coal to generate

energy. This requirement is designed to

ensure the company does not burn

hazardous waste in excess of specified

maximum quantities set for each boiler.

(Although the company is allowed to

burn hazardous waste generated during

its production process, the amount

which can be burned is limited and must

be closely monitored.)

The Administrative Complaint, which

accompanied the CACO, alleged the

company failed to accurately monitor the

amount of hazardous waste burned in

seven boilers from December 1995

through August 1996. Further, the

company failed to notify the Tennessee

Department of Environment and Conservation of the noncompliance until

December 1996. A major penalty was

pursued because of the extended period

of noncompliance and the company’s

five-month delay in notification.

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7 TVA/OFFICE OF THE INSPECTOR GENERAL

SPECIAL FEATURES

Other provisions in the agreement

included that EPA acknowledged the

company satisfactorily demonstrated the

alleged violations were remedied, the

company did not admit liability in connection with the allegations, and the company was not released of criminal liability.

Criminal Misuse of Pesticide

The Tennessee Wildlife and Resources

Agency requested ECJTF’s assistance

after observing a group of dead wild and

domestic animals in Warren County,

Tennessee. Investigation found chicken

meat, laced with aldicarb, hanging on a

fence near the dead animals’ location.

(Aldicarb is an extremely toxic and highly

regulated soil pesticide with limited legal

uses.)

Investigation revealed a nearby landowner had engaged an individual to

eradicate coyotes on his property. That

individual was found to have illegally laced

the chicken with aldicarb and pled guilty

to a violation of the Federal Insecticide,

Fungicide, and Rodenticide Act.

The individual was sentenced in federal

court to 300 hours’ community service

and two years’ probation. Additionally,

he was ordered to pay a $2,000 fine.

Littering a Tennessee Waterway

A father and son allegedly stockpiled

used tires and other refuse on their

property, which is adjacent to a tributary

of Cherokee Lake. It was reported that

following heavy rain, numerous tires

washed into the lake bed.

The son pled guilty to criminal littering in

Tennessee State court. He was ordered

to remove all tires and related debris from

the area, to the satisfaction of TVA, and

to pay court costs. As a result of the

investigation, TVA avoided paying an

estimated $4,288 in labor and equipment

that would have been required to clean

the area.

Illegal Transport of Hazardous Material

It was alleged that an environmental

services business (licensed hazardous

waste transporter) made a practice of

mixing hazardous and nonhazardous

waste, then moving the mixture as

nonhazardous waste to disposal facilities

in the Southeastern United States. (The

RCRA states that blending hazardous

and nonhazardous waste makes the

entire mixture hazardous, and it must be

transported and disposed of as such.)

Specifically, investigation revealed the

company contracted to supply and

dispose of carburetor cleaner. Although

an appropriate EPA waste manifest was
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

SPECIAL FEATURES

8

required to pick up the waste, the

company did not meet that requirement.

Further, the company did not properly

dispose of or recycle the waste.

The use of microtaggants by investigators revealed the company mixed the

hazardous carburetor cleaner with

nonhazardous paint waste, then disposed of the resulting mixture as if it were

nonhazardous. Additionally, the

company’s president misled investigators

by stating the material had been shipped

to a reclamation site when it had not.

The company and its president pled guilty

in United States District Court to two

counts of violating the RCRA. The

company and its president are awaiting

sentencing.

CONGRATULATIONS TO TVA FOR

Y2K SUCCESS

Congratulations are in order for the many

TVA employees involved in the efforts to

ensure a smooth transition into the 21st

century. TVA is the largest producer of

public power in the country. Over seven

million people and businesses in seven

states rely on TVA for their electric

power—a critical component of the

region and country’s infrastructure.

Therefore, it was no small task for this

$6 billion dollar government corporation

to get ready for the Year 2000 rollover. A

system failure could result in anything

from small customer inconveniences to

electric power plant shutdowns affecting

millions of customers.

TVA management recognized the

importance of being prepared for the Year

2000

rollover and,

in 1996,

established

a Year 2000

Project

Office. The

Project

Office,

through its

Year 2000

program,

sought to ensure TVA would operate

safely, avoid business disruption,

continue critical business processes,

ensure accuracy of electronic information,

and maintain business interfaces with

customers and vendors. The program of

the Project Office eventually involved

employees from all TVA organizations,

TVA’s business partners (including 159

distributors), and mission critical suppliers. Guidance and oversight of the

program were enhanced through an

external assessment of TVA’s Year 2000

plans and multiple organizations,

including independent reviews by the

OIG.

TVA Year 2000 Project Team
TVA/OFFICE OF THE INSPECTOR GENERAL

We began our review of TVA’s Year 2000

plans in 1997. At that time, we found

that TVA’s Year 2000 plans were well

underway and meeting General Accounting Office’s guidelines. In 1998, TVA’s

Chief Information Officer,

with OIG

assistance,

contracted with

a third party to

assess TVA’s

Year 2000

program and

progress. We

reviewed the

third party’s report and developed an

audit plan to address areas of documentation and business continuity plans.

Furthermore, our audit plan included

follow-up on concerns that the feeder

systems to TVA’s general ledger were not

Year 2000 compliant.

The following are highlights of our

Year 2000 work:

■ TVA identified 20,000 mission critical

items that had to be addressed for

Year 2000 compliance. We assessed

mission critical items reported as

closed to ensure they were supported

by appropriate closure documentation. In addition, at the request of TVA

SPECIAL FEATURES

9

management, we reviewed other

significant items which were reported

as open in July 1999.

■ We reviewed the Year 2000 business

unit continuity and contingency plans

for mission critical business unit risks.

This review ensured these plans

included a description of the resources required, staff roles, procedures, and a timetable for

implementation.

■ We reviewed TVA’s Year 2000

business continuity plans to ensure

sufficient actions were taken to

coordinate those plans with the

external parties identified as being

necessary for the plan’s

implementation.

■ We verified the Year 2000 readiness of

information systems that provide

information to TVA’s financial reporting

system.

Throughout our audits, we worked

closely with TVA management to facilitate

timely closure of all findings and recommendations. This working relationship

proved to be a key element of success for

both the OIG and TVA. In the final

analysis, January 1, 2000, came and

went quietly.

OIG Year 2000 Auditing Team (from left to right)

Dave Willis, Phyllis Palmer, Deborah Thornton, Greg Strach, John

Barrow, Linda Folks, Rick Taylor, Jill Matthews, Andy Pearson, Kristi

Underwood
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 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 45 audit

reports which identified over $950,000 in

questioned costs and more than

$5.2 million in funds which could be put

to better use (see Appendix 1).

Summary of

Representative Audits

Our audits included performance reviews

of TVA programs, processes, and

systems, as well as preaward and

postaward audits of TVA contractors.

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

$4.7 million. Our preaward findings

included suggestions for adjusting

proposed markup rates for fringe benefits

and general and administrative costs to

actual costs.

During this reporting period, TVA

management successfully negotiated

total savings of $5 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.

CONTRACT COMPLIANCE AUDITS

We completed 19 contract compliance

audits and questioned $912,000 in

overbillings and excessive costs to TVA

and identified opportunities for additional

savings of at least $473,000. 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 labor costs.

■ Overstated material costs.

Management generally agreed with our

findings and has taken or plans to take

action to recover questioned costs where

appropriate.

VISA PURCHASING CARD

PROGRAM

TVA uses Visa purchasing cards for

small-dollar purchases, including

supplies and materials. At the end of

fiscal year 1998, TVA had over

10
TVA/OFFICE OF THE INSPECTOR GENERAL

AUDITS

11

1,340 cardholders with annual purchases

of about $29 million. We reviewed the

Visa purchasing card program to assess

controls and compliance and found:

■ Various program controls were

effective, and some had been enhanced since our last purchasing card

review.

■ Other program controls such as

retaining records when cardholders

transfer or terminate and ensuring

cards are canceled when requested

were less effective.

■ Forty-nine percent of cardholders did

not comply with one or more control

tests related to monthly verification,

approval, and documentation of

charges.

Accordingly, we recommended and TVA

agreed to (1) further improve program

controls and (2) reemphasize program

requirements for documentation and

review to improve cardholder compliance.

VISA GOLD CARD PROGRAM

TVA uses Visa Gold cards for executive

travel, hospitality, and incidental expenses. At the end of fiscal year 1998,

TVA had over 320 cardholders, spending

about $3 million annually, primarily for

lodging and meals. We assessed

program controls and compliance and

found:

■ TVA improved controls by improving

program automation and transferring

to a preferred supplier program.

■ Program controls were ineffective in

several critical program areas, including monthly payments, program

guidelines, record retention, disputed

charges, and travel expenses for other

employees.

■ About three-fourths of the cardholders did not comply with one or

more controls for verifying, approving,

and documenting charges.

We recommended that TVA improve

program controls, enhance process

automation, and revise program guidelines. TVA management agreed to initiate

additional control measures to address

most of the recommendations and is

further considering some additional

controls.

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 reporting period, we completed three audits pertaining to GPRA

performance indicators.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

The three indicators audited were:

(1) Shipper Savings Performance (SSP),

(2) Bond Rating (BR), and (3) Total Debt

Outstanding (TDO). 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 BR and TDO indicators

was accurate and reliable, and the

indicators were reported correctly. In

addition, we found TVA did not maintain

sufficient documentation to verify the SSP.

TVA management has agreed to develop

the necessary policies and procedures to

ensure sufficient documentation will be

maintained in the future for the SSP

indicator.

EFFECTIVENESS OF TVA’S

ENVIRONMENTAL AUDITS PROGRAM

At the end of 1994, TVA implemented a

new process-based environmental

compliance auditing system. We reviewed

the effectiveness of the program for fiscal

year 1998, including the scope of activities

covered by the program.

In summary, we found TVA’s efforts

related to regulatory compliance auditing

and contractor risk assessments were

effective. We also found TVA could

improve the auditing process by authorizing the environmental auditing organizaA U D I T S

12

tion to (1) conduct environmental

management system audits and

(2) follow up on corrective actions and

assess corresponding closure decisions.

TVA management generally agreed with

our findings and said the environmental

audit process would be reviewed prior to

any final decisions being made.

COMBUSTION TURBINE

INCREMENTAL COST

CALCULATIONS IMPROVED

TVA utilizes Combustion Turbines (CT)

to generate electricity during peak

periods of demand. CT are TVA’s

highest cost source of generation. In

order to make the correct dispatching

decisions of whether to generate

electricity using CT versus purchasing

electricity from other utilities, Transmission Power Supply (TPS) personnel

compare the CT incremental production

cost to the market price of purchasing

electricity.

As part of our annual audit plan, we

reviewed the CT incremental costs to

determine if the costs are a fair representation of CT incremental costs and can

be relied upon by TPS personnel to

make dispatching decisions.

We found that TVA had understated the

cycle cost component of the CT

incremental cost by less than
TVA/OFFICE OF THE INSPECTOR GENERAL

AUDITS

13

four percent. This understatement was

not significant to affect dispatch decisions.

TVA management agreed that improvements were needed to the calculation

due to more frequent use of the CT units

and availability of after market parts.

Management has taken appropriate

actions to improve estimates of the CT

incremental costs.

OIG REVIEWS TVA’S SAFETY

PROGRAM RELATED TO THE

MANAGEMENT OF MATERIAL

SAFETY DATA SHEETS

TVA has established a safety program

designed to help the agency conduct all

of its programs and operations in a

manner which protects the safety and

health of its employees. TVA’s safety

program must meet applicable regulations issued by the Occupational Safety

and Health Administration (OSHA) as

required by Executive Order. We

conducted a review of one aspect of the

safety program—the handling of material

safety data sheets (MSDS). MSDS

contains critical information regarding the

handling of chemicals in the event of an

accident. Specifically, we reviewed the

internal controls associated with MSDSs

to ensure TVA (1) maintains and updates

MSDSs and (2) allows employee access

to MSDSs, as required by OSHA regulations. We found the internal controls

were not functioning properly in the areas

of written hazard communication

programs and MSDS accessibility.

Management has agreed to take corrective action.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000 14

INVESTIGATIONS ■

During the last six months, we substantiated allegations in 29 of the 111 investigations we closed—over 26 percent.

Our investigations resulted in over

$4.7 million in savings and recoveries, six

subjects indicted, and nine 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 (TLE)

We continued our efforts to reduce TVA

contract costs by identifying fraudulent

and ineligible TLE paid to TVA contractor

employees. During this reporting period,

our TLE investigations led to recoveries of

$130,743. Highlights of these investigations follow.

■ A federal grand jury indicted a former

contractor employee on 40 counts

related to submitting false claims to

receive TLE. The first count of the

indictment charged the individual

falsely asserted he incurred property

tax expenses on an Ohio home which,

in fact, he neither owned nor paid

taxes on. The second count charged

him with producing fraudulent

documentation to substantiate the

property tax claim. The remaining 38

counts of the indictment charged the

former contractor with making false

claims for per diem submitted on

monthly travel vouchers for TLE.

According to the indictment, the

individual fraudulently acquired over

$38,000 in TLE.

■ As a result of our investigations, three

former contractor employees at Watts

Bar Nuclear Plant (WBN) entered into

agreements with the DOJ to settle all

civil and administrative claims against

them, as described below.

— Investigation revealed a former

contractor employee falsified TLE

certifications by stating he was

entitled to TLE because he

maintained a permanent home in

Mississippi while stationed at

WBN. Our investigation found the

Mississippi structure was actually a

fishing cabin which had never been

used as a permanent residence by

anyone. We found the individual

altered a lease agreement and

rental receipts to support his claim.

The former contractor employee

agreed to pay the government

$54,000 in restitution and

penalties.

— Another individual claimed he

supported a permanent South

Carolina residence maintained by
TVA/OFFICE OF THE INSPECTOR GENERAL

INVESTIGATIONS

15

his adult daughter while he worked

at WBN. Investigation revealed,

however, the contractor employee

did not pay rent, utilities, or any

expenses for the South Carolina

home. The individual agreed to pay

a $5,000 penalty.

— A third subject claimed he maintained a permanent Missouri

residence while stationed at WBN.

Investigation revealed the individual

had owned the residence but had

used a real estate management

firm to rent it to others since 1989.

Additionally, the former contractor

employee (1) sold the residence in

May 1995 but continued to receive

TLE based on his purported

expenses in maintaining that home

and (2) purchased a residence in

the WBN area during 1993, before

executing his first WBN certification

for TLE reimbursement. The

individual agreed to pay TVA

$26,767.50—the amount of TLE

he received during his TVA

employment.

FALSE CLAIMS—OFFICE OF

WORKERS’ COMPENSATION

PROGRAMS (OWCP)

To receive benefits through the Federal

Employees’ Compensation Act (FECA),

recipients must periodically submit forms

to 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 recoveries and

long-term savings of $915,000. Highlights of investigative results follow.

■ A federal judge sentenced a former

TVA laborer to four months’ home

detention and three years’ probation

during this reporting period. (The

individual pled guilty to one count of

mail fraud and one count of making

false statements to receive FECA

benefits during an earlier period.) The

former TVA laborer also was ordered

to make immediate restitution to TVA

of $16,000. (Our investigation found

the laborer did not report harvesting

and selling mussels while receiving

permanent total disability benefits.)

■ A former TVA pipefitter pled guilty to

four counts related to making false

statements to receive OWCP benefits.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

Although the individual disclosed no

employment activities to OWCP as

required, our investigation revealed he

was employed by three different

businesses performing welding,

fabricating, mechanic work, and

general labor—including operating

mowers and tractors—while he was

receiving total temporary disability

benefits. OWCP has terminated his

benefits, creating a long-term savings

to TVA exceeding $800,000. The

former pipefitter is awaiting

sentencing.

■ A former TVA cement mason pled

guilty to one count of making false

statements to obtain FECA benefits.

His plea remains pending a

magistrate’s approval. At the hearing

wherein he pled guilty, he presented a

cashier’s check to TVA for full restitution ($13,671.42). The former

employee is awaiting sentencing. (We

reported the indictment of this

individual during a previous period.

Our investigation found he did not

report his ownership and active

participation in a vinyl siding business

while receiving partial disability

benefits.)

BACKGROUND INVESTIGATIONS

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 United States Office of Personnel Management, TVA saved over

$29,000 on 13 investigations during this

reporting period.

INVESTIGATIONS

16
TVA/OFFICE OF THE INSPECTOR GENERAL

*Prosecutive referrals are shown at Appendix 3.

15.5%

25.5%

Resignations/

Terminations

Suspensions/

Demotions/

Transfers

Administrative and Disciplinary Actions Since

April 1, 1995*

Total = 269

Oral/Written

Warnings

Reemployment

Flagged

11.5%

16.5%

23.5%

CAO/

Business Services

Transmission &

Power Supply

32.5%

4.5%

Fossil Power

TVA Nuclear 3.5%

21.5%

14.5%

Other

River System

Operations &

Environment

The breakdown of the 111 closed investigations involving

TVA organizations are shown below.

31%

Counseling/

Management Techniques

INVESTIGATIONS

17
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

All Hotline Calls During This Reporting Period

Total = 2,307

TVA/Contractor

Employees &

Contractor Companies

General

Public

Former TVA/Contractor

Employees

68%

19.5% 12.5%

Information

Requests

OIG Business

Calls

Calls Raising Concerns of

Misconduct, Improper

Management, or

Personnel Procedures

21.5%

2.5%

76%

Nature of Calls

Referrals for OIG Investigations or Audit Action

Total = 56

Sources of Calls

Raising Concerns

18

INVESTIGATIONS
19 TVA/OFFICE OF THE INSPECTOR GENERAL

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 12 special projects. The

most significant projects are summarized

below.

REVIEW OF TVA’S COMPLIANCE

STRATEGY FOR PHASE II EMISSIONS

REDUCTIONS

The Clean Air Act Amendments of 1990

established a two-phase Acid Rain

Program to reduce sulfur dioxide and

nitrogen oxide emissions from fossilfueled power plants. In response, TVA

developed a least-cost compliance

strategy.

At the request of TVA’s Board of Directors, we reviewed TVA’s Phase II strategy

as of July 31, 1998, with assistance from

a consultant that specialized in the coal,

power, and transportation industries.

Basically, the consultant concluded

TVA’s compliance strategy was reasonable. The consultant also provided TVA

with other alternative strategies for

consideration.

■ SPECIAL PROJECTS

CONTRACTOR’S PROPOSED FEE

FOR MEDICAL BENEFITS

ADMINISTRATIVE SERVICES

TVA self-insures its employee medical

benefits plan but contracts out plan

administration to obtain network benefits

and claims processing services. At the

request of TVA Procurement and

Compensation and Benefits, we performed a limited review of a contractor’s

proposed administrative services fee. We

assessed the contractor’s pricing

methodology, fee cost components, and

cost allocations to the TVA account.

In summary, we found some charges had

been inappropriately allocated to TVA,

thereby inflating the contractor’s proposed fee by about $345,000 over a

three-year period.

The contractor subsequently agreed to

reduce the proposed fee by the amount

questioned.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000 20

SPECIAL PROJECTS

IMPLEMENTATION OF TVA’S NEW

SUPPLY CHAIN SYSTEM

In the summer of 1999, TVA began a

major project to replace its legacy supply

chain systems with a new integrated

system. In the first phase of this project,

a cross-functional team was established

with representatives from TVA’s Procurement, Information Services, Operating,

and Financial organizations; the software

vendor; and the OIG to conduct in-depth

reviews of the supply chain business

processes. Through these reviews, the

team redesigned the supply chain

business processes to take full advantage of the software’s functionality, thus

maximizing cost savings and minimizing

the need for customization of the

software.

During this reporting period, the OIG

participated on the business process

review teams to provide input on the

internal controls of the redesigned

business processes and to acquire

knowledge of the new software for future

pre-implementation reviews. The

outcome from the business process

review teams has become the foundation

for implementation of the software and

the streamlined business processes.

During the next two reporting periods,

the OIG will conduct a series of preimplementation reviews of the new

system in areas such as internal controls,

security, testing, and conversion.
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 submitted comments to the Department of

Health and Human Services on the

proposed rule, “Standards for Privacy of

Individually Identifiable Health Information.” We also reviewed 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/OCTOBER 1, 1999 ~ MARCH 31, 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 MARCH 31, 2000

The following table summarizes final audit reports issued by the OIG from October 1, 1999 through March 31, 2000.

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

10/7/1999 1999-065C Stone & Webster Construction

 - Request for Rate Increase -

P-96N5B-161365 $4,444,200

10/8/1999 1999-058F Review of Coordination of

TVA’s Year 2000 Business

Continuity Plan With External

Parties

10/8/1999 1999-069C Sigmon Coal Company -

Contract 91P07-115634

10/12/1999 1999-077F Windows NT Server Security

Follow-Up

10/15/1999 1999-031P Review of TVA’s Preferred

Hotel and Conferencing Program $16,423 $3,823

10/18/1999 1999-001C-01 Visa Purchasing Card Program 11,000

10/18/1999 1999-057C-01 LBL Concessionaires -

J Bar J Riding Stables

10/18/1999 1999-057C-02 LBL Concessionaires -

Hudson’s Western Store

10/18/1999 1999-057C-03 LBL Concessionaires -

Cheryl’s Food Service

10/18/1999 1999-057C-04 LBL Concessionaires -

Report to TVA Management

10/22/1999 1999-029C Vallen Safety Supply Company -

Contract Number

97X5B-202893-003 84,925 41,800

10/22/1999 1999-075C GTS Duratek Bear Creek

10/27/1999 1999-076C American Aquatics, Inc. -

Contract 97RKW-192521

10/29/1999 1999-079C Bechtel Power Corporation

11/1/1999 1999-019C Borg-Warner 584,035 576,585 432,000

11/1/1999 1999-082C Scientific Ecology Group

11/2/1999 1999-053C G-UB-MK Cost Review

Appendix 1

Page 1 of 3
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

Appendix 1

Page 2 of 3

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

11/16/1999 2000-001F Review of Year 2000 Business

Unit Continuity and Contingency

Plans for Mission Critical

Business Unit Risks

11/22/1999 1999-071C Review of L. E. Myers Overhead

Billing Rate Adjustments $116,163 $116,163

11/24/1999 2000-011C Numanco LLC - Review of

Labor Multiplier

11/30/1999 1999-018C Review of NPS Contract for

Maintenance and Modification

Work on Contract 95P6G-133445

12/8/1999 2000-003F Review TVA’s Method for

Calculating Combustion Turbine

Incremental Production Cost $151,000

12/9/1999 1999-001C-02 Visa Gold Card Program 13,100

12/10/1999 1999-061F Year 2000 Readiness of IBS

Feeder Systems

12/13/1999 2000-010C Numanco LLC -

Contract TV-92047V 55,698

12/14/1999 1999-063C Sverdrup Civil, Inc.

12/16/1999 2000-005F Review of Controls for TVA’s Visa

Purchasing Card Pilot Program

for Contract Managers/Agents

12/20/1999 2000-023F Review of Actions Taken By

TVA to Address Its 37

Enterprise-Wide Risks

1/5/2000 1999-055F Review of TVA’s Annual

Financial Statement Audit -

FY 1999

1/18/2000 2000-022C ABB Power T&D Co., Inc. -

Contract 97X1E-197652

1/21/2000 2000-019C Pre-Award Audit - Canus

Proposal - RFP - 256539

1/28/2000 1999-028P Review of Environmental

Management System Auditing

Process

2/3/2000 1998-069C Hartford Steam Boiler Inspection

and Insurance Company

Contract TV-90562V 29,370 4,460
TVA/OFFICE OF THE INSPECTOR GENERAL

Appendix 1

Page 3 of 3

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER US

2/3/2000 2000-002C Co-Development International

and Delloitte & Touche

Consulting Group, LLC $41,755 $41,755

2/18/2000 2000-032F Review of TVA’s Accounts

Receivable Write-off Policy

3/3/2000 2000-028C CC Metals & Alloys, Inc.

3/7/2000 2000-038F Bond Rating Indicator

3/10/2000 1999-081F Review of Updated Internal

Controls Associated With

J-Type Contracts

3/12/2000 2000-029C-02 Terra Industrial Services

3/17/2000 2000-021F Review of Material Safety

Data Sheets

3/21/2000 2000-037F Shipper Savings Indicator

3/22/2000 2000-045F Verification of Summarized

Federal Agencies’ Centralized

Trial-Balance System (Facts)

Data - FY 1999

3/24/2000 2000-034C Environmental Systems

Research Institute, Inc. $205,000

3/27/2000 2000-035C Geonex Corporation 22,000

3/27/2000 2000-043F Total Debt Outstanding Indicator

TOTAL 45 $952,469 $742,786 $5,296,000
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

OIG’S REPORT ON MANAGEMENT DECISIONS FOR THE

SIX-MONTH PERIOD ENDING MARCH 31, 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 2 $1,134,902 $96,372

B. Which were issued during

the reporting period 9 952,469 742,786

Subtotal (A + B) 11 $2,087,371 $839,158

C. For which a management

decision was made during

the reporting period 10 2,074,271 839,158

1. Dollar value of

disallowed costs 10 819,772 742,786

2. Dollar value of

costs not disallowed 4 1,254,499 96,372

D. For which no management

decision has been made by

the end of the reporting

period 1 13,100 0

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
TVA/OFFICE OF THE INSPECTOR GENERAL

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 3 $789,010

B. Which were issued during

the reporting period 6 5,296,000

Subtotal (A + B) 9 $6,085,010

C. For which a management

decision was made during

the reporting period 7 5,858,010

1. Dollar value of

disallowed costs 7 5,509,103

2. Dollar value of

costs not disallowed 2 348,907

D. For which no management

decision has been made by

the end of the reporting

period 2 227,000

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

*
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

INVESTIGATIVE REFERRALS AND PROSECUTIVE RESULTS

INVESTIGATIVE REFERRALS SUBJECTS RESULTS THIS PERIOD

Subjects referred to U.S. Attorneys 7 6 Indicted

9 Convicted

11 Referrals Declined

Subjects referred to other agencies 2 OWCP terminated benefits of a

for investigative or administrative action former employee, creating a

long-term savings to TVA of

TOTAL 9 $885,328.

Appendix 3

Page 1 of 1
TVA/OFFICE OF THE INSPECTOR GENERAL

Appendix 4

Page 1 of 1

AUDIT REPORTS WITH CORRECTIVE ACTIONS PENDING

Final corrective actions of recommendations in two contract compliance reports, one operational audit,

one preaward audit, and three information systems 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 1998-033P issued July 21, 1999

The report contained one recommendation regarding incorrect year-end actuarial calculations and

incorrect reporting of projected benefits. TVA is planning to record executive pension expense in

accordance with Statement of Financial Accounting Standard No. 87 and make plan participants more

aware of the potential effect of offsets on benefits.

Report 1998-074C issued April 28, 1999

The report contained four recommendations regarding negotiation of cost reimbursable payment

terms. TVA has resolved two of the recommendations and is assessing what action is needed to

resolve the other recommendations.

Report 1999-014F issued May 26, 1999

The report contained 11 recommendations regarding increased security of TVA’s Windows NT servers

by updating security policies and procedures. TVA has resolved two of the recommendations and has

assembled a team which is currently reviewing and updating TVA’s security policies and procedures.

Report 1999-024F issued May 25, 1999

The report contained eight recommendations regarding increased access controls over non-TVA

personnel and organizations in TVA’s electronic mail system. TVA is currently implementing their

planned actions.

Report 1999-048F issued July 14, 1999

The report contained five recommendations regarding security of sensitive information on TVA’s

internet and intranet sites. TVA is currently implementing their planned actions.
SEMIANNUAL REPORT/OCTOBER 1, 1999 ~ MARCH 31, 2000

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 10-20

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
TVA/OFFICE OF THE INSPECTOR GENERAL

FOR SEMIANNUAL REPORTING PERIODS

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

2000 1999 1999 1998 1998

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

CURRENT STAFFING 79 78 81 83 81

AUDITS & SPECIAL PROJECTS

AUDITS IN PROGRESS

Carried Forward 36 34 40 46 40

Started 59 41 42 34 50

Canceled 2 (3) (11) (13) (14)

Completed 45 (36) (38) (27) (30)

In Progress at End of Reporting Period 48 36 33 40 46

AUDIT RESULTS (Thousands)

Questioned Costs $952 $1,678 $1,137 $1,769 $1,191

Disallowed by TVA 820 673 946 1,656 636

Recovered by TVA 1,333 580 607 110 2,029

Funds to Be Put to Better Use $5,296 $9,861 $1,402 $220 $2,359

Agreed to by TVA 5,509 7,612 980 5,169 696

Realized by TVA 5,775 1,834 389 136 696

SPECIAL PROJECT RESULTS (Thousands)

Completed 12 11 18 11 13

Cost Savings Identified/

 Realized $345 0 0 $14,704 $843

INVESTIGATIONS

INVESTIGATION CASELOAD

Opened 107 88 59 78 78

Closed 111 81 66 81 74

In Progress at End of Reporting Period 137 140 133 140 144

INVESTIGATIVE RESULTS (Thousands)

Recoveries $3,758 $1,772 $1,145 $284 $946

Savings 988 1,422 1,912 3,388 645

Fines/Penalties 25 5 27

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 21 21 19 20 24

Actions Taken (# of Subjects) 13 17 11 22 12

Counseling/Management

 Techniques (# of Cases) 5 3 4 8

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 7 8 4 12 11

Indicted 6 7 6 5 2

Convicted 9 5 9 9 6

* 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