Office of the Inspector General

Semiannual Report

April 1 ~ September 30, 2003

2003
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 at the address or

number listed on the back cover.
Office of the Inspector General

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

Richard W. Moore

Inspector General

October 31, 2003

TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

This is my first report to the Board of Directors and to the United States Congress after being nominated

by President Bush in February and later confirmed by the United States Senate in May. I am appreciative of the

trust and confidence placed in me by the President given what I view as significant challenges for both my office

and TVA. President Bush met with the Inspectors General (IGs) in Washington on October 14, 2003, and

expressed his support of our efforts to bring about good government in our respective federal agencies. The

President met with us in the Indian Treaty Room of the Eisenhower Executive Office Building to underscore his

commitment to achieving the necessary changes in government to make it work better for the American people.

He noted that IGs are regarded as “agents of positive change.” Our meeting with the President was part of our

celebration of the 25th anniversary of the enactment of the IG Act. 

These past six months have confirmed my belief that the OIG at TVA has an admirable history of promoting positive change. That has been true despite the inherent limitations that come with IGs having been previously appointed by the Board rather than the President. Promoting positive change is not always universally

heralded in federal agencies, and IGs must have absolute independence in their audits and investigations if their

work is to be credible. In 2000, Congress recognized the need for greater independence for the IG at TVA by

enacting Public Law No. 106-422 which converted the IG from Board-appointed to one appointed by the

President with the advice and consent of the Senate. My commitment, given this new level of independence, is

to ensure that we continue to promote excellence at TVA and to do so with increased vigor. I firmly believe that

TVA will benefit from a truly independent IG, and Congress will be better served in its oversight responsibilities of

TVA. 

The OIG here at TVA is blessed with a cadre of highly trained professionals who until my appointment

were ably led by Acting IG Don Hickman. Under Mr. Hickman’s leadership, significant accomplishments were

achieved as noted in prior reports to the Board and to Congress. I appreciate Mr. Hickman’s commitment and

leadership which continue to be an asset to our office. 

As this report indicates, we have tackled significant issues, and we have made progress in protecting

TVA’s assets and in identifying ways that programs can be better run. Perhaps more importantly, we serve the

equally important role of deterring others who witness our aggressive audits and investigations. 
TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

Page 2

October 31, 2003

As a former federal prosecutor, I am particularly sensitive to fraud indicators in an organization. Systemic fraud is easily perpetrated when controls are weak and the financial incentive is high.

We have marshaled the talents of some of our best auditors and investigators to focus on fraud

against TVA. The Inspections unit in Chattanooga has been charged with the mission of identifying

fraud against TVA and following the evidence wherever it leads. I have every reason to believe they

will be successful.

Finally, I want to acknowledge the many courtesies extended to me by Chairman

McCullough, Director Baxter, and Director Harris in assisting me during this transition time. Their continued recognition of the importance of the work of the OIG at TVA has been encouraging. We are all

fortunate to live and work in East Tennessee and the Tennessee Valley Region, and I look forward

making progress together over the coming years.

Very truly yours, 
SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003TABLE OF CONTENTS

Executive Summary 1

TVA Profile 2

Office of the Inspector General 3

Special Features 6

Audits 9

Investigations 14

Legislation and Regulations 22

Appendices 24

Appendix 1 Index of Reporting Requirements Under the Inspector General Act 25

Appendix 2 Audit Reports Issued 26

Appendix 3 Audit Reports Issued With Questioned Costs and Recommendations for Better Use of Funds 29

Appendix 4 Audit Reports With Corrective Actions Pending 31

Appendix 5 Investigative Referrals and Prosecutive Results 34

Highlights 35
TVA / OFFICE OF THE INSPECTOR GENERAL 1 EXECUTIVE SUMMARY

During this reporting period, we continued to support TVA by conducting objective audits, investigations, and other

projects. In accordance with our 

mission, our reviews are designed to 

promote economy, effectiveness, and

efficiency while detecting and preventing

fraud, waste, and abuse. In total, we

identified over $10 million in recoveries,

fines/penalties, potential savings, 

questioned costs, or funds which could

be put to better use. 

We completed 34 audits and 15 nonaudit

service engagements during this reporting period, identifying nearly $9 million in

potential savings. These reviews 

included (1) pre- and postaward contract

audits, (2) other financial-related audits,

(3) information technology (IT) reviews,

and (4) performance reviews of TVA

operations. As part of our oversight role

of TVA financial reporting, we performed

reviews of Pricewaterhouse Coopers’

work on TVA’s quarterly financial information. In addition, in conjunction with

Information Services, we used audit,

investigative, and contract resources to

continue conducting an assessment of IT

security throughout TVA. Corrective

actions in response to our audits 

included monetary recoveries, process

improvements, and security 

enhancements. 

We closed 92 investigations, including

multi-agency task force projects, which

led to (1) over $1.39 million in recoveries,

projected savings, and fines/penalties;

(2) administrative or disciplinary action

against 24 individuals; and (3) other 

corrective action, such as counseling and

management techniques, in 21 cases.

Matters we investigated included 

employee misconduct, contract issues,

health care fraud, and environmental

crimes. Our investigative activities led to

the indictment of four subjects and 

conviction of ten.

In addition, during this reporting period

we created an Inspections unit which will

operate out of our Chattanooga office.

The primary responsibility for this unit will

be to identify fraud against TVA and

develop cases for criminal prosecution as

warranted. The Inspections unit will be

based on a task force model that will pair

auditors with investigators. They will also

identify weak controls in TVA programs

that make them vulnerable to fraud. We

staffed the office with a former federal

prosecutor who will lead the team, an

Inspections department composed of

auditors and an Investigations 

department consisting of criminal 

investigators.
2 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003T VA P R O F I L E

TVA is a federal corporation established

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

Valley region. Today TVA is the nation’s

largest public power company and a

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

thriving river system, and stimulates sustainable economic development in a

service area that covers 80,000 square

miles in the Southeastern United States,

including almost all of Tennessee and

parts of Mississippi, Kentucky, Alabama,

Georgia, North Carolina, and Virginia.

TVA generates power at 11 coal-burning

plants, 3 nuclear plants, 29 hydroelectric

dams, 1 pumped-storage plant, and

6 combustion turbine sites. TVA also

produces energy from three renewable

sources––sun, wind, and methane gas

from waste––and is building the first

United States flow battery energy storage system that can store electricity

available during periods of lower power

demand for use during times of peak

demand. TVA provides electric power to

158 local power distributors, 54 large

industries, and 8 federal agencies

through a network of more than

17,000 miles of transmission lines. TVA

also sells power to 12 surrounding utilities on the interchange market.

TVA manages the nation’s fifth largest

river system. TVA dams are part of a

totally integrated resource management

system where each dam operates in

relationship to the others for multiple purposes and public benefits. These

include navigation, flood control, power

supply, land use, water quality, and

recreation.

TVA contributes to the Valley economy

chiefly by keeping power rates competitive, which helps attract and retain industries that provide quality jobs in the

region. TVA also helps communities promote sustainable economic development

by providing assistance in job creation

and retention and productivity improvements via capital investment, support of

business incubators, specialized technical services and advice, and recruitment

for new and existing industries.

The TVA power system pays its own way

by selling electricity and issuing bonds.

The system does not use tax dollars. In

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

navigation, flood control, environmental

research, and land management activities. These programs are funded by

power revenues.

TVA is governed by a three-member

Board of Directors appointed by the

President and confirmed by the Senate.

Glenn L. McCullough, Jr., is Chairman,

and Skila Harris and Bill Baxter are

Directors.
Office Authority

TVA’s OIG was created by the TVA Board

of Directors in October 1985. It became

statutory under the IG Act Amendments

of 1988. Those amendments established OIGs at TVA and 32 other agencies with IGs appointed by the agency

heads. The authority to appoint the TVA

IG was transferred to the President in

November 2000 by Public Law

No. 106–422.

The IG is responsible for conducting

audits and investigations relating to TVA

programs and operations while keeping

the TVA Board and Congress fully and

currently informed about problems and

deficiencies relating to the administration

of TVA programs and operations. TVA’s

IG is independent and subject only to the

general supervision of the TVA Board of

Directors. The IG’s authority includes

conducting any audits or investigations

the IG deems necessary or desirable,

issuing subpoenas, administering oaths,

and granting confidentiality to individuals

who provide information to the OIG.

OFFICE OF THE INSPECTOR GENERAL

TVA / OFFICE OF THE INSPECTOR GENERAL 3

Organization

During the majority of this reporting 

period, the OIG consisted of two major

operational units––Audits and

Investigations. However, at the end of

the reporting period we created an

Inspections unit, headed by an Assistant

IG (AIG) for Inspections. The following

description applies to the office subsequent to the creation of Inspections.

Audits consists of three departments.

One is devoted to both pre- and

postaward contract audits, one 

incorporates financial and operational

audits, and the third focuses on 

IT-related issues. 

Investigations consists of three departments. One focuses on identifying and

investigating potential misconduct and

integrity issues. The second focuses on

computer crimes, computer forensic

support during investigations, and health

care fraud. The third department, which

has a dotted line reporting relationship to

the AIG for Inspections, will seek out

fraud.

Inspections consists of two departments.

In addition to the Financial Investigations

department, a Financial Inspections

department is staffed by auditors. The

Inspections unit will function as a joint

audit/investigative task force. 
TVA’s First Presidentially

Appointed Inspector

General

Effective May 9, 2003, Richard W. Moore

became TVA’s first Presidentially

appointed IG. Prior to becoming the IG,

Mr. Moore was an Assistant U.S. Attorney

in the southern district of Alabama where

he served as the Anti-Terrorism Task

Force Coordinator. Mr. Moore supervised

the investigations of suspected terrorist

activities in the Mobile area. He previously served as Senior Litigation Counsel at

the U.S. Attorney’s Office, where he specialized in the prosecution of white-collar

fraud. He also was an Atlantic Fellow in

Public Policy at Oxford University, Oxford,

England, during 1997, where he focused

on the prosecution of complex international fraud cases.

Staffing and Budget

The OIG’s primary location is in the TVA

headquarters in Knoxville, Tennessee.

The OIG also has a satellite office with

12 people located in Chattanooga,

Tennessee, and a 1-person office at the

Browns Ferry Nuclear Plant (BFN) in

Alabama.

We offered a workforce optimization program during this reporting period, which

led to nine OIG employees retiring. We

intend to utilize these vacancies primarily

to staff the Inspections unit in

Chattanooga. The OIG’s fiscal year

2003 budget is $8.5 million, with a budgeted headcount of 90 employees. 

OFFICE OF THE INSPECTOR GENERAL

4 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003
OFFICE OF THE INSPECTOR GENERAL

TVA / OFFICE OF THE INSPECTOR GENERAL 5

Inspector General

Legal Counsel

Assistant Inspector

General (Audits)

Human Resource

Manager

Assistant Inspector

General (Investigations)

Assistant Inspector

General (Inspections)

Contract Audits

Financial/Operational

Audits

Information Technology

Audits 

Information Technology

Investigations 

Internal Investigations 

Financial Investigations Financial Inspections 

Contacts

Inspector General

Richard W. Moore . . . . . . . . . . .(865) 632-4120

Legal Counsel

Richard P. Levi . . . . . . . . . . . . . .(865) 632-6197

Human Resource Manager

Kay T. Myers . . . . . . . . . . . . . . . .(865) 632-7718

OIG Media Relations

Anne B. Ferrell . . . . . . . . . . . . . .(865) 632-3505

Assistant Inspector General (Audits)

Ben R. Wagner . . . . . . . . . . . . . .(865) 632-2272

Assistant Inspector General (Investigations)

G. Donald Hickman . . . . . . . . . .(865) 632-7720

Assistant Inspector General (Inspections)

Charles A. Kandt . . . . . . . . . . . .(423) 751-6761

Contract Audits Manager

David P. Wheeler . . . . . . . . . . . .(865) 632-4770

Financial/Operational Audits Manager

Vacant . . . . . . . . . . . . . . . . . . . .(865) 632-2272

Information Technology Audits Manager

Jill M. Matthews . . . . . . . . . . . . .(865) 632-4730

Audit Quality Manager

Paul E. Ivie . . . . . . . . . . . . . . . . .(865) 632-2272

Information Technology Investigations

Manager

Curtis D. Phillips . . . . . . . . . . . . .(865) 632-2584

Internal Investigations Manager

C. Dale Hamilton . . . . . . . . . . . .(865) 632-3956

Financial Investigations Manager

Michael G. Duncan . . . . . . . . . . .(423) 751-7821

Financial Inspections Manager

Deborah A. Kearnaghan . . . . . . .(423) 751-3113

Hotline to report fraud, waste, and abuse: 1-800-323-3835

OIG website: http://oig.tva.gov
SPECIAL FEATURES

6 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

New Inspections Unit to

Ferret Out Fraud

During this reporting period, the OIG 

created an Inspections unit located in

Chattanooga, Tennessee. The mission

of the Inspections unit is to identify fraud

against TVA and seek prosecution of

those who commit that fraud. The unit

will combine the skills of auditors and

investigators who will work together as a

joint task force. This focused and

aggressive approach to detecting fraud

is expected to reap significant results for

TVA. 

Companies as expansive as TVA historically have been the subject of fraudulent

schemes. Currently, TVA is spending

millions of dollars in the purchase of 

fossil fuels, the startup of BFN, and a

variety of other contracted services.

These are fraud-prone areas for a variety

of reasons, and close examination of the

operations associated with them is

required. Fraud schemes are often 

difficult to detect, and the investigations

are time intensive. We have committed

the resources necessary to address the

level of risk of fraud at TVA. In course of

the Inspections unit’s work, the controls

on TVA programs will be evaluated to

determine if they are part of the problem

and foster fraud. Like any corporation

today, TVA cannot afford to be the victim

of significant fraud. The cost of such

fraud is ultimately borne by the 

ratepayers of TVA.

Charles A. Kandt, a former Assistant

U.S. Attorney, will lead the new

Inspections unit in Chattanooga.

Mr. Kandt has supervised the work of

task forces as a prosecutor, and his

experience in building criminal cases to

take to the U.S. Attorney’s Office will be

invaluable. The Inspections unit will also

provide management at TVA with their

reviews of deficiencies in programs that

should be corrected to make fraud more

difficult.
SPECIAL FEATURES

TVA / OFFICE OF THE INSPECTOR GENERAL 7

The 25th Anniversary of

the Inspector General Act

The IG community is celebrating the 25th

anniversary of the IG Act, which created

the modern day version of IGs in federal

agencies and departments. The IG 

concept in the United States is certainly

not a new one; it goes

back more than 225 years

to the Continental Army.

When it was created during

1775, this army of citizen

soldiers lacked training,

supplies, discipline, and

structure. At General

Washington’s urging,

Congress appointed the

first IG of the Army in

December 1777 and charged him with

reviewing the troops, providing instruction, instilling discipline, and reporting “all

abuses, neglect and deficiencies to the

Commander in Chief.” Congress also

wanted the IG to serve in a dual role as

their agent who would provide accountability for the significant investment it had

made in the Army. 

The first three Army IGs served brief

terms and effected little, if any, improvement. That changed when, in February

1778, a Prussian Army volunteer, Baron

Frederick William Augustus von

Steuben, arrived at Valley Forge with a

letter of introduction from Benjamin

Franklin. General Washington quickly

assigned him to the position of Acting

IG––Congress officially appointed him

later that spring––and charged him with

developing and implementing a training

program for the American troops. 

Major General von Steuben was the first

effective IG and in many ways is still

regarded as a role model for federal military and civilian IGs today. In

addition to bringing training,

discipline, and accountability to

the Army, he was also known

for his integrity and aversion to

fraud and waste. (For example,

Major General von Steuben

“proclaimed the money department ‘a mere farce’ and said

that paying quartermasters

agents a commission based on

what they spent was ‘a prescription for waste.’”) While he was

resented by regimental colonels, Major

General von Steuben has been credited

with overcoming resistance through his

character, tact, and intelligence. 

Two hundred years later, the federal government was in the midst of serious

financial and management scandals

when Congress passed the IG Act and

then President Jimmy Carter signed it

into law on October 12, 1978. The initial

establishment of IGs in 13 departments

and agencies, each of which was

Major General von Steuben
appointed by the President and confirmed by the Senate, occurred in the

wake of major financial and management

scandals in the federal government. 

The modern IG concept was designed to

provide a single focal point, combining

audits and investigations, for the effort to

deal with fraud, waste, and abuse in federal expenditures and programs. This

type of coordination and leadership was

also intended to strengthen cooperation

between the agencies and the

Department of Justice in investigating

and prosecuting fraud cases.

The IG was to have no conflicting

responsibilities which could divert his

attention or divide his time. His sole

responsibility was to coordinate auditing

and investigating efforts and other policy

initiatives designed to promote the economy, efficiency, and effectiveness of

agency programs. Above all, the IGs

were to have the requisite independence

to do an effective job, as they would not

be faced with the inherent conflict of

interest which exists when audit and

investigative operations are under the

authority of an individual whose 

programs are being audited.

To respond to changes in government,

the IG Act has been amended several

times. The most extensive amendment

occurred in 1988 when reporting requirements were clarified and IGs from designated federal agencies––where the

agency head appoints the IG––were

added, more than doubling the number

of IGs. The TVA IG, which had been created by the TVA Board during 1985, was

made statutory by the 1988 amendment. 

Today, 57 OIGs protect the integrity of

the government; improve program efficiency and effectiveness; and prevent

and detect fraud, waste, and abuse in

federal agencies. Each year, OIG audits,

inspections, and evaluations identify billions of dollars in potential savings or

questioned costs, while OIG investigations lead to thousands of prosecutions

and billions of dollars in potential recoveries for violations of federal criminal

laws. Congress also has seen fit to

expand the role of the IGs through

assignments of new responsibilities, such

as in the Chief Financial Officers Act, the

Reports Consolidation Act, and the

Federal Information Security

Management Act. These new charges

show that IG work “adds value” to

improving the efficiency, effectiveness,

and integrity of our government. We at

TVA are proud to be part of the IG community and adhere to the legacy of Major

General von Steuben: “Integrity, knowledge, and loyalty to conscience.”

SPECIAL FEATURES

8 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003
AUDITS

TVA / OFFICE OF THE INSPECTOR GENERAL 9

Summary of

Representative Audits

Audits are initiated from (1) the OIG

annual workplan, (2) additional issues

identified by the OIG subsequent to the

annual workplan, (3) issues identified by

cooperative efforts with TVA management, and (4) concerns raised by TVA

management or other stakeholders.

During this reporting period, we 

completed 34 audits which identified

over $1.9 million in questioned costs and

almost $7 million in funds which could be

put to better use. We also identified

numerous opportunities for TVA to

improve program operations. Our audits

included (1) pre- and postaward contract

audits, (2) other financial-related audits,

(3) IT reviews, and (4) operational audits. 

PREAWARD CONTRACT AUDITS 

To support TVA management in negotiating procurement actions, we completed

eight preaward audits that identified

$6.9 million in potential savings opportunities. Highlights of the more significant

preaward audits follow.

 We reviewed the cost proposals submitted by two contractors to provide

construction and modification 

services for TVA’s Transmission/

Power Supply Program. We determined one contractor’s proposal had

not taken into consideration the effect

a contract with TVA would have on

the company’s cost recovery rates.

We estimated TVA would save

$6.2 million over the five-year,

$50 million per year contract term by

negotiating an appropriate reduction

to the company’s proposed indirect

cost recovery rates. We found the

costs proposed by the second 

contractor were fairly stated.

Negotiations for this contract award

are ongoing.

 We determined a contractor’s proposal to provide an alarm and access

control system for various TVA facilities at a cost of about $4.6 million

was overstated. We estimated TVA

could save up to $740,000 by

(1) correcting an error in subcontractor labor costs and reducing

subcontractor indirect cost rates to

correspond with current projections,

(2) managing a proposed 10 percent

contingency cost, and (3) reducing

the contractor’s proposed base labor

and overhead rates to correspond

with its forward pricing rates.

Negotiations with the contractor are

ongoing.

 We reviewed the indirect cost recovery rates proposed by a contractor

and three of its subsidiaries to 

provide scientific research and technology development and determined

two of the company’s proposals were

overstated based on their historical

costs. We also found TVA occasionally provides services as a subcontractor to the contractor, who then

bills the cost back to project partici-
AUDITS

10 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

pants, including TVA, with a 

25 percent markup. We suggested

TVA consider the reasonableness of

paying the 25 percent markup on its

own labor costs. TVA management

agreed with our findings and is negotiating final contract terms with the

contractor.

CONTRACT COMPLIANCE AUDITS

During this reporting period, we completed eight contract compliance audits

that identified about $1.9 million in ineligible and unsupported costs.

Management generally agreed with our

findings and has taken or plans to take

corrective action. Highlights of some of

the more significant audits follow.

 An OIG investigation of per diem payments to craft employees by a contractor on three specific jobs found

the contractor had paid approximately $85,000 in per diem to craft

employees who had not met the 

contract’s mileage requirement. We

audited all per diem payments under

the contract and found an additional

$208,000 in per diem payments to

craft employees who did not meet

the mileage requirement. Also, an

estimated $2.5 million in per diem

had been paid to craft employees

who appeared to meet the mileage

requirement but could not prove they

met an additional contract requirement of obtaining and occupying

temporary lodging. Of those who

met the contract’s mileage requirement, about half, or $1.25 million,

may have been paid to employees

who could have commuted to their

assigned work location. TVA management is negotiating a settlement

with the contractor.

 We determined TVA was overbilled

about $367,000 by a contractor that

provided right-of-way clearing and

restoration services. The overbilling

occurred because (1) the contractor

used incorrect terrain classifications

to bill TVA, (2) the contractor billed

handling charges not provided for in

the contract, and (3) miscellaneous

billing and payment errors were

made. TVA is negotiating resolution

of the overbillings with the contractor. 

 We determined a contractor had

overbilled TVA about $75,000 for 

cellular telephone equipment and

services due to the (1) inclusion of

unallowable sales taxes and

(2) inconsistent application of a 

discount TVA was to receive. TVA

management agreed with our findings

and is working with the contractor to

resolve the overbillings.

 We reviewed the temporary living

allowance certifications approved for

two contractors working on the BFN

Unit 1 recovery and found that 31 of

the 439 approved certifications did

not have adequate documentation to

determine if contract requirements

had been met. TVA is obtaining additional documentation from the contractor. We also referred 49 other
AUDITS

TVA / OFFICE OF THE INSPECTOR GENERAL 11

certifications which met the contract’s

eligibility requirement to OIG

Investigations for further review due

to questionable information included

on the certifications, such as several

individuals claiming the same permanent residence.

OPERATIONAL AUDITS

Heavy Equipment Division (HED)

Operations

HED is a self-supporting TVA organization that provides services including

equipment rental, repair, maintenance,

trucking services, heavy moving and lifting, and tool rental. We assessed HED’s

policies and practices relating to

accounting, billing, and use of its 

equipment. We determined HED’s

(1) equipment inventory and recordkeeping could be improved, (2) costs

were accurately recorded with the 

possible exception of the recording of

rental equipment, (3) billing rates 

adequately covered operating costs, and

(4) equipment could be utilized more

effectively in some instances. HED has

taken steps to improve accountability

and equipment use. 

Work Management Standardization

We assessed the status of the Chief

Operating Officer’s (COO) work management standardization initiative in the

Fossil Power Group (FPG) that was initiated to achieve (1) greater efficiency,

(2) greater consistency, (3) use of best

practices, (4) transfer of knowledge, and

(5) increased workforce mobility. We

determined the standardization initiative

is an ongoing effort, and the level of

progress varies by FPG organization.

We also found numerous barriers to the

standardization effort. As a result of our

review, the COO plans to (1) ensure the

goals and objectives of standardization

are clearly understood, (2) provide specific direction, and (3) perform gap analyses

at the fossil plants. 

FINANCIAL-RELATED AUDITS

During this reporting period, we completed 12 financial-related audits, including 3

audits of TVA’s external auditor reviews

of interim financial information for the first

three quarters of fiscal year 2003.

Highlights of the audits follow.

 We determined controls were in place

and functioning, in all material

respects, for identification of asset

retirements associated with TVA’s

capital funding process and ensuring

the retirements were recorded 

accurately. However, we identified

several process improvement 

opportunities for management’s 

consideration. TVA management is

taking action to implement most of

our recommendations.

 We determined, in all material

respects, (1) TVA’s revenue from sales

of electricity to municipalities and

cooperatives, directly served industries, and federal agencies was fairly

reported in the general ledger for 

fiscal year 2002; and (2) power

invoices were accurately calculated.
AUDITS

12 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

However, during the audit, TVA management identified immaterial billing

errors and took action to correct

those billing errors and improve related controls.

 We determined the accuracy of daily

and estimated monthly generation

data which TVA uses to estimate

unbilled revenue could be improved.

TVA has taken, or plans to take,

appropriate corrective action.

 We determined TVA’s proposed 2003

tariff rates for transmission, scheduling, and reactive power were fairly

stated.

 We determined one TVA organization

that provides services to external

customers did not recover about

3 percent of its fiscal year 2002 

indirect costs because overhead

rates were applied based on 

perceived market conditions and

prior-year calculations rather than

current overhead calculations. In a

related matter, we also found the

organization’s overhead calculation

methodology resulted in a net overstatement of the rate, which would

have led to overcharges if the calculated rate had been applied. TVA

management is taking appropriate

corrective action.

 We determined TVA’s decommissioning liability was accurately calculated.

During the audit, we noted TVA 

personnel discovered an error in

recording the liability in TVA’s

accounting records due to an apparent oversight. As a result, the liability

was not correctly reported on TVA’s

unaudited financial report for the 

period ending December 31, 2002.

TVA personnel made the appropriate

correcting entry upon discovering the

error.

 We concluded that, in all material

respects, adequate controls existed

and were being followed for payments made in TVA’s system without

a contract or purchase order during

fiscal year 2002.

 We found no instances where TVA’s

external auditor’s reviews of TVA

interim financial information for the

first three quarters of 2003 did not

comply with Government Auditing

Standards in all material respects,

including required communications to

appropriate parties.

INFORMATION TECHNOLOGY

AUDITS

During this reporting period, we completed audits in the IT environment pertaining

to (1) software used to secure TVA mainframe resources, (2) security and software change controls and continuity

planning for the fixed assets system, and

(3) TVA’s newly developed Electronic Fuel

Supply Request for Proposal System.

We found improvements were needed to

address weaknesses in the following

areas:

 Logical security controls designed to

prevent unauthorized access to system programs and data.
AUDITS

TVA / OFFICE OF THE INSPECTOR GENERAL 13

 Compliance with TVA and industry

standards for certain implementation

options, table entries, and access

controls.

In addition, we reviewed the compliance

of TVA’s IT security program with the

Federal Information Security

Management Act and determined TVA

management has made progress in correcting security weaknesses. However,

improvements could be made regarding

(1) integration of TVA’s IT security program across all TVA computer resources

and (2) increasing the emphasis among

TVA organizations to assure adequate

protection.

TVA management agreed with our findings and is taking appropriate corrective

action.

NON-AUDIT SERVICES

Non-Nuclear Physical Security

We contracted with Deloitte and

Touche’s (D&T) Security Management

Group to perform a follow-up review of

the security of TVA’s non-nuclear facilities. D&T concluded that TVA’s efforts to

enhance the security of facilities have

been significant. However, D&T also

identified various opportunities for TVA to

improve its physical security, including

taking steps to (1) ensure historical evidence and current intelligence are considered in TVA’s threat determination,

(2) ensure countermeasures are based

on greatest long-term return and integrated with existing and planned security

initiatives, (3) implement a TVA-wide

security awareness initiative, and

(4) implement an automated security risk

assessment and analysis tool. TVA management agreed with and has taken or

plans to take action to address D&T’s

recommendations.

Information Technology Security

Assessment Project

During this reporting period, the IT

Security Assessment Project team,

which consisted of resources from TVA’s

Information Services, the OIG, and outside consultants, completed internal

assessments of TVA’s IT security infrastructure. The assessments consisted of

risk and vulnerability analyses, and identified vulnerabilities related to access control, system configuration, and operating

system controls. The risk analyses further identified a need for an agency-wide

policy to govern the protection of TVA’s

information assets. TVA management is

reviewing the results and taking appropriate corrective action.
INVESTIGATIONS

14 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

Summary of

Representative

Investigations

During the past six months, we closed

92 investigations, including allegations

and concerns received from ratepayers,

TVA management and employees, governmental and congressional staffs, and

OIG auditors. Our investigations, including task force projects, resulted in

(1) over $1.39 million in recoveries, projected savings, and fines/penalties;

(2) four subjects indicted; and (3) ten

subjects convicted. To provide coverage

in a wide range of areas, we devoted

resources to investigating possible fraud

(particularly in the areas of coal procurement and workers’ compensation), IT

issues, alleged employee misconduct,

and to supporting multi-agency task

forces. Representative investigations are

highlighted below.

FRAUD INVESTIGATIONS

Two investigations led to convictions for

fraud during this reporting period.

 A TVA employee with access to

human resource records used personal information to obtain credit

cards in the names of other TVA

employees. The employee and her

son used the cards for personal purchases. Both pled guilty in federal

court to two counts of mail fraud.

Each received a sentence of five

years’ probation, home detention of

four to six months, and payment of

restitution to the credit card companies. The TVA employee resigned

during our investigation. 

 An individual pled guilty to making

false statements in connection with a

$100,000 loan he obtained from the

TVA Economic Development Loan

Fund. His company filed a voluntary

petition for bankruptcy after obtaining

the loan, and our investigation

showed he submitted false financial

information to obtain the loan from

TVA and a federally insured bank. 

COAL INVESTIGATIONS

TVA spends more than $1.1 billion annually to purchase coal, including transportation costs. Based on this expense,

we have several projects underway to

identify fraud, waste, or abuse in coal

acquisition. During this reporting period,

we completed two coal-related 

investigations.

 We completed an investigation relating to use of the drafting method to

weigh coal shipped on barges.

Under that method, the weight of the

coal is determined by measuring the

water level on the barge before and

after the coal is loaded and using

standard charts to calculate the

weight based on the difference. We

are reviewing with TVA management

the methodology of draft weights and

questions about their accuracy. We

estimated TVA overpaid a coal con-
INVESTIGATIONS

TVA / OFFICE OF THE INSPECTOR GENERAL 15

tractor roughly $1,000,000 and the

barge company roughly $295,000

based on barge weights. TVA management advised it would attempt to

recover the overpayments, and it

would take corrective action to

ensure that in the future coal weights

are accurate. 

 We also investigated a variance

between coal weights as determined

by TVA scales at a fossil plant and

invoiced by a contractor. The contract provided that TVA weights shall

govern when the variance exceeded

1.5 percent, which it did for 96 percent of the barges used. However,

plant personnel failed to report these

variances to the TVA contract administrator. We also found that the

barge company which delivered the

coal failed to return the residual coal

to TVA when it removed barges from

TVA service, as required by the contract. Management is considering

what action to take in response to

our findings.

WORKERS’ COMPENSATION 

INVESTIGATIONS

Our efforts to identify workers’ compensation fraud continued. Anyone convicted of fraud in connection with a workers’

compensation claim is no longer eligible

to receive workers’ compensation benefits. Accordingly, convictions generally

lead to significant long-term avoided

costs for TVA. Results during this

reporting period included the following. 

 We previously substantiated an allegation that a former TVA employee

was working while receiving benefits

for an injury sustained at TVA. The

investigation revealed the former

employee was working as a carpenter but reported to the Office of

Workers’ Compensation Programs

(OWCP) at the Department of Labor

that he was not working. The former

employee was convicted of filing false

statements to obtain benefits and

was sentenced to 8 months’ confinement, 36 months’ supervised release,

and payment of $22,987 in restitution. During this reporting period,

OWCP forfeited the compensation

paid during the period covered by the

false statements and declared an

overpayment of $45,898. 

 In another investigation, we found

that a former TVA employee was

receiving excessive workers’ compensation benefits. OWCP subsequently reduced the individual’s

benefits by $14,240 annually, resulting in a projected long-term avoided

cost to TVA of $526,887. 

INFORMATION TECHNOLOGY

ISSUES

The OIG established a forensic computer

laboratory, and both Investigations and

Audit participated with TVA’s Information

Services (IS) in a project to evaluate

TVA’s IT security infrastructure (as discussed earlier in this report). In addition,

we conducted numerous investigations
INVESTIGATIONS

16 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

of alleged computer abuse, including

alleged unauthorized access and 

inappropriate usage. Representative

investigations included the following.

 We completed an investigation concerning a contractor remotely

accessing a TVA University (TVAU)

server that contained TVA Nuclear

records and making changes to a

database. We found that a TVAU

employee allowed the contractor to

remotely access and control her

computer without approval or coordination with IS. However, the

employee’s intent was to solve a

problem, the contractor’s access was

limited to fixing the problem, and

TVA Nuclear records were not

accessed. IT Security generally

agreed with our recommendations to

prohibit employees from allowing 

others to have remote access without

IS approval, to publicize this prohibition, and to take measures to 

preclude use of programs which

allow such access. 

 We investigated an alleged copyright

infringement by someone using an

internet provided address located on

the TVA network at BFN to offer

downloads of a movie. While there

was insufficient evidence to determine who, if anyone, misused the

TVA network, we found that employees of a TVA contractor providing

security services were allowed to

bring personal laptops (and other

electronic devices) to BFN to use

during work. In our opinion, allowing

contractors (or others) to bring personal computers to a TVA site posed

an unnecessary security risk. IT

Security advised they would prohibit

personal computer systems and

equipment from connecting to the

TVA network. 

 An investigation of the circumstances

under which an intern working in IT

Security installed unauthorized tools

on a TVA networked computer did

not show any malicious intent by the

intern. It did show, however, some

opportunities for improvement. IT

Security’s actions included (1) limiting

intern assignments to nonsensitive

information; (2) improving processes

to ensure this type of incident did not

recur, including ensuring all new

employees, contractors, and interns

are aware of applicable TVA policies;

and (3) ensuring the new Incident

Handling Procedure contains instructions on removing from the TVA network any systems where a hacker

tool, “Trojan,” or virus is detected. 

EMPLOYEE MISCONDUCT ISSUES

Our investigations of employee misconduct included alleged ethics violations,

harassment and discrimination, and general misconduct. Our investigations

serve several purposes, including detecting misconduct and exonerating those

who are improperly accused.
INVESTIGATIONS

TVA / OFFICE OF THE INSPECTOR GENERAL 17

Representative investigations included

the following.

 We investigated allegations that TVA

employees accepted gratuities from

coal contractors. Investigation of a

judgmental sample of ten employees

showed eight employees accepted a

few gratuities, such as tickets to

sporting events, golf outings, and

meals, in violation of ethics regulations. Our investigation also raised

concerns about the candor of several

of these employees. Because the

identified violations provided sufficient

information for management to take

corrective action, we did not further

pursue whether other expenses listed

in contractor records included additional ethics violations. Our investigation also raised concerns about the

approval process for acceptance of

payment for travel expenses from

nonfederal sources. In response to

our investigation, management

(1) took steps to ensure employee

awareness of and compliance with

ethics guidelines; (2) notified vendors

of TVA’s ethics guidelines; and

(3) developed an approval process for

acceptance of transportation, subsistence, and related official travel

expenses from nonfederal sources.

Management also took disciplinary

action against the eight employees,

as appropriate. 

 Our investigation found a TVA 

manager engaged in misconduct,

including (1) inappropriate behavior

outside the workplace, (2) misuse of

his TVA travel card, (3) continuing a

relationship with a subordinate after

being counseled to stop any activity

that could create an appearance of

favoritism, and (4) failing to reimburse

TVA for personal calls on his TVA

cellular telephone even though he

consistently exceeded the allotted 

minutes of his calling plan. The

employee subsequently resigned. 

 A TVA employee did not promptly

report to Employee Benefits that her

son was no longer an eligible

dependent under the TVA benefit

plans. As a result, payments were

made under TVA’s benefit plans for

expenses incurred by her son after he

became ineligible. TVA management

reminded the employee of her obligation to report matters that could

affect her employment or benefits,

and required her to reimburse TVA for

the ineligible claims. 

 We completed our investigation of

the circumstances under which a

female contractor employee was “initiated” by being placed into an ice

basket at a nuclear plant while ice
INVESTIGATIONS

18 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

was being blown into the basket.

Our investigation confirmed that a

TVA employee sent the contractor on

a bogus assignment to the ice condenser so she could be “initiated,”

and two contractor employees

placed her in the ice basket while the

ice was blowing. We found the practice of initiating people was common

and had been ongoing for many

years, numerous contractor and TVA

employees and managers knew

about the practice, and several people knew the female contractor was

going to be initiated. Most individuals

we interviewed who knew about the

practice generally believed it was

harmless. TVA management took

action to reinforce that horseplay

such as this would not be 

tolerated.

 We did not substantiate an allegation

that TVA violated the Veterans’

Preference Act by failing to consider

an electrician candidate’s military

service. We determined the nonselection of the candidate was for

other legitimate reasons. 

 We determined that a Nuclear Quality

Assurance manager’s employment

was terminated for inappropriate

behavior in the workplace, rather than

for raising safety issues, as alleged by

the complainant. That individual also

raised his complaint to the

Department of Labor. 

TASK FORCES

We currently are providing the equivalent

of at least one full-time agent to each of

three task forces––the Health Care Fraud

Task Force and Environmental Crimes

Joint Task Force, both sponsored by the

U.S. Attorney for the Eastern District of

Tennessee, and the Joint Terrorism Task

Force, led by the Federal Bureau of

Investigation Knoxville Field Division.

Each is discussed below.

Health Care Fraud Task Force

TVA operates a self-insured health benefits plan and is generally a victim of

health care fraud investigated by the

Health Care Fraud Task Force. By combining our resources with other government agencies, we can expand our

coverage of health care fraud.

Participants on the task force include

investigative arms of federal, state, and

local agencies, and Blue Cross/Blue

Shield of Tennessee’s Special

Investigations Unit. Our efforts on the

task force included assisting in executing

search warrants, forensic computer

analysis, document analysis, interviews,

and testifying at trial. Convictions during

this reporting period included the 

following.

 An orthopedic surgeon was found

guilty of 95 counts of health care

fraud-related charges after a threeweek trial. The indictment charged

the surgeon devised a scheme to

receive monetary payments from vari-
INVESTIGATIONS

TVA / OFFICE OF THE INSPECTOR GENERAL 19

ous health care benefit programs,

based upon false and fraudulent representations. The surgeon submitted

health care claims for nerve blocks

when trigger point injections, which

are lesser reimbursable procedures,

were actually performed. Additionally,

the surgeon billed for and was paid

for office visits to which he was not

entitled. The victim health care programs included Medicare, TennCare,

and the federal workers’ compensation program. The total amount

fraudulently billed from approximately

October 1997 to January 2002 was

over $2.2 million. 

 A pharmacist, a physician participating in TVA’s health care plan, and two

other individuals pled guilty to diverting thousands of dollars worth of prescription drugs, as follows. 

–– The pharmacist pled guilty to six

counts, including illegal distribution of controlled substances, 

illegal possession of controlled

substances with intent to distribute, and obstruction of a criminal

investigation of health care 

offenses. He was sentenced to

70 months’ confinement and

3 years’ supervised probation,

and forfeited $280,000 in cash

seized during a search of his 

business. 

–– The doctor and two individuals

pled guilty to conspiracy to dispense and distribute controlled

substances illegally. The doctor

wrote controlled substance prescriptions for these two individuals

in their names and in the names

of others, and those individuals

either used, sold, or returned to

the doctor those controlled 

substances. 

 A pharmacist pled guilty to a sevencount information charging him with

illegal distribution of a controlled substance (dihydrocodeinone), possession of a controlled substance with

intent to distribute, and illegal possession of a firearm in furtherance of

a drug trafficking crime. He was sentenced to a total of 63 months. He

also forfeited over $100,000 and the

seized weapons. 

 A chiropractor pled guilty to six

counts in four indictments. The

charges included conspiracy to possess with the intent to distribute a

controlled substance (hydrocodone),

carrying a firearm during and in relation to a drug trafficking crime,

attempting to evade and defeat federal income taxes, and health care

fraud. Among other things, the

defendant ordered hydrocodone pills

using the name and Drug

Enforcement Administration number

of a medical doctor who was associated with the defendant, without the

knowledge or consent of the medical

doctor. His sentence included

72 months’ imprisonment, 5 years’

supervised release, and $40,000 in

fines and restitution. 
INVESTIGATIONS

20 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

Environmental Crimes Joint Task

Force (ECJTF)

As we previously reported, the Denver

Environmental Crimes Task Force

requested the assistance of the ECJTF in

an investigation of a company headquartered in Chattanooga, Tennessee, which

provided workers to contractors performing asbestos abatement work throughout

the United States. The company used

unauthorized aliens by obtaining false

identification papers, using false names

when taking required training, and certifying the workers had been fitted with

respirators when no fit was conducted.

This investigation led to multiple convictions, including conspiracy, violations of

immigration laws, wire fraud, and money

laundering. During this reporting period,

the remaining defendant pled guilty to a

pattern of violations of immigration laws

and was fined and placed on 

probation.

Joint Terrorism Task Force

We continued our participation on the

Joint Terrorism Task Force, which works

to investigate and prevent acts of terrorism. We have devoted one special agent

full-time to the task force, and have committed audit support on an as-needed

basis.
INVESTIGATIONS

TVA / OFFICE OF THE INSPECTOR GENERAL 21

Administrative and Disciplinary Actions

October 1, 1998 ~ September 30, 2003*

Total = 317

Oral/Written 

Warnings

23%

Suspensions/

Demotions/

Transfers

6%

Resignations/

Retirements/ 

Terminations

10%

Counseling/

Management 

Techniques

47%

Reemployment

Flagged

14%

*Prosecutive referrals are shown in Appendix 5.

Closed Cases by Area

April 1 ~ September 30, 2003

Total = 92 

Transmission/

Power 

Supply

7%

Other

24%

Fossil Power

30%

Human 

Resources

11%

TVA Nuclear

15%

River System 

Operations &

Environment

13%

Sources of Hotline Calls Warranting Further OIG Action 

April 1 ~ September 30, 2003

Total = 42

Contractor

Employees

10%

Other

2%

General Public

43%

Former TVA/

Contractor

Employees

7%

TVA Employees

38%
LEGISLATION AND REGULATIONS

22 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

We continued to follow issues of interest

to the IG community and to TVA, including legislation introduced in the House

and Senate to expand the size of the

TVA Board and proposals to deregulate

the electric utility industry. We believe

the pros and cons of this proposed legislation are being fully explored, and look

forward to working with both TVA and

Congress in these matters.

In part because this is the 25th anniversary of the IG Act, there has been

renewed discussion of possible ways to

improve the IG concept, including ensuring IG independence. Issues being discussed include set terms for IGs,

consolidation of smaller IG offices into

larger ones, and independent personnel

authority. We fully support continued

pursuit of ways to augment the IG concept, and have discussed these and

other suggestions both within the IG

community and with individual members

of Congress. We will continue to work

with the community and Congress to

ensure we have the best legislative backdrop to fulfill our mission to our agencies,

Congress, and the public.

We also are discussing the OIG budget

process with the TVA Board and members of Congress. We understand the

budgets for all other Presidentially

appointed IGs are included as a separate

appropriation account approved by

Congress. TVA maintains, however, that

the provisions of law which control the

budget process at other OIGs do not

apply to TVA as a wholly owned government corporation. While this Board has

been fully supportive of this office and

our budget, there is an appearance issue

where the head of the agency has control over the IG budget with no independent third-party review. We intend to

pursue this issue further to achieve a satisfactory resolution to ensure the process

for approving the OIG budget preserves

OIG independence in both fact and

appearance.
TVA / OFFICE OF THE INSPECTOR GENERAL 23

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24 SEMIANNUAL REPORT / APRIL 1 ∼ SEPTEMBER 30, 2003

APPENDICES
APPENDIX 1

TVA / OFFICE OF THE INSPECTOR GENERAL 25

Index of Reporting Requirements Under the Inspector General Act

REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 22

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 6-21

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies 6-21

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

Corrective Action Has Not Been Completed Appendix 4

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

That Have Resulted Appendix 5

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

and 6(b)(2)

Section 5(a)(6) Listing of Audit Reports Appendix 2

Section 5(a)(7) Summary of Particularly Significant Reports 9-21

Section 5(a)(8) Status of Management Decisions for Audit Reports Containing Questioned Costs Appendix 3

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

That Funds Be Put to Better Use Appendix 3

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

Reporting Period None

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

Section 5(a)(12) Significant Management Decisions With Which the Inspector General Disagreed None
APPENDIX 2

26 SEMIANNUAL REPORT / APRIL 1 

∼ SEPTEMBER 30, 2003

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2003-013C-01

04/01/2003 EPRI 501––Preaward

2003-013C-02

04/01/2003 EPRI Solutions––Preaward

2003-013C-03

04/01/2003 EPRI PEAC Corporation–– $11,000

Preaward

2003-013C-04

04/01/2003 Global Energy Partners, LLC––

Preaward

2003-033C-01

04/29/2003 PSC Safety and Health 

Services, Inc.––Preaward

2003-003C

06/17/2003 Page Clearing Contractors $367,649

2003-050C

06/27/2003 L.E. Myers––Preaward 

2003-051C

07/11/2003 Henkels & McCoy–– 6,200,000

Preaward

2003-021C

07/25/2003 Cleveland Automatic

Sprinklers, Inc.

2003-033C-02

07/28/2003 PSC Safety and Health 495

Services Inc.––Contract 

No. 00004366

2003-038C

08/05/2003 Temporary Living Allowance

Program

2003-027C

09/17/2003 Ferguson Harbour–– 3,455 $3,455

Contract No. 0002663

2002-082C

05/20/2003 Verizon Wireless 74,594

2002-080C

08/07/2003 L. E. Myers Company––Contract 1,461,817 1,254,039

No. 96P6G-156829-001

2003-035C

08/11/2003 Lockheed Martin––Preaward 740,000

2003-048P

08/12/2003 Voith Siemens Hydro––Chatuge

Delay Claim

CONTRACT
APPENDIX 2

TVA / OFFICE OF THE INSPECTOR GENERAL 27

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2003-011F

04/15/2003 Controls Over TVA’s Passport

Payments Not Associated With a

Contract or Purchase Order

2003-017F

04/15/2003 Fiscal Year 2003 First Quarter Financial 

Information

2003-032F

05/20/2003 Integrity of Generation Data Used to

to Estimate Unbilled Revenue

2003-030F

05/22/2003 Calculation of Selected Components

of the Transmission Tariff

2003-017F-01

06/09/2003 TVA’s Second Quarter Financial

Information

2003-028F

06/13/2003 TVA’s Nuclear Decommissioning

Liability

2003-052F

06/19/2003 TVA’s Compliance With the Green

Pricing Accreditation Program

Requirements for Calendar Year 2002

2003-015F

07/28/2003 Completed Plant Retirements

2003-019F-01

07/31/2003 RSO&E’s Indirect Cost Recovery

Rates

2003-017F-02

08/14/2003 TVA’s Third Quarter Financial

Information

2003-012P-02

06/09/2003 Accounting for Purchase Discounts

2002-043T-02

04/04/2003 Revenue from Sales of Electricity

for Fiscal Year 2002

FINANCIAL
APPENDIX 2

28 SEMIANNUAL REPORT / APRIL 1 

∼ SEPTEMBER 30, 2003

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2003-058F

09/15/2003 Financial Information Security

Management Act

2003-025P

08/12/2003 Electronic Coal Supply RFP

System

2003-014T

05/16/2003 Resource Access Control Facility

2002-092T

06/19/2003 Fixed Assets System General

Computer Controls

2003-012P-01

06/09/2003 Heavy Equipment Division 

Operations

2003-039P

09/16/2003 Process Standardization

TOTAL 34 $1,908,010 $1,257,494 $6,951,000*

* This figure includes funds identified in preaward audits of proposals for contracts that may not be awarded.

OPERATIONAL

INFORMATION TECHNOLOGY
APPENDIX 3

TVA / OFFICE OF THE INSPECTOR GENERAL 29

Audit Reports Issued With Questioned Costs

QUESTIONED COSTS

NUMBER TOTAL UNSUPPORTED

A. For which no management decision has been

made by the commencement of the reporting period 2 $136,786 $0

B. Which were issued during the reporting period 5 $1,908,010 $1,257,494

Subtotals of A and B 7 $2,044,796 $1,257,494

C. For which a management decision was made during

the reporting period 4* $214,835 $3,455

(i) Dollar value of disallowed costs 3 $137,299 $3,455

(ii) Dollar value of costs not disallowed 2 $77,536 $0

D. For which no management decision has been made by

the end of the reporting period 3 $1,829,961 $1,254,039

E. For which no management decision was made within

six months of issuance 0 $0 $0

* The total number of reports for which a management decision was made during the period differs from the sum of

C.(i) and C.(ii) when the same reports contain both costs disallowed and not disallowed by management.
APPENDIX 3

30 SEMIANNUAL REPORT / APRIL 1 

∼ SEPTEMBER 30, 2003

Audit Reports Issued With Recommendations for Better Use of Funds

NUMBER DOLLAR VALUE

A. For which no management decision has been

made by the commencement of the reporting period 0 $0

B. Which were issued during the reporting period 3 $6,951,000

Subtotals of A and B 3 $6,951,000

C. For which a management decision was made during

the reporting period 3* $6,951,000

(i) Dollar value of disallowed costs 3 $6,551,000

(ii) Dollar value of costs not disallowed 1 $400,000

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 for which a management decision was made during the period differs from the sum of

C.(i) and C.(ii) when the same reports contain both costs disallowed and not disallowed by management.
APPENDIX 4

TVA / OFFICE OF THE INSPECTOR GENERAL 31

Audit Reports With Corrective Actions Pending

Final corrective actions on recommendations in two preaward contract audits, four contract compliance audits, four

operational audits, two financial-related audits, and eight information technology audits had not been fully implemented

as of September 30, 2003; however, all are being implemented in accordance with currently established milestones.

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2000-012P TVA’s Affirmative Procurement Plan for Items Containing Recovered Materials

01/09/2002 This report included recommendations to clarify several provisions in TVA’s Affirmative

Procurement Plan and to ensure documentation is maintained to support waivers from the

revised plan. TVA will be issuing a revised plan to address these issues shortly.

2000-026C-01 Adecco Technical

04/02/2001 This report contained a recommendation to implement electronic data processing to collect

hours and rates billed for staff augmentation services and evaluate systems to determine how

to best meet these data processing needs. Representatives from several TVA organizations are

implementing reengineered processes for managing TVA’s contract workforce. A recommendation for enabling technology in contract workforce management is expected in October 2003.

2000-030P TVA’s Active Employee Medical Plan Eligibility

08/13/2002 This report contained recommendations to pursue recovery of ineligible payments and 

strengthen eligibility-related processing controls. TVA management has completed action on

the pursuit of ineligible payments but has not yet established a timetable for completing

enhanced dependent updating capability.

2001-032F Internal Controls Over Real Estate Transactions

11/07/2001 This report included recommendations to institute an updated land management business

practice and revise, update, and/or integrate processes and systems to facilitate better 

communication among TVA organizations. TVA management will complete actions addressing

these recommendations in early October 2003.

2001-064T Hydro Automation Security––HDCC

12/21/2001 This report included recommendations to upgrade firewall hardware and software, upgrade

server and operating system security, and develop and implement policies and procedures to

address access authorization, intrusion detection, program change control, and contingency

planning and disaster recovery. All recommendations have been implemented with the exception of the change control procedure. Change control procedures will be implemented by the

end of June 2004.

2001-074T Application Review of Pegasys

01/07/2002 This report contained recommendations regarding facility access control. TVA has implemented

temporary controls to address some of the audit findings until it decides whether to upgrade or

replace the existing system. A decision on the system should be made by the end of

December 2003.

2001-087C Canberra Industries

04/30/2002 This report included recommendations to recover ineligible costs and improve contract administration. TVA has taken action to address the contract administration issues. Although TVA is

negotiating with the contractor on settlement of ineligible costs, the contractor has not yet

agreed.

2002-004C-01 Electric Power Research Institute

07/24/2002 This report included recommendations to strengthen contract terms in several areas and

improve recordkeeping of costs incurred by the contractor. Although TVA is negotiating with

the contractor to try and incorporate recommended changes in the contract, the contractor has

not yet agreed.
APPENDIX 4

32 SEMIANNUAL REPORT / APRIL 1 

∼ SEPTEMBER 30, 2003

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2002-012T-01 Nuclear Facility Access Control Systems Security––Sequoyah Nuclear Plant

10/25/2002 This report contained recommendations regarding facility access control. TVA is implementing

these recommendations and plans to complete final action by the end of October 2003.

2002-013T Customer Portal Control Assessment

07/24/2002 This report included recommendations to improve user authentication, upgrade server authentication controls and operating system security, upgrade firewall software, and develop methods

for regular reviews of firewall security logs. TVA IS implemented a security product to provide

authentication and authorization services for the Customer Portal. TVA management is testing a

new infrastructure and software to replace the Customer Portal, with delivery expected in

October 2003.

2002-017T Hydro Automation––Dams

06/25/2002 This report included recommendations to protect computer equipment from water damage,

ensure that computers comply with guidelines, document a contingency plan, develop and

implement a formal software change control procedure, and strengthen firewall access authorization and administration. All recommendations have been implemented with the exception of

the change control procedure. Change control procedures will be implemented by the end of

June 2004.

2002-025T Security of Windows 2000/Windows XP

08/07/2002 This report contained recommendations to strengthen environmental and logical controls of

TVA’s implementation of Windows 2000 and Windows XP. TVA management agreed with and is

implementing recommendations through (1) an IT security policy and program management plan

which have been issued, (2) implementing procedures now awaiting final review by organizational security officers, and (3) reviews of physical security at some sites. The implementing procedures and physical security reviews are expected to be completed by the end of December

2003.

2002-043T-01 Power Billing System Security and Application Controls

01/06/2003 This report included recommendations to improve physical and logical controls, ensure only

authorized changes are made to computer programs, and develop and test formal contingency

plans. TVA management agreed with and is implementing corrective action to address these

recommendations.

2002-045V Laroche Industries, Inc.––Preaward

02/07/2003 This report contained recommendations to disallow the current supplier’s requested price

increase and review the pricing method included in the contract. TVA Procurement established

a Joint Project Team to review the issues. TVA continues to pay the questioned price increase

to the current supplier, but is in the process of negotiating with other suppliers for a pricing

arrangement that would be more favorable to TVA.

2001-091P Capital Project Results

09/05/2002 This report included recommendations to define estimate types and their expected reliability;

require organizations to provide supporting documentation for funding requests in advance of

quarterly Project Review Committee meetings; and consider revising the Project Justification

System database to incorporate “real time” data, including completed project information.

Management has prepared a procedure addressing these recommendations. Review and

approval of the procedure is expected by the end of October 2003 with procedure issuance

shortly thereafter.
APPENDIX 4

TVA / OFFICE OF THE INSPECTOR GENERAL 33

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2002-051T IT Store

09/27/2002 This report contained recommendations to strengthen IT Store purchase approval controls. TVA

management has drafted new standard program/process documents to address the IT Store

procurement process, and they will be published following final approval by Chief Operating

Officer management.

2002-051V Investment Recovery’s Program for GSA Materials Redeployment

03/26/2003 This audit included recommendations to determine the value of property received subject to

reimbursement or appropriation investment provisions of the TVA Act, limit the uses of GSA surplus property to those which are consistent with GSA rules, correct the weaknesses of a personal services contract forming a bartering arrangement, and improve the process for tracking

property obtained through the GSA program. Management agreed with all our findings.

Management is negotiating with GSA to determine an appropriate reimbursement, has reevaluated the process for future GSA acquisitions, has discontinued the bartering agreement, and

updated the GSA database addressing discrepancies.

2002-071C Diversified Pharmaceutical Services, Inc.

03/19/2003 This report contained recommendations to pursue recovery of ineligible payments. TVA management has negotiated a settlement agreement with the contractor and is in the process of

collecting the funds.

2002-075E Integrity of Selected Fossil Power Data Input Into Model KW3000

03/03/2003 This report included recommendations to improve the integrity of selected fossil data used in

TVA’s energy trading decision support model. TVA management initiated actions on all recommendations and has either completed or is in the process of completing actions to address the

recommendations.

2003-005C Numanco LLC––Labor Markup Rates––Preaward

11/19/2002 We reviewed the salary burden proposals submitted by two competing contractors to provide

staff augmentation services for the BFN Unit 1 recovery. We found the burden rates proposed

by one contractor included overstated taxes, insurance, and overhead costs. Based on our

suggestions, TVA management negotiated reduced rates that should save TVA up to $408,000

over the five-year contract period. We also found the overall burden rate proposed by the other

contractor was not materially misstated. Following the end of this reporting period, TVA management resolved the last issue by issuing a contract supplement with lower insurance burden

rates based on actual contractor insurance costs.
APPENDIX 5

34 SEMIANNUAL REPORT / APRIL 1 

∼ SEPTEMBER 30, 2003

Investigative Referrals and Prosecutive Results*

Referrals

Subjects Referred to U.S. Attorneys 63

Subjects Referred to Other Agencies for Investigative or Administrative Action 2

Results

Subjects Indicted4

Subjects Convicted 10

Referrals Declined 35

As a result of our investigations, OWCP reduced benefits for one former employee, resulting in a

projected savings of $526,887 over the individual’s lifetime and declared a forfeiture of $45,898 

in benefits received by another individual.

* The numbers below include task force activities.
HIGHLIGHTS

TVA / OFFICE OF THE INSPECTOR GENERAL 35

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

2003 2003 2002 2002 2001

ANNUAL BUDGET (In Millions of Dollars) $8.5 8.5 8.0 8.0* 8.6

CURRENT STAFFING 78 84 87 86 86

AUDITS IN PROGRESS

Carried Forward 38 35** 33 38 45

Started 41 41 44 43 44

Canceled (8) (4) (4) (8) (4)

Completed (34) (34) (40) (40) (47)

In Progress at End of Reporting Period 37 38 33 33 38

AUDIT RESULTS (Thousands)

Questioned Costs $1,908 $1,125 $3,816 $1,780 $3,519

Disallowed by TVA 137 989 911 267 1,236

Recovered by TVA 3,499 221 387 225 1,634

Funds to Be Put to Better Use $6,951 $34,755 $52,037 $31,874 $10,401

Agreed to by TVA 6,551 37,969 44,944 6,069 10,155

Realized by TVA 0 38,172 16,014 6,090 8,277

NONAUDIT SERVICES

Completed 15 36 16 12 0

Cost Savings Identified/Realized (Thousands) 00000

INVESTIGATION CASELOAD

Opened 100 87 78 93 94

Closed 92 75 89 114 120

In Progress at End of Reporting Period 135 127 115 126 147

INVESTIGATIVE RESULTS (Thousands)

Recoveries $100 $879 $961 $233 $5,862**

Savings 875 366 8 1,175 542

Fines/Penalties 421 56 86 0.1 114**

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 21 15 18 22 13

Actions Taken (# of Subjects) 24 16 7 6 8

Counseling/Management

Techniques Employed (# of Cases) 21 16 24 15 3

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 63 12 19 5 13

Indicted 46955

Convicted 10 4437

* Reduction represents the transfer of certain benefit costs to corporate rather than organizational 

expense accounts.

** Adjusted from previous reporting period.

*** The numbers below include task force activities.

AUDITS & SPECIAL PROJECTS

INVESTIGATIONS***
For additional information, see our Web site at oig.tva.gov

Contact the OIG Hotline

1-800-323-3835

Contact the OIG Hotline

1-800-323-3835

To report:

• Contract or computer fraud

• Computer misuse or crimes

• False statements or false 

claims

• Irregularities in financial 

reporting

• Conflicts of interest and other 

ethics violations

• Travel fraud 

• Theft or misuse of TVA 

property

• Management reprisal

• Workers’ compensation fraud

• Bribery, kickbacks, or 

gratuities

• Health care fraud

• Environmental, health, and 

safety violations

For additional information, see our Web site at oig.tva.gov

Contact the OIG Hotline

1-800-323-3835

Contact the OIG Hotline

1-800-323-3835

To report:

• Contract or computer fraud

• Computer misuse or crimes

• False statements or false 

claims

• Irregularities in financial 

reporting

• Conflicts of interest and other 

ethics violations

• Travel fraud 

• Theft or misuse of TVA 

property

• Management reprisal

• Workers’ compensation fraud

• Bribery, kickbacks, or 

gratuities

• Health care fraud

• Environmental, health, and 

safety violations

Tennessee Valley Authority

Office of the Inspector General

Tennessee Valley Authority

Office of the Inspector General

Help Track Down Fraud,

Waste, and Abuse at TVA

Help Track Down Fraud,

Waste, and Abuse at TVA
The OIG Vision:

. . . illuminating today’s challenges 

and tomorrow’s solutions . . .

OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401