Office of the Inspector General fice of the Inspector General

Semiannual Report

October 1, 2005 ~ March 31, 2006

Tennessee Valley Authority
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,

inspections, and investigations.

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.
Tennessee Valley Authority

Office of the Inspector General

Message From the Inspector General

This is my first report to TVA’s newly constituted Board since the new Board members were sworn in on

March 31, 2006. Legislation signed by President Bush in 2004 expanded the Board from three full-time 

members to nine part-time members, with a full-time chief executive officer to run TVA on a day-to-day basis. As

has been noted by many, this is a historic change to the governance structure of TVA. 

The impetus for this change was a growing sentiment over the years that TVA’s governance structure

had become anachronistic. For 73 years, TVA was managed by three full-time board members. United States

Senate Majority Leader Bill Frist, who introduced and helped secure passage of the restructuring legislation, has

commented that the change is a matter of “common sense.” As the nation’s largest public utility, TVA will now

have a corporate structure similar to that of its competitors. The hope is that the new governance structure will

help position TVA to compete on a level playing field if as expected the traditional “fence” that has historically

protected TVA’s market disappears. 

The focus of this governance change is accountability. We also focus on accountability as well as 

economy and efficiency. The OIG performs audits, inspections, and investigations that are designed to assist

TVA in achieving its mission of providing affordable, reliable power, being a good steward of the environment, and

fostering economic development. The work highlighted in this report is indicative of the efforts we take to help

TVA achieve its goals. I am pleased to report that my experience has been that TVA management works 

collaboratively with the OIG and conscientiously implements our recommendations. There is a demonstrable

commitment to excellence at TVA. 

I offer my sincere congratulations to the new board members and acting Chief Executive Officer Tom

Kilgore. I want to extend my personal thanks to Directors Harris and Baxter who have demonstrated a 

commitment to supporting an independent OIG at TVA. I look forward to experiencing the same spirit of 

cooperation and partnership with the new board members. 

The challenges facing TVA are great, but the honor to serve the citizens of the Tennessee Valley is even

greater. On this historic occasion, the OIG renews our pledge to provide independent, objective, and competent

reports as TVA moves forward into a new era. 

Richard W. Moore

Inspector General

April 28, 2006
Table of Contents

TVA Office of the Inspector General

Executive Summary 1

TVA Profile 3

Office of the Inspector General 4

Special Feature 11

Audits 15

Inspections 22

Investigations 28

Legislation and Regulations 37

Appendices 38

Appendix 1 Index of Reporting Requirements Under the Inspector General Act 39

Appendix 2 Audit Reports Issued 40

Appendix 3 Audit Reports Issued With Questioned Costs and Recommendations for Better Use of Funds 42

Appendix 4 Audit Reports With Corrective Actions Pending 44

Appendix 5 Investigative Referrals and Prosecutive Results 46

Highlights 47
Executive Summary

page 1 October 1, 2005 ~ March 31, 2006

During this reporting period, we continued to support TVA by conducting objective

audits, inspections, and investigations. 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 $6 million in recoveries,

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

better use, as outlined in the chart below. 

STATISTICAL HIGHLIGHTS

October 1, 2005 ~ March 31, 2006

Audit Reports Issued 22

Questioned Costs $774,000

Funds Recovered $1,641,000

Funds Put to Better Use $700,000

Funds Realized by TVA $740,000

Investigations Opened 80

Investigations Closed 71

Fines/Recoveries/Restitution/Savings $4,598,189

Criminal Actions 6

Administrative Actions (No. of Subjects) 9

Inspections Completed 14

Our 22 audits and 11 other audit-related projects during this reporting period resulted in

questioned costs and the identification of areas for improvement. Highlights include

(1) contract audits which identified over $770,000 in questioned costs and $700,000 in

funds which could be put to better use, (2) information technology (IT) audits which

identified needed control improvements, and (3) financial-related and operational

reviews which found most internal controls were adequately designed to mitigate risks,

but identified opportunities to improve control effectiveness. TVA management used

information from our audits to recover or disallow about $1.6 million and negotiated

about $740,000 in contract cost savings.
Executive Summary

TVA Office of the Inspector General page 2

Our Inspections unit is now fully operational. That unit completed 14 projects which

identified several opportunities for improved program operations. Inspection topics

included the process and controls for emissions data reporting, tool control programs,

and purchasing card usage.

Investigations highlights include recoveries or avoided costs which in total exceeded

$2.4 million from false claims and workers’ compensation investigations alone. In 

addition, we continued our fraud prevention efforts, including fraud risk assessments

across TVA programs, which led to strengthened internal controls in several TVA

processes. We also continued our participation on interagency task forces and 

activities to develop more proactive investigative initiatives.

We undertook several initiatives during this reporting period to improve communications

with our stakeholders. Highlights include (1) the outsourcing and adoption of a new

hotline program, Empowerline; (2) issuance of an OIG newsletter, OIG Connection; and

(3) visits by the Inspector General (IG) to TVA plant sites. 

Definitions

Questioned Costs - Costs that

are unnecessary, unreasonable, 

unsupported, or an alleged 

violation of law, regulation, 

contract, etc.

Unsupported Costs - Questioned

costs that are not supported by

adequate documentation.

Funds Put to Better Use - Funds

that could be used more 

efficiently by implementing 

recommended actions.

Disallowed Costs - Costs that 

management agrees should not

be charged to TVA.
TVA Profile

On March 31, 2006, six new members of TVA’s Board of Directors were sworn in. This

marked a change after 73 years from a full-time, three-member board to a part-time

nine-member board. In stepping down as chairman, Bill Baxter said it was important to

elect a new board chairman and have a symbolic break from the past. Bill Sansom

was selected as the new chairman. Highlights of TVA history and operations follow.

 On May 18, 1933, Congress passed the TVA Act, creating TVA as a federal 

corporation. TVA’s threefold mission includes power production, environmental

stewardship, and economic development.

 TVA, as the nation’s largest public power company, operates 11 fossil plants, 29

hydroelectric dams, 3 nuclear plants, 6 combustion turbine plants, a pumpedstorage facility, and 17,000 miles of transmission lines. TVA also produces energy

from three renewable sources––sun, wind, and methane gas from waste. The TVA

service area 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. By providing wholesale power to 158 municipal and cooperative power distributors and directly serving 62 large industries and government 

installations in the Valley, TVA supplies the energy needs of 8.5 million people.

 As a regional development agency, TVA not only supplies affordable, reliable power,

but also supports a thriving river system and stimulates sustainable economic 

development in the public interest. TVA manages the nation’s fifth largest river 

system. TVA dams are part of a totally integrated resource management system for

a 41,000-square-mile watershed. Each dam operates in relationship to the others

for multiple purposes and public benefits, including flood control, maintaining 

navigation, providing recreational opportunities, and protecting water quality.

 TVA contributes to the Valley economy chiefly by keeping power rates competitive.

This 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.

page 3 October 1, 2005 ~ March 31, 2006
Office of the Inspector General

TVA Office of the Inspector General page 4

Office Authority

Created by the TVA Board of Directors in 1985, the TVA OIG became statutory under

the IG Act Amendments of 1988. 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. The TVA IG is independent of TVA management and subject only to the

general supervision of the TVA Board. 

OIG RESPONSIBILITIES

 Promote economy and efficiency while preventing and detecting fraud, waste, and

abuse.

 Conduct and supervise audits and investigations relating to TVA programs and 

operations.

 Keep the TVA Board and Congress fully and currently informed concerning fraud and

other serious problems, abuses, and deficiencies relating to TVA programs and 

operations.

 Recommend corrective actions concerning problems, abuses, and deficiencies, and

report on the progress made in implementing such actions.

 Assure any work performed by non-federal auditors complies with government 

auditing standards.

 Issue semiannual reports to TVA Board and Congress.

OIG AUTHORITIES

 Conduct any audit or investigation the IG deems necessary or desirable.

 Have access to all records and other material available to TVA.

 Issue subpoenas and administer oaths.
Office of the Inspector General

 Receive complaints and grant confidentiality.

 Have direct and prompt access to the TVA Board.

 Hire employees and contract for services as necessary.

Organization

The OIG’s primary location is in the TVA headquarters office complex in Knoxville,

Tennessee. To obtain broader coverage throughout the Valley, the OIG also has an

Inspections unit located in Chattanooga, Tennessee, and Investigations offices at the

Browns Ferry Nuclear Plant (BFN) in Alabama, in Mayfield, Kentucky, and in

Chattanooga. The OIG consists of two primary components: (1) Audits and

Inspections and (2) Investigations.

OIG STRATEGIC PLAN

VISION

To be a highly effective organization that promotes positive change by identifying 

opportunities for improvements in the performance and efficiency of TVA’s programs

and operations.

MISSION

Promote excellence in TVA’s operations through the conduct of investigations, audits,

inspections, and advisory services designed to promote economy, efficiency, and 

effectiveness and prevent and detect fraud, waste, and abuse.

LEADERSHIP PHILOSOPHY

The TVA OIG strives to be a high performing organization made up of dedicated 

individuals who are empowered, motivated, competent, and committed to producing

high quality work that improves TVA and life in the Valley. Each of us has important

leadership, management, team, and technical roles. We value integrity, people, open

communication, expansion of knowledge and skills, creative problem solving, and 

collaborative decision-making.

page 5 October 1, 2005 ~ March 31, 2006
Office of the Inspector General

TVA Office of the Inspector General page 6

CORE VALUES

Independence. OIG will strive to be independent in both fact and appearance in

the performance of its duties.

Integrity. OIG employees will adhere to the highest ethical standards in the 

performance of their duties and responsibilities.

Quality. OIG will complete projects in a manner that meets applicable professional

standards, as well as meeting customer expectations.

Respect for Individuals. OIG will treat everyone, including stakeholders and peers,

with respect and consideration.

Results. The ultimate goal of the OIG will be to provide the maximum results 

possible to the agency in order to affect positive change.

Innovation. OIG employees will be encouraged to seek innovative ways to improve

the impact the OIG has on the agency in a manner that does not sacrifice quality.

Teamwork. OIG employees will work cooperatively with one another and with

employees in other organizations in order to achieve successful accomplishment of

the OIG mission.

Initiative. OIG employees will demonstrate the highest levels of initiative to ensure

discretionary time is utilized to the fullest benefit of the OIG.

Leadership. Leadership functions will be the responsibility of all employees.

Communication. OIG employees will strive to continuously improve 

communications by holding each other accountable for ensuring important 

information is shared and sensitive information is protected.
Office of the Inspector General

page 7 October 1, 2005 ~ March 31, 2006

STRATEGIC GOALS

STRATEGIC OBJECTIVES

AUDITS AND INSPECTIONS

Audit Operations (AO) conducts and/or supervises comprehensive financial and 

performance audits of TVA programs and operations. Based upon the results of such

audits, AO makes recommendations to ensure that program objectives and operational

functions are achieved effectively and efficiently. AO develops an annual audit plan to

effectively allocate audit resources. The audit plan addresses those issues, programs,

operations, and activities that hold the greatest exposure for TVA to significant risks

and/or vulnerabilities. 

AO consists of three departments––Contract Audits, Financial/Operational Audits, and

IT Audits. 

PERFORMANCE

Perform timely

reviews that

address 

stakeholder 

concerns and

areas of highest

risk

WORKFORCE

Cultivate and

retain a highly

skilled, 

innovative, and

motivated 

workforce

STAKEHOLDER

Effectively 

communicate with

stakeholders and

deliver services

that meet their

needs

 Focus efforts on areas

of highest impact and

risk

 Ensure processes are

efficient and effective

 Maintain highest levels

of quality

 Stay abreast of 

emerging issues and

industry trends

 Stay abreast of 

stakeholder concerns

 Continue to develop 

innovative methods for

fraud detection

 Hire and retain the

best

 Manage pay to stay 

competitive with target

market

 Develop staff to

achieve the highest

level of capabilities

 Motivate staff to excel

 Ensure accountability

in individual 

performance

 Promote a 

balanced lifestyle

 Manage stakeholder 

perceptions of the

OIG to promote

(1) high credibility, 

(2) independence and

objectivity, and

(3) responsiveness to

needs

 Improve stakeholder

awareness of OIG

 Ensure stakeholders

are kept informed

 Ensure stakeholders

have an opportunity to

provide input in the

annual audit planning

process and each

individual review, as 

appropriate

 Increase effectiveness

of OIG hotline
Office of the Inspector General

TVA Office of the Inspector General page 8

 Contract Audits has lead responsibility for contract compliance and

preaward audits. In addition, this group performs reviews of TVA 

contracting processes and provides claims assistance and litigation 

support. 

 Financial/Operational Audits has lead responsibility for (1) oversight of

TVA’s financial statement audits performed by TVA’s external auditor;

(2) reviews of TVA’s internal controls related to financial reporting, 

operational efficiency, and compliance with laws and regulations; and (3) operational

reviews to assess the results and economy and efficiency of TVA programs.

 IT Audits has lead responsibility for audits relating to the security of TVA’s IT 

infrastructure, application controls, and general controls associated with TVA 

systems. This group also performs operational reviews of the effectiveness of 

IT-related functions. In addition to its audit mission, IT Audits is responsible for

developing and supporting an independent OIG computer network.

The Inspections unit was formed at the beginning of fiscal year (FY) 2004. Inspections

provides flexibility to conduct limited scope policy and program evaluations to promote

economy and efficiency in the management and administration

of TVA programs. In accordance with the Quality Standards for

Inspections, the objectives of the Inspections unit include 

providing a source of factual and analytical information, 

monitoring compliance, measuring performance, assessing the

efficiency and effectiveness of operations, and/or conducting

inquiries into allegations of fraud, waste, abuse, and 

mismanagement.
Office of the Inspector General

page 9 October 1, 2005 ~ March 31, 2006

INVESTIGATIVE OPERATIONS

Investigative Operations (IO) conducts and coordinates investigative activity

related to fraud, waste, and abuse in TVA programs and operations. The

activities investigated include possible wrongdoing by contractors, employees,

and loan recipients. IO maintains liaisons with federal and state prosecutors

and reports to the Department of Justice whenever the OIG has reasonable

grounds to believe there has been a violation of federal criminal law. IO works

with other investigative agencies and organizations on special projects and

assignments, including interagency law enforcement task forces on terrorism, the 

environment, and health care.

VISITS FROM OTHER OIGS

Cliff Jennings, IG for the Appalachian Regional Commission (ARC), visited our office on

November 19, 2005. Mr. Jennings presented Curtis Phillips, Investigations Manager,

and Craig Yates, Senior Special Agent, with Special Achievement Awards for their

assistance in a criminal investigation for ARC. 

On November 30, 2005, Debra S. Ritt, Smithsonian IG; Sprightly Ryan, Assistant

Inspector General (AIG) Investigations and Legal Counsel; and Stuart Metzger, AIG

Audit, visited to discuss our innovative processes such as fraud risk assessments,

Sarbanes-Oxley work, and Empowerline. 

Pictured from left to right: Debra Ritt, Stuart Metzger, Sprightly Ryan,

and TVA IG Richard Moore

Pictured from left to right: Cliff Jennings and Craig Yates
Office of the Inspector General

TVA Office of the Inspector General page 10

Inspector General

Legal Counsel

Assistant Inspector

General

(Audits &

Inspections)

Human

Resources

Manager

Media

Relations

Assistant Inspector

General

(Investigations)

Contract Audits

Manager

Financial/

Operational

Audits Manager

Audit Quality

Manager

Information

Technology

Audits Manager

Investigations

Manager 

Investigations

Manager

Deputy

Assistant

Inspector

General

(Inspections)

Contacts

Inspector General

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

Legal Counsel

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

Assistant Inspector General (Audits &

Inspections)

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

Deputy Assistant Inspector General

(Inspections)

Gregory C. Jaynes . . . . . . . . . . .(423) 751-7821

Assistant Inspector General (Investigations)

Charles A. Kandt . . . . . . . . . . . .(865) 632-4120

Assistant Inspector General (Administration

& Government Relations)

Ronald Wise . . . . . . . . . . . . . . . .(865) 632-4752

Audit Quality Manager

Paul E. Ivie . . . . . . . . . . . . . . . .(865) 632-3891

Contract Audits Manager

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

Financial/Operational Audits Manager

Louise B. Beck . . . . . . . . . . . . .(865) 632-2622

Information Technology Audits Manager

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

Investigations Manager

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

Investigations Manager

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

Human Resources Manager

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

OIG Media Relations

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

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

Assistant Inspector

General

(Administration &

Government

Relations)
OIG Outreach Efforts to Improve Communications

To be fully effective, the OIG needs the support and cooperation of TVA management

and employees. Effective communications are a key element in establishing this 

relationship. While we are pleased with the current level of support and cooperation we

receive, we believe we can do a better job of communicating with our stakeholders.

Toward that end, we have undertaken or expanded several initiatives, including 

(1) issuing an OIG newsletter called OIG Connection, (2) revamping our hotline, now

called “Empowerline,” (3) visiting plant sites, and (4) posting reports on the OIG web

page.

OIG NEWSLETTER

The OIG developed and issued a quarterly OIG newsletter, the

OIG Connection, to improve understanding of the OIG role. The

first issue was sent to TVA and contractor employees during

January 2006. That issue described Empowerline, OIG 

independence, the IG, and how employees can help the OIG do

its job.

Special Feature

page 11 October 1, 2005 ~ March 31, 2006
Special Feature

TVA Office of the Inspector General page 12

EMPOWERLINE 

A review of hotlines at other private and public companies and other information

showed we needed to make the OIG reporting system more

convenient, and we needed to do a better job of 

communicating OIG’s independence and purpose. We also

determined that employees and contractors wanted 

additional assurance that they may choose to remain 

anonymous when they contact the OIG. To meet these

needs, we decided to contract out and redesign our hotline.

Accordingly, we contracted with a third party to operate the

hotline, now called “Empowerline,” and established a new

system whereby individuals can contact Empowerline by telephone or through the web. 

New and enhanced features of Empowerline include the following:

 Because not everyone can call between 8 a.m. and 5 p.m. weekdays––the usual

business hours––Empowerline will be staffed 24 hours a day, seven days a week to

receive concerns. 

 Individuals who call Empowerline will talk with a third-party contractor to provide 

further assurance that no one at TVA will know the caller’s identity unless they 

consent to disclosure. 

 Individuals will be given a protected password when they contact Empowerline.

They can use the password to track the resolution of their concern and, if they

reported a concern anonymously, to check for any follow-up questions the OIG may

have. 

 Empowerline will provide detailed trending and tracking data to the OIG to identify

potential problem areas based on the numbers and types of concerns. 

 Empowerline’s web page provides information about the types of concerns which

should be reported to the OIG and contact information about where to report other 

TVA-related concerns. 
Special Feature

page 13 October 1, 2005 ~ March 31, 2006

IG VISITS PLANT SITES

The IG personally kicked off an initiative to open a dialogue with TVA employees when

he attended all-hands meetings during February and March at the Kingston, John

Sevier, and Johnsonville Fossil Plants. The plant managers were

fully supportive of these visits, and the IG plans to visit as many

plant sites as he can over the coming year. 

The OIG is reaching out to plant personnel because the OIG 

cannot be truly effective unless employees feel free to express

concerns to the OIG. The OIG relies heavily on employees who

are on the front lines to identify areas where a more in-depth

review, such as an audit or 

investigation, might help TVA. The all-hands meetings

provide an opportunity to discuss the OIG’s role and

responsibilities and encourage employees to call

Empowerline. These visits by the IG help ensure

employees understand that Empowerline provides a

vehicle for them to report concerns anonymously or in

confidence, and that the OIG values their input. It also

provides an opportunity to remind plant employees that

specific special agents––who generally attend the all-hands meetings––have been 

designated for each TVA facility. 

IG Richard Moore (left), Laborer James Perkins of

Johnsonville (center), and AIG for Investigations 

Charles Kandt (right)

Plant Manager Earl Deskins (right) gave Richard Moore

(left), OIG contractor Jack Brennan (center left), and

Charles Kandt (center right) a tour of Kingston

Left to right: Assistant Unit Operator Bobby McFalls, Unit Operator Mike

Hoag, Richard Moore, Assistant Unit Operator Jeff McGahee, Unit Operator

John Antrican, and Unit Operator Phil Davis at John Sevier
Special Feature

TVA Office of the Inspector General page 14

POSTING AUDIT AND INSPECTION REPORTS

We have begun posting some final audit and inspection reports on the OIG web page,

either in summary form or in their entirety (after redacting information which would be

withheld under the Freedom of Information Act). This practice is consistent with the

practice of other presidentially appointed IGs and guidance suggested by the

President’s Council on Integrity and Efficiency (PCIE). We will not, however, be posting

even a summary of certain audits, such as security reviews and preaward audits,

because of their special sensitivity.
Audits

page 15 October 1, 2005 ~ March 31, 2006

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 22 audits which identified

over $770,000 in questioned costs and $700,000 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) financial-related audits,

(3) IT audits, and (4) operational audits. We also completed 11 other audit-related 

projects.

PREAWARD CONTRACT AUDITS

To support TVA management in negotiating procurement actions, we completed two

preaward audits that identified $700,000 in potential savings opportunities. Highlights

of the preaward audits follow.

 We reviewed a contractor’s indirect costs to determine if the cost recovery rates

included in the contract with TVA for providing engineering, material supply, and

installation support for automating TVA’s hydro system were fairly stated. We 

determined a direct labor markup included in the contract was overstated based on

the company’s historical costs and estimated TVA would save about $99,800 by

negotiating a markup based on the historical costs. TVA management used the

findings from our audit to negotiate reductions in the contract’s indirect cost recovery

rates.

 We reviewed a contractor’s proposal to provide flue gas desulfurization process

equipment and related engineering services for scrubber efficiency improvement

solutions for TVA’s fossil plants under a five-year contract with estimated 

expenditures of $50 million. We determined the contractor’s cost proposal was fairly

stated in comparison to recent actual costs. However, the contractor’s salary 

burdens included cost allowances for bid and proposal expenses that we estimated
Audits

TVA Office of the Inspector General page 16

would cost TVA $600,000 over the five-year contract period. We suggested TVA

negotiate reduced salary burdens to eliminate the bid and proposal expenses and

instead pay for these expenses directly. The potential savings to TVA would depend

on the amount of bid and proposal expenses billed directly to TVA. TVA

Procurement subsequently informed us the bid and proposal expenses had been

eliminated as indirect costs and the salary burdens had been reduced accordingly. 

CONTRACT COMPLIANCE AUDITS

During this reporting period, we completed five contract compliance audits that 

identified $774,247 in ineligible and unsupported costs. Highlights of the audits follow.

 We determined a contractor that provided selective catalytic reduction catalyst

(1) understated a material cost adjustment due TVA by $5,933 and (2) could not 

provide verifiable documentation of the material weights used in its catalyst 

production. TVA management subsequently recovered the overbilled cost.

 We reviewed adjustments to provisional billings of indirect costs submitted by a 

contractor providing nuclear security services and determined the contractor’s

adjustments for calendar years 2002 through 2004 were overstated $80,615 due to

errors in its reconciliation of previously billed costs. We also determined the 

contractor owed TVA additional credits totaling $28,829. The contractor agreed with

our findings and submitted adjusted invoices that included credit for the questioned

amounts.

 We determined 23 percent of the $18.4 million in payments TVA made to a 

contractor that provided chemicals and water treatment services during FY 2004

were authorized without proper receipt. Although the prices billed generally 

complied with the contract, we noted $6,266 of overbillings and estimated that TVA

paid $322,579 for unsupported prices. TVA management agreed to implement

more effective controls over receipt, recovered the $6,266 overbilling, and plans to

obtain appropriate documentation for the unsupported prices.
Audits

page 17 October 1, 2005 ~ March 31, 2006

 We reviewed $5.1 million of costs billed to TVA by a contractor for welding services

performed at Browns Ferry Nuclear Plant (BFN) Unit 1 by one of its subcontractors.

We determined TVA had been billed $295,067 for (1) per diem payments that

exceeded contract per diem limits; (2) ineligible and unsupported per diem, 

relocation, and equipment costs; and (3) ineligible fees. TVA management agreed

with our audit findings and plans to take action to recover the overbilled amounts

from the contractor.

 We determined TVA had been overbilled $34,958 out of $64.5 million of costs billed

to TVA by a contractor for engineering services performed at BFN Unit 1 by one of

its subcontractors. The overbilling included (1) $20,243 of per diem payments that

had not been approved by TVA; (2) $8,019 of relocation payments made to an

employee who had already been paid to relocate to BFN by another contractor;

(3) $3,623 of travel expenses that were either ineligible, over contractual limits, or

should have been included in overhead; and (4) $3,073 of fees that should have

been credited back to TVA. TVA management subsequently recovered $16,235 of

the questioned costs.

OTHER CONTRACT-RELATED PROJECTS

We issued four notifications to TVA management regarding issues we found during 

limited reviews of certain contracts. The issues included (1) contractor invoicing of 

ineligible administrative charges, (2) duplicate cost billings, (3) unclear pricing terms in a

contract, and (4) contractor pricing that did not comply with contractual provisions. 

We also provided advice to TVA management regarding (1) evaluations of cost 

proposals received for a planned maintenance and modifications contract and (2) audit

clauses for a benefits contract. 
Audits

TVA Office of the Inspector General page 18

FINANCIAL-RELATED AUDITS

During this semiannual period, we completed seven financial-related audits, two 

attestation engagements, and interim testing of controls for twelve financial reporting

processes to assist with TVA’s initiative to comply with Section 404 of the SarbanesOxley Act (SOX). Highlights of the audits follow.

 The external auditor, PricewaterhouseCoopers LLP (PwC), issued an unqualified

opinion on TVA’s FY 2004 and FY 2005 financial statements on November 17, 2005.

On that date, PwC also issued a combined report on its consideration of TVA’s 

internal control over financial reporting and compliance with certain provisions of

laws and regulations for the year which ended September 30, 2005. In meeting our

statutory responsibility for the financial statement audit, the OIG (1) assessed the

external auditor’s methodology, evidence, and documentation; (2) performed 

supplemental tests of accounting records and compared the results to those of the

external auditor; and (3) examined the independence and qualifications of the 

external auditor. We determined the financial statement audit was performed in

accordance with Government Auditing Standards in all material respects.

 We found no instances where TVA’s external auditor’s review of TVA interim financial

information for the first quarter of FY 2006 did not comply with Government Auditing

Standards in all material respects, including required communications to appropriate

parties.

 We assessed controls over time reporting and determined process control 

documentation was inadequate in establishing responsibility for ensuring accurate

time reporting, including monitoring of time reported. Management agreed with our

findings and initiated corrective action to improve guidance.

 We performed a follow-up review of TVA’s hospitality program and determined TVA’s

hospitality spending had decreased by 70 percent since our 2004 review. We also

noted: (1) not all purchasers of hospitality had completed the hospitality training

module; (2) some purchases were not charged to the correct cost classification;

(3) TVA’s Hospitality Policy did not require use of form TVA 17901, Pre-approval of
Audits

page 19 October 1, 2005 ~ March 31, 2006

TVA Hospitality Expenditure; (4) TVA’s Hospitality Policy did not address use of a TVA

purchasing card for purchasing hospitality; and (5) TVA’s pre-approval form did not

require assessment of reputation risk. Management generally agreed with our findings and is taking appropriate corrective action.

 We assessed controls over TVA’s reporting of its asset retirement obligation (ARO) to

ensure related balances included in the financial statements as of June 30, 2005,

were accurate and complete. We determined controls over the ARO reporting

process were operating effectively to ensure balances were accurately reported in all

material respects.

 In support of TVA initiatives to comply with SOX requirements in FY 2007, we issued

a summary report on our results of controls documentation reviews for 15 key 

business processes determined to be in scope for SOX compliance. We identified

no deficiencies in 7 of the 15 processes; however, documentation and control 

deficiencies were identified in the remaining 8 processes. We provided the Controller

recommendations for improvement and obtained information on actions planned by

management to remediate the deficiencies. In addition, we completed testing of

controls for 12 of the more than 80 processes determined to be in scope for SOX

compliance and issued interim reports to management. Management has 

developed a plan for completing corrective action in this fiscal year. Testing of the

remaining processes will continue during FY 2006 to assist TVA in preparing for

required SOX compliance in FY 2007. 

 We assessed controls over TVA’s intragovernmental activity and balances for the

third quarter of FY 2005. We determined (1) intragovernmental balance information

as reported generally agreed with the third-quarter financial statements; (2) there

were some inaccuracies in the data submitted, indicating the need for better controls

to ensure data reported is accurate and representative of balances in TVA’s financial

statements; and (3) the Controller organization made reasonable efforts to explain

and resolve the material differences in the balances reported by TVA and those

reported by its federal trading partners. We made recommendations to improve

controls over the accuracy of data, and management has taken corrective action.
Audits

TVA Office of the Inspector General page 20

 We performed procedures agreed-upon with TVA management over the FY 2005

performance measures and found: (1) changes to the FY 2005 goals were properly

approved with one exception which did not impact the payouts; (2) actual year to

date inputs for each indicator agreed with the respective reason for improvement

sheet with one exception which did not impact the payouts; (3) actual inputs for the

eight TVA-wide metrics agreed with the underlying support provided by the strategic

business units; and (4) the payout percentages were mathematically accurate after

noted exceptions were corrected.

 We completed the IG agreed-upon procedures over TVA’s intragovernmental activity

and balances to assist the United States Treasury in preparing and the United States

Government Accountability Office in auditing the FY 2005 United States 

government-wide consolidated financial statements.

IT AUDITS

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

These reviews pertained to (1) internal controls for five financially significant

applications and (2) a review of IT security controls in TVA procurement 

contracts. We found improvements were needed to address weaknesses in

the following areas:

 Processing controls designed to ensure accurate and efficient processing

of transactions. Weaknesses related to timely release of transactions for processing;

audit log monitoring; documentation of data flow, controls, and processes; and

manual processing that could be automated.

 Logical security controls designed to prevent unauthorized access to system 

programs and data. Various weaknesses related to direct data changes, access

management, remote access, security configurations, and security requirements

documentation.
Audits

page 21 October 1, 2005 ~ March 31, 2006

 General controls designed to ensure ongoing operations. Weaknesses related to

change management, backup and contingency planning, and disaster recovery 

testing.

 Controls ensuring IT security issues were uniformly identified and addressed for all

contracts. Weaknesses related to (1) identification, documentation, and approval of

responsibilities for security issues and access to systems and data by contractors;

and (2) monitoring and enforcement of terms and conditions affecting IT security.

Management generally agreed with our findings and either has implemented or is in the

process of implementing corrective actions.
Inspections

TVA Office of the Inspector General page 22

Summary of Representative Inspections

Our Inspections unit, based in Chattanooga, is now fully operational. Inspections’

objective is to provide management with independent and objective analysis to assist in

improving the efficiency and effectiveness of TVA operations, and to be the recognized

source within TVA for operational business

consulting services and special project

reviews. Inspections provides a source of

(1) factual and analytical information, 

(2) testing for compliance, (3) measuring

performance, and (4) conducting inquiries

into possible areas of fraud, waste, abuse,

and mismanagement. Inspections helps

TVA achieve objectives by systematically

evaluating and improving risk management, 

control, governance, and the implementation of best practices. Inspections staff work

with stakeholders to develop suggestions/recommendations that are practicable and

cost effective.

The Inspection Plan addresses key strategic and risk areas, including (1) BFN Unit 1

Restart Project Monitoring, (2) Employee Benefits and Workforce Planning,

(3) Transmission Costs and Reliability, (4) Continuity of Operations, and (5) Power

Pricing. Inspections’ goals include:

 An average cycle time of 90 days or less for all projects; and 

 Sixty percent of completed projects address key operational risk areas.

Inspections is headed by a Deputy Assistant Inspector General and will have

15 employees. Inspections employees have degrees in varying fields such as business

administration, finance, accounting, economics, and industrial and systems 

engineering. Their certifications include CPA (certified public accountant), CFE (certified

Pictured from left to right (back): Jay Piercy, Mike Driver, Greg Jaynes, Ashley

Haga, Mike Patty, and Rick Underwood; (front) Heather Kulisek, Stephanie

O’Daniel, Deanna Garrison, and Brenda Adams
Inspections

page 23 October 1, 2005 ~ March 31, 2006

fraud examiner), CISA (certified information system auditor), CGFM (certified 

government financial manager), and MHP (managed healthcare professional).

During this reporting period, we completed 14 inspections which identified numerous

opportunities to improve TVA program operations. Highlights of our inspections follow.

CLEAN AIR EMISSIONS MONITORING

We reviewed the process and controls for emissions data 

reporting. Our objective was to ensure that controls are 

prescribed and functioning to ensure accurate Continuous

Emissions Monitoring System (CEMS) data reporting. In 

summary, we found controls are prescribed and functioning

which ensure the accuracy of CEMS data reporting. Specifically,

we found the data is being approved and certified at the plant

and the TVA designated representative level prior to submission to the Environmental

Protection Agency. In addition to controls prescribed by the Fossil Power Group’s

process, TVA’s Environmental Compliance and Technology Applications organization

performed environmental program reviews which also evaluated compliance with 

controls and quality procedures related to CEMS reporting.

TVA NUCLEAR (TVAN) TOOLS CONTROL PROGRAM

The OIG was requested by the Vice President, BFN Unit 1 Restart, to review tool 

management associated with the restart project. TVA is providing all necessary tools

for the restart. Based on the results of this review, we also assessed the tool 

management program at TVA’s Sequoyah and Watts Bar Nuclear Plants.

We found a significant lack of tool accountability/tracking resulting from 

(1) noncompliance with the relevant TVAN Business Practice, prescribed processes,

and key control activities; and (2) other process/control weaknesses. Management

agreed with our findings and plans to initiate corrective actions.
Inspections

TVA Office of the Inspector General page 24

TVA FOSSIL’S HEAVY EQUIPMENT DIVISION (HED) TOOLS CONTROL 

PROGRAM

The fossil tool program began in 1991 for the purpose of providing tools for the Fossil

Power Group and its contractors. Fossil Power’s HED assumed responsibility for the

fossil tool program in 1995.

We found that HED appears to be following the policies and procedures set forth in

their policy for the distribution and reclamation of tools at the fossil plant sites. HED

procedures and key control activities ensure that HED leased tools are adequately

tracked and accounted for. However, (1) the computer inventory tracking system does

not accurately reflect HED tools available for lease and (2) documentation related to the

disposal of tools and inventory adjustments could be improved. Management agreed

with our findings and has taken or plans to take appropriate corrective actions.

REVIEW OF LOW-LEVEL RADIOACTIVE WASTE LIABILITY (LLRW) ESTIMATES

We performed an inspection to assess the reasonableness of estimates made for 

disposal of LLRW. We found the (1) FY 2005 LLRW estimate appeared reasonable

when unforeseen incurred LLRW disposal costs were taken into account; and

(2) processes, methodology, and assumptions used to develop the FY 2006 disposal

estimates were consistent with those used in developing the FY 2005 estimates. In

addition, we verified that the LLRW expense and liability accounts were adjusted 

quarterly in accordance with the relevant TVAN Business Practice.

However, we noted (1) the process and methodology for developing LLRW estimates

was not documented, (2) a lack of cross-training potentially existed, and (3) no recent

physical inventory was done at the plants. Management agreed with our findings and

has taken or plans to take appropriate corrective actions.
Inspections

page 25 October 1, 2005 ~ March 31, 2006

REVIEW OF TVA PURCHASING CARD USAGE

TVA began its Visa Purchasing Card Program for small dollar 

purchases, up to and including $5,000, in 1994. The OIG has 

conducted several reviews of the Purchasing Card Program since its

inception. Our current review covered the period June 1, 2002,

through June 30, 2005. Purchases during this period were made

by 1,826 cardholders and totaled about $250.3 million, including $80.2 million during

calendar year 2004.

In summary, we found Procurement has made program changes to address control

weaknesses identified in our previous report; however, we still noted travel and 

travel-related expenses charged to the purchasing cards contrary to TVA policy. We

also found (1) weaknesses in supervisory review and approval of purchasing card 

statements, (2) disallowed and questionable purchasing card transactions, 

(3) purchasing cards issued without required documentation, and (4) TVA policies and 

on-line training modules do not clearly and consistently define acceptable purchasing

card use for hospitality expenses. 

Procurement stated that subsequent to our review period, actions were taken to

address weaknesses in supervisory review and approval of purchasing card statements.

Procurement further advised that additional actions would be taken in response to most

of our recommendations. We suggested Procurement implement additional monitoring

controls as appropriate in those areas where Procurement elected not to adopt our 

recommendations. 

REVIEW OF TVA USAGE OF EBAY TO DISPOSE OF SURPLUS ASSETS

We performed a limited scope review to assess the processes and controls over the

sale of surplus TVA assets on eBay, including how eBay is chosen for the sales 

mechanism, reserves are determined, and payments are received and accounted for.

Our review of the TVA Investment Recovery (IR) procedures for eBay sales identified

several opportunities for improvement. Specifically, the procedures (1) did not 
Inspections

TVA Office of the Inspector General page 26

adequately address the minimum acceptable price and payment processes/controls

and (2) provided TVA organizations, which may not have IR’s expertise, the ability to sell

TVA assets on eBay. Management agreed with our findings and has taken or plans to

take appropriate corrective actions.

TVA HELICOPTER USAGE 

TVA’s helicopter fleet consists of seven helicopters which TVA owns and self-insures.

Those helicopters are used for a variety of missions, including:

 Inspecting TVA’s 17,000 circuit miles of transmission lines in a seven-state region;

 Aerial photography, laser mapping, and river and environmental surveys;

 Construction support;

 Clean air testing;

 Right-of-way inspections;

 Transportation of TVA executives;

 Economic development activities, such as aerial tours of industrial megasites; and

 Deployment for emergency contingencies such as floods, tornadoes, and ice

storms.

We found the TVA helicopter fleet appeared to be used for valid business purposes.

However, there were no documented guidelines identifying proper uses of the helicopter

fleet and approval levels needed to obtain flight services. Additionally, there has been

no cost-benefit study of helicopter fleet usage to ensure it is being used effectively.

Management agreed with our findings and has taken or plans to take appropriate 

corrective actions.
Inspections

page 27 October 1, 2005 ~ March 31, 2006

TVA’S CONTINUITY OF OPERATIONS PLAN (COOP)

Federal Preparedness Circular (FPC) 65, issued in July 1999 and revised in June 2004,

outlines specific COOP requirements. TVA, as a federal agency, falls under the 

provisions of FPC 65. We found that while TVA’s June 2002 proposed COOP plan

(1) appears to address major COOP requirements as stated in FPC 65 and (2) provides

guidance for preparation of site, activity, or business unit specific COOP plans, the plan

lacks proper implementation and support. Management agreed with our findings and

has taken or plans to take appropriate corrective actions.
Investigations

TVA Office of the Inspector General page 28

Summary of Representative Investigations

During the past six months, we closed 71 investigations based, in part, on allegations

and concerns received from ratepayers, TVA management and employees, and OIG

auditors. Our investigations, including task force projects and joint investigations with

other agencies, resulted in (1) over $4.5 million in recoveries, projected savings, and

fines/penalties; (2) three subjects indicted; and (3) three subjects convicted. 

Our investigative activities are designed to prevent and detect fraud, waste, and abuse.

While our investigations in the past have largely been reactive, we are implementing

programs to become more proactive. Our proactive efforts include (1) contracting out

and publicizing the OIG hotline, now called “Empowerline”; (2) placing an additional

emphasis on testing for fraud during audits and having auditors make referrals to

Investigations; (3) devoting one employee to full-time data mining to look for anomalies

and fraud indicators in TVA data sets; (4) working with TVA management to conduct

fraud risk assessments; and (5) assigning OIG special agents to be responsible for 

specific TVA plant sites and develop relationships with the people there. In this 

connection, we are working with TVA management to ensure that allegations which do

not rise to the level of warranting an OIG investigation are appropriately considered and

acted upon. 

We also recognize the importance of sharing investigative resources and information

with other federal agencies and task forces in order to focus enhanced law enforcement

resources by applying the most effective criminal and civil statutes against individuals

and companies who are breaking the law. During this period, we continued to provide

investigative resources to the Environmental Crimes Joint Task Force and a Health Care

Task Force, sponsored by the United States Attorney for the Eastern District of

Tennessee, and the Joint Terrorism Task Force (JTTF), led by the Federal Bureau of

Investigation (FBI), Knoxville Field Division. 

Illustrative investigations follow.
Investigations

page 29 October 1, 2005 ~ March 31, 2006

FALSE CLAIMS

Our investigations of alleged false claims led to recovery or avoided costs for TVA of

over $1 million.

 As part of a joint investigation with several government agencies, we determined that

a Texas company, which was a subcontractor for TVA, submitted false claims for

payment for services not rendered. Although the company denied any wrongdoing,

it reached a settlement agreement with the agencies in a civil False Claims Act case.

The company agreed to pay $2.7 million to the United States. Of this amount, TVA

received $185,901 as its share of the settlement. 

 We previously reported joint audit/investigation findings that the barge draft method

used to weigh coal has consistently led to TVA being overbilled by roughly 15 tons

per barge. The barge company previously agreed to a negotiated settlement of

$295,000 for transportation costs overbilled for coal not delivered. During this

reporting period, the coal company agreed to a negotiated settlement for coal not

shipped resulting in a cost avoidance of $824,904. 

WORKERS’ COMPENSATION FRAUD

Our workers’ compensation cases during this reporting period included an indictment, a

guilty plea, and a sentencing. The long-term savings to TVA from these cases are 

projected to exceed $1.4 million.

 A former TVAN employee was indicted by a federal grand jury on

one count of filing a false statement to obtain benefits under the

Federal Employees’ Compensation Act (FECA). The indictment

charged the employee falsely reported to the Office of Workers’

Compensation Programs (OWCP) during April 2003 that he was

not employed or self-employed. 

 A former TVAN employee pled guilty to four felony counts of

making false statements to obtain workers’ compensation 

benefits under FECA. The former employee admitted filing false annual reports with
Investigations

TVA Office of the Inspector General page 30

the Department of Labor OWCP, for the period February 2001 to February 2004,

stating he was not employed when in fact he had other employment. Based on the

false statements, the former employee received $98,000 in workers’ compensation

benefits. With the guilty plea, the former employee forfeited his right to continuing

benefits under FECA, which will reduce TVA’s future workers’ compensation costs by

almost $800,000. 

 A former Fossil Power employee recently convicted on four counts of filing false

statements to obtain FECA benefits was sentenced by a federal district judge to

60 months’ probation, fined $5,000, and ordered to make restitution of $44,101.

We have requested the OWCP declare a forfeiture on the $138,120 in benefits paid

during the period covered by the false statements. As noted in a prior report, we

estimated the long-term savings based on the former employee not receiving future

benefits will be over $600,000. 

FALSIFICATION OF RECORDS

We substantiated three records falsification cases, two involving nuclear records and

one involving travel records, as follows.

 A TVAN contractor employee attempted to mislead a quality inspector in order to

complete an assigned task. The evidence showed the contractor employee

attempted to mislead the inspector into believing a piece of pipe support material

had been replaced, when in fact the material had not been replaced. The contractor

employee directed the part number be ground off the pipe support, had the tag

removed, provided the inspector with documentation indicating the material had

been replaced (when it had not), and incorrectly told the inspector that piece of

material had the correct paperwork. The evidence further showed the contractor

employee was supervised by his brother in violation of the contractor’s policy on

nepotism. The contractor employee was terminated, and the contractor took action

to ensure its nepotism policy was followed. 
Investigations

page 31 October 1, 2005 ~ March 31, 2006

 A TVAN employee falsified a radiological survey––a quality assurance document.

The employee also made inconsistent and inaccurate statements regarding that 

survey to the OIG and TVA management. No one was exposed to radiation as a

result of the falsified survey, and TVA management terminated the employee. 

 A Fossil Power employee falsified time reports by claiming overtime he had not

worked. The employee was suspended for two weeks, demoted from a 

supervisory position, and required to reimburse TVA for the pay received based on

the false time reports.

CONFLICT OF INTEREST

A Fossil Power employee entered a guilty plea to a one-count misdemeanor 

conflict-of-interest violation in United States District Court and was fined. The employee

had accepted a part-time position with a TVA contractor while at the same time serving

as the technical contract manager (TCM) for the contract. TVA management 

suspended the employee for two weeks and removed him from TCM duties. 

CREDIT CARD MISUSE

We completed two investigations involving misuse of a TVA credit card.

 A contract employee and members of her family used several TVA Wright Express

credit cards for personal purchases. The contract employee pled guilty to one count

of theft in Alabama state court. She was sentenced to a one-year suspended 

sentence and two years of unsupervised probation, and was ordered to make 

restitution to TVA in the amount of $7,572. 

 A Fossil Power employee misused a TVA travel card by charging airline tickets for

family members and not reimbursing TVA. The employee

explained he gave the wrong credit card number to his

daughter to pay for airline tickets. The employee 

reimbursed TVA the cost of the tickets and surrendered

the travel card. 
Investigations

TVA Office of the Inspector General page 32

MISUSE OF COMPUTER RESOURCES

We received several allegations involving misuse of TVA computer resources. 

 In one case, our investigation showed a TVA employee violated TVA policy by

(1) using his personal laptop computer with a wireless

access card to gain unauthorized access to the TVA 

network, (2) installing an unauthorized file sharing program

on his TVA desktop computer, and (3) using a file sharing

program to download or share music on the Internet

through the TVA network. The employee resigned. 

 We also investigated or referred to management several cases involving the

storing/transmitting of sexually explicit and/or other inappropriate non-work related

materials on TVA computers by TVA and/or contractor employees. Management

took corrective action in each case, including reminding employees of relevant 

policies, counseling employees, and issuing written warnings.
Investigations

page 33 October 1, 2005 ~ March 31, 2006

FRAUD RISK ASSESSMENTS (FRA)

We work with TVA management to conduct FRAs of major processes throughout TVA.

An FRA is a process for management and business process owners to identify and

analyze fraud risk factors that may be

common to general business practices

and also specific to the organization

and its operations. The OIG serves as a 

facilitator and consultant during the FRA

process. This process is intended to

identify (1) types of frauds which can

occur, (2) the likelihood and significance

of fraud occurring, (3) the controls in

place to prevent fraud, and (4) actions

needed to improve fraud prevention controls. As part of this process, we also provide

fraud awareness training. 

Our outreach efforts have been successful in achieving full cooperation and support

from TVA as demonstrated by management requests for fraud risk assessments and

the candor shown by employees during the assessment process. These efforts also

have promoted working relationships between OIG and TVA employees. The following

FRAs were completed during this reporting period. In each case, fraud risk areas, 

possible fraud schemes, and potential remediation areas were identified, and 

management is taking or plans to take appropriate corrective action.

 Convenience check process––the potential remediation included (1) further 

separation of duties, (2) identity verification, (3) further controls over blank checks,

(4) training, and (5) data mining. 

 Accounts payable––the potential remediation included (1) additional training for 

technical contract managers and Accounts Payable employees and (2) data mining. 

Pictured from left to right: David Winstead, Nancy Holloway, Beth Thomas, and 

Curtis Phillips. These OIG employees form the core OIG FRA team.
Investigations

TVA Office of the Inspector General page 34

 Inventory process, including the processes to receive and inspect material, record

movement, and manage site material and the Supplier Managed Inventory 

program––the potential remediation included (1) improving cycle count procedures,

(2) ensuring the Project Review Committee approves all major advance purchases,

and (3) ensuring the notification process includes Procurement when operating

assets become obsolete so that associated inventory items can be properly written

off. 

 Time reporting process––the identified opportunities to further mitigate risks included

(1) providing training on responsibilities and accountabilities for time reporting, 

(2) identifying cost-effective system edits, (3) upgrading the system to notify 

approving officials of changes to previously approved time or schedule, and

(4) upgrading the system to require audit logs of all software changes or 

modifications. 

 TVA contract––one additional opportunity to further mitigate risk was identified, i.e.,

to require the contractor’s employees to provide periodic certifications to support 

temporary living allowance claims. 

SPECIAL PROJECT

We reviewed the Valley Advantage Program, which was created in 2003 to offer 

incentives for businesses to relocate or expand existing facilities within the Valley to 

create new jobs, increase power sales, stimulate capital investment, and provide wages

higher than prevailing wages. The control weaknesses identified during our review

included (1) inadequate documentation was maintained to support funding decisions,

(2) the loan approval process was not consistent with program guidelines, (3) reporting 

requirements were inconsistent, (4) there was no process to verify project goals were

met, (5) project qualification criteria may not have been clear, (6) there was no guidance

on the level required for the company’s signature, and (7) past commitment letters were

open-ended. Management took appropriate corrective action in response to our 

findings. 
Investigations

page 35 October 1, 2005 ~ March 31, 2006

TASK FORCES

We recognize the importance of sharing investigative resources and information with

other federal agencies and task forces in order to focus enhanced law enforcement

resources by applying the most effective criminal and civil statutes against individuals

and companies who are breaking the law. During this period, we continued to provide

investigative resources to three task forces.

 We continued our participation on the JTTF, led by the FBI’s Knoxville Field Division.

Because of TVA’s critical, energy-related infrastructure, we have devoted one special

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

basis. As previously stated by FBI Director Robert S. Mueller, “the JTTFs have

played a central role in virtually every terrorism investigation, prevention, or 

interdiction within the United States. . . . JTTFs team up FBI agents with police

officers, members of the Intelligence Community, Homeland Security, and other 

federal partners to coordinate counterterrorism investigations and share information.

They are also a critical conduit between the FBI and the officer on the beat.”

 We continued our participation on a Health Care Fraud Task Force sponsored by the

United States Attorney for the Eastern District of Tennessee. TVA operates a 

self-insured health benefits plan, and claims of health care fraud involving TVA and 

others are investigated by the Task Force. The Task Force includes representatives

from the investigative arms of federal, state, and local agencies, and Blue Cross/

Blue Shield of Tennessee’s Special Investigations Unit.

 The Environmental Crimes Joint Task Force, which also is sponsored by the United

States Attorney for the Eastern District of Tennessee, is comprised of members from

numerous federal and state agencies. Our participation on this Task Force helps

support the TVA goal of supporting a thriving river system.
Investigations

TVA Office of the Inspector General page 36

Administrative and Disciplinary Actions

Total = 27

Suspension/

Demotion

11%

 Terminations/

Resignations

11%

Counseling/

Management 

Techniques

59%

Oral/Written

Warnings

19%

Closed Cases by Area

Total = 71 

TVA Nuclear

25%

Fossil Power

Group

14%

Other

32%

Administrative

Services

16%

Power System 

Operations

7%

River System

Operations & 

Environment

6%

Hotline Telephone and E-Mail Concerns

Reported to OIG Investigations 

Total = 44

Former

TVA & Contractor 

Employees

5%

TVA

Employees

25%

General Public

20%

Anonymous

32%

Contractor

Employees

11%

Other 

7%
Legislation and Regulations

page 37 October 1, 2005 ~ March 31, 2006

Under the IG Act of 1978, one of the IG’s responsibilities is to review 

legislation and regulations which may have an impact on the economy and 

efficiency in the administration of TVA programs and operations. Accordingly,

we follow legislative areas of interest pertaining to the IG community and TVA.

The TVA IG, Richard W. Moore, serves on the Legislation Committee for the

PCIE, and we worked with the PCIE to provide comments on legislation 

involving the IG community. Legislation we reviewed during this reporting period

included proposed amendments to the IG Act, the TVA Act, and the Atomic Energy

Act, and proposed new whistleblower protection legislation. 
TVA Office of the Inspector General page 38

APPENDICES APPENDICES
Appendix 1

page 39 October 1, 2005 ~ March 31, 2006

Index of Reporting Requirements Under the Inspector General Act

REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 37

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 15-34

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies 15-34

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 15-34

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

Section 5(a)(13) Information under Federal Financial Management Improvement Act of 1996 None
Appendix 2

TVA Office of the Inspector General page 40

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2005-044C

10/03/05 Cormetech, Inc. $5,933 $5,933

2005-046C

10/04/05 Voith Siemens Hydro - Review of 

Proposed Indirect Cost Recovery Rates $99,800

2005-050C

11/04/05 Pinkerton Government Services - 

Review of Provisional Billings 109,444 109,444

2005-017C

11/09/05 Ecolochem, Inc. - Contract Compliance 328,845 322,579

2006-004C

12/02/05 URS Corporation 600,000

2005-043C

12/05/05 WachTechnical Services - Subcontract

with Stone & Webster Construction, Inc. 295,067 9,400

2005-045C

01/18/06 Review of EPC Jobs, Inc. - Subcontract 

with Bechtel Power Corporation 34,958 20,243

2005-057F

11/01/05 Review of Asset Retirement Obligation

2005-041F

11/18/05 Audit of PwC Audit of TVA’s 

FY 2005 Financial Statements

2005-061F

11/30/05 Review of Intragovernmental Activity 

and Balances

2006-006F

12/01/05 TVA IG Agreed-Upon Procedures for 

Intragovernmental Activity and Balances - 

FY 2005

2005-059F

12/06/05 Summary of Sarbanes-Oxley 404 

Process and Controls Documentation 

Review (SOX 404 Design Effectiveness 

Reviews)

2005-063F

10/31/05 Agreed-Upon Procedures on TVA 

FY 2005 Performance Measures

CONTRACT

FINANCIAL
Appendix 2

page 41 October 1, 2005 ~ March 31, 2006

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2005-034F

01/30/06 Internal Controls over Time Reporting

2006-013F

02/13/06 Review of TVA’s FY 2006 

First Quarter Financial Information

2005-021T

10/07/05 Passport Application, Access, and 

General Controls

2005-055T

01/24/06 Integrated Contractor System 

Logical Access and General Controls

2005-060T

01/24/06 Fuelworx Logical Access and 

General Controls

2005-039T

01/30/06 Eworkplace Application, Access, 

and General Controls

2006-003T

01/31/06 IT Security Controls Over

Procurement Contracts

2006-007T

03/30/06 HED Fleet Logical Access and 

General Controls

2005-052F

02/23/06 Follow-up Review of TVA’s Hospitality 

Program

TOTAL 22 $774,247 $467,599 $699,800

INFORMATION TECHNOLOGY

FINANCIAL (cont.)

PERFORMANCE
Appendix 3

TVA Office of the Inspector General page 42

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 4 $1,298,422 $487,659

B. Which were issued during the reporting period 5 $774,247 $467,599

Subtotals of A and B 9 $2,072,669 $955,258

C. For which a management decision was made during

the reporting period 9* $2,072,669 $955,258

(i) Dollar value of disallowed costs 9 $1,122,034 $624,155

(ii) Dollar value of costs not disallowed 5 $950,635 $331,103

D. For which no management decision has been made by

the end of the reporting period 0 $0 $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(i) and C(ii) when the same reports contain both costs disallowed

and not disallowed by management.
Appendix 3

page 43 October 1, 2005 ~ March 31, 2006

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 1 $3,923,500

B. Which were issued during the reporting period 2 $699,800

Subtotals of A and B 3 $4,623,300

C. For which a management decision was made during

the reporting period 3* $4,623,300

(i) Dollar value of costs agreed to by management 2 $633,081

(ii) Dollar value of costs not agreed to by management 2 $3,990,219

D. For which no management decision has been made by

the end of the reporting period 0 $0

E. For which no management decision was made within

six months of issuance 0 $0

* The total number of reports differs from the sum of C(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 page 44

Audit Reports With Corrective Actions Pending

Final corrective actions on recommendations in the following audits have not yet been fully implemented; however, all are

being implemented in accordance with currently established milestones.

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2001-074T Application Review of Pegasys

01/07/02 This report contained recommendations regarding facility access control. TVA management

approved funding for a new system on February 28, 2006. Implementation is scheduled to

begin August 2006 and be complete by September 30, 2008.

2003-004C A&G Tree Service, Inc.

03/30/04 A Contracting Officer’s decision was issued in March 2005 that concurred with the audit finding

and directed A&G to reimburse TVA for overpayments of $638,542 under a closed contract.

During May 2005, TVA stopped A&G from performing work under a subsequent contract and

recovered part of TVA’s damages by withholding payment on invoices under the subsequent

contract totaling $88,362. A&G has sued TVA under the subsequent contract for the withheld

payments and has filed suit challenging the Contracting Officer’s decision. The time frame for

resolution of these lawsuits is indeterminate.

2003-024F Review of TVA’s Accounts Receivable and the Allowance for Doubtful 

11/18/03 Accounts

This report contained recommendations to (1) develop, document, and implement guidelines for

estimating the allowance for doubtful accounts; (2) ensure reconciliation of the general ledger

and subsidiary accounts include documentation of corrections and adjustments made during

power and nonpower reconciliations and management review and approval of all nonpower

adjusting journal entries; (3) make modifications to the write-off process to ensure invoices are

written off in a timely manner; (4) develop and implement procedures to track written off

accounts for future collection efforts or business decisions; (5) ensure accounts are written off in

accordance with policy; and (6) review and update Accounting Procedure 25 to clarify the 

criteria for referring past due customers to the General Counsel’s office. TVA management

agreed to implement our recommendations and has transitioned the responsibilities to a new

group. Processes and procedures will be evaluated and updated by June 30, 2006, and a new

system is planned.

2003-040T Nuclear Plant IT Security

03/30/04 This report included recommendations to strengthen logical and physical controls at a nuclear

generation facility. TVA management is implementing planned remediation actions that are

expected to be completed by November 30, 2006.

2003-056T Pre-Implementation Review of TVA’s New Fuelworx Application

03/18/04 This report included a recommendation to strengthen user access controls. The 

recommendation will be addressed as part of a TVA-wide effort that is expected to be 

completed in December 2006.
Appendix 4

page 45 October 1, 2005 ~ March 31, 2006

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2003-067P TVA’s Compliance with the National Energy Conservation Policy Act

02/02/04 This report included a recommendation to continue to evaluate opportunities to reduce energy

consumption, including promoting sustainable building design when appropriate. Actions

planned by TVA management to reduce energy consumption include implementation of the

Internal Energy Efficiency Process, the Internal Energy Management Program, and the Resource

Efficient Building Design Process. Management expects the process implementations to be

completed by May 2006. 

2004-016T-01 Payroll System Controls

12/07/04 This report included recommendations to strengthen controls over the payroll process and 

system. TVA management is implementing planned remediation actions which are expected to

be complete by April 15, 2006.

2004-059T Pre-Implementation Review of Security of New Servers for IBS, 

11/24/04 Fixed Assets, and BOSS Applications

This report included recommendations that TVA management take action to improve the 

security of the servers. TVA management is expected to complete planned remediation actions

by September 30, 2006.

2004-060T IT Security Review of New Servers for HR and PR Applications

11/19/04 This report included recommendations that TVA management take action to improve the 

security of the servers. TVA management is expected to complete planned remediation actions

by May 15, 2006. 

2005-001T Vulnerability Assessment on Solaris Standard Image

11/19/04 This report included recommendations to strengthen controls within the standard solaris image.

TVA management is expected to complete remediation by June 30, 2006.

2005-009T Review of TVA’s Information Factory Application, Access, and General 

06/30/05 Controls

This report included recommendations to strengthen controls for the system. TVA management

is implementing planned remediation actions which are expected to be complete by

September 30, 2006.

2005-012T Integrated Business System Application, Access, and General Controls

06/30/05 This report included recommendations to strengthen controls over the general ledger system.

Remediation has been completed on three recommendations. TVA management is 

implementing planned remediation actions for the remaining items which are expected to be

complete by April 15, 2006.

2005-022T Security, Test, and Evaluation of the IT Security Data System

08/30/05 This report included recommendations to strengthen controls over the system. TVA 

management is implementing planned remediation actions which are expected to be complete

by April 30, 2006.
Appendix 5

TVA Office of the Inspector General page 46

Investigative Referrals and Prosecutive Results*

Referrals

Subjects Referred to U.S. Attorneys 5

Subjects Referred to State/Local Authorities 0

Results

Subjects Indicted 3

Subjects Convicted 3

Referrals Declined 8

* These numbers include task force activities and joint investigations with other agencies.
Highlights

page 47 October 1, 2005 ~ March 31, 2006

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

2006 2005 2005 2004 2004

AUDITS IN PROGRESS

Carried Forward 24 30 28 29 37

Started 22 41 35 38 36

Canceled 3 11 2 5 5

Completed 22 29 31 34 39

In Progress at End of Reporting Period 21 24* 30 28 29

AUDIT RESULTS (Thousands)

Questioned Costs $774 $6,422 $8,859 $1,763 $14,127

Disallowed by TVA 1,122 4,969 7,586 2,948 10,453

Recovered by TVA 1,641 5,016** 2,312 1,113 697

Funds to Be Put to Better Use $700 $5,634 $24,306 $1,471 $11,904

Agreed to by TVA 633 1,251 20,181 7,021 5,800

Realized by TVA 740 6,002 7,886 7,196 11,708

OTHER AUDIT-RELATED PROJECTS

Completed 11 10 3 8 30

Cost Savings Identified/Realized (Thousands) $36 $0 $0 $0 0

INVESTIGATION CASELOAD

Opened 80 84 84 118 162

Closed 71 84 103 163 76

In Progress at End of Reporting Period 148 157 157 176 221

INVESTIGATIVE RESULTS (Thousands)

Recoveries $2,966.5 $1,880.3 $216.3 $460 $3,412

Savings 1,625.4 36 1,581.5 447.7 863

Fines/Penalties 6.2 6.7 .4 451.6 10

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 17 10 11 14 8

Actions Taken (# of Subjects) 9 13 16 30 75

Counseling/Management

Techniques Employed (# of Cases) 14 16 12 16 13

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 5 8 12 25 17

Indicted 34393

Convicted 35433

Completed 14 13 14 8

Cost Savings Identified/Realized (Thousands) $0 $118 $0 $226

* Adjusted from previous semiannual report.

** Includes excess funds recovered by TVA of $33,219.

*** These numbers include task force activities and joint investigations with other agencies.

AUDITS

INVESTIGATIONS***

INSPECTIONS
OIG LEADERSHIP PHILOSOPHY

The TVA OIG strives to be a high performing

organization made up of dedicated individuals

who are empowered, motivated, competent, and

committed to producing high quality work that

improves TVA and life in the Valley.

Each of us has important leadership, 

management, team, and technical roles.

We value integrity, people, open communication,

expansion of knowledge and skills, creative 

problem solving and collaborative 

decisionmaking.
OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401