OCTOBER 1, 1998 ~ MARCH 31, 1999

OFFICE OF THE INSPECTOR GENERAL

SEMIANNUAL REPORT

1

9

9

9
TVA

INSPECTOR

GENERAL

Call toll free:

1-800-323-3835

423-632-3550 (Knoxville)

Tennessee Valley Authority

400 West Summit Hill Drive ET 4C

Knoxville, Tennessee 37902-1499 Hotline

Hotline

The Office of the Inspector General

(OIG) is an independent organization

charged with reporting to the

Tennessee Valley Authority (TVA) Board

of Directors and Congress on the

overall efficiency, effectiveness, and

economy of TVA programs and

operations. The OIG meets this

responsibility by conducting audits,

investigations, and other reviews.

The OIG focuses on the prevention,

identification, and elimination of

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

(3) inefficiencies in TVA programs and

operations.

If you want to report any matter

involving TVA programs, operations, or

employees, you should call the OIG

Hotline or write the Inspector General's

office.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

Tennessee Valley Authority, Tennessee Valley Authority 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499

George T. Prosser

Inspector General

April 30, 1999

TO THE TVA BOARD OF DIRECTORS AND THE UNITED STATES CONGRESS

This, our 26th semiannual report, describes the accomplishments of our office for the six-month period

ending March 31, 1999.

During this reporting period, we completed 38 audits which identified more than $1.1 million in questioned costs and over $1.4 million in funds that could be used more effectively. Our auditors conducted

performance reviews of TVA operations and contract preaward and compliance audits. We also

conducted 18 special projects, including reviews of the TVA Concerns Resolution Program and TVA’s

electricity trading processes.

Our investigations group completed 66 investigations, substantiating allegations in over 40 percent of the

cases we closed. During this reporting period, our investigations resulted in over $3 million in savings

and recoveries, six subjects indicted, and nine subjects convicted. Further, as a result of our investigations of alleged misconduct, administrative and disciplinary action was taken against 11 individuals, and

other corrective action taken in 4 cases.

When TVA was established almost seven decades ago, it would have been impossible to predict the

ensuing changes in government, technology, the utility industry, and even the Tennessee Valley region

TVA was designed to serve. Our office continues to strive to help TVA navigate its changing environment. Our efforts during this reporting period ranged from investigating potentially criminal contractor

claims, taking part in training TVA procurement officers, and reviewing performance measures TVA

developed pursuant to the Government Performance and Results Act of 1993. We hope our work

continues to help TVA as the agency and the people of the region move into the next century.

Sincerely,

George T. Prosser
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

1 Executive Summary

2 TVA Profile

3 Office of the Inspector General

6 Special Features

Appendices

1. OIG Audit Reports Issued During the Six-Month Period Ending March 31, 1999

2. OIG's Report on Management Decisions for the Six-Month Period Ending March 31, 1999

3. Investigative Referrals and Prosecutive Results

4. TVA Management's Report on Final Actions for the Six-Month Period Ending March 31, 1999

5. OIG Reporting Requirements

9 Audits

12 Investigations

18 Special Projects

OFFICE OF THE

INSPECTOR

GENERAL

SEMIANNUAL

REPORT

OCTOBER 1, 1998

THROUGH

MARCH 31, 1999

C O N T E N T S ■
TVA/OFFICE OF THE INSPECTOR GENERAL

This report

summarizes the

activities and

accomplishments

of TVA's OIG

during the sixmonth period

ending

March 31, 1999.

■ E X E C U T I V E S U M M A R Y

We continued our efforts to support

TVA’s goals by providing quality service

with audits, investigations, and special

projects. We completed 38 audits

which identified over $1.1 million in

questioned costs and more than

$1.4 million in funds that could be used

more effectively. We conducted 18

special projects. We closed 66 investigations which led to over $3 million in

savings and recoveries. Investigations

of alleged misconduct led to administrative and disciplinary action taken against

11 individuals and other corrective

action in 4 cases.

Our audit activities included performance reviews of TVA programs,

processes, and systems, as well as

compliance and preaward audits of TVA

contractors. Representative audits

include reviews of (1) TVA’s prescription

drug program, (2) preaward audits to

assist TVA management in negotiation

of contracts, (3) TVA performance

measures reported in compliance with

the Government Performance and

Results Act of 1993, and (4) billings

under a construction and modifications

contract.

1

We also conducted special project

reviews requested by our customers,

primarily the Board of Directors, TVA

management, and Congress. During

this reporting period, we reviewed TVA’s

risk management processes and made

several suggestions for improvements in

policy development and risk management controls. We also conducted a

comprehensive review of TVA’s Concerns Resolution Program and assessed

the workforce’s willingness to report

safety concerns.

Our investigative activities included

inquiries into theft of government

property, environmental crimes, workers’ compensation fraud, contractors’

fraudulent claims for temporary living

expenses, health care overpayments,

and employee misconduct. Our

investigations led to 15 entities being

indicted or convicted, including a former

executive director of a Kentucky nonprofit corporation who was sentenced to

41 months’ imprisonment.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

TVA's 13,563

employees serve

an 80,000-squaremile region

spanning seven

states.

T V A P R O F I L E ■

Craven Crowell is the Chairman, and

William H. Kennoy is a Director. Johnny

Hayes resigned his Director’s position

during this reporting period.

TVA’s vision is to generate prosperity in

the Tennessee River Valley. TVA’s

goals are to supply low-cost reliable

power, support a thriving river system,

and stimulate economic growth. TVA

strives to exceed its goals by valuing

integrity, respect for the individual,

accountability, teamwork, innovation

and continuous improvement, honest

communication, and flexibility.

TVA is a federal corporation responsible

for developing and conserving the

natural resources of the Tennessee

River Valley.

TVA's 13,563 employees are involved in

regional development, integrated

resource management, and the

production of low-cost electricity. The

power system is funded by power sales,

and TVA's other programs are funded

primarily by congressional appropriations.

TVA is governed by a three-member

Board of Directors appointed by the

President and confirmed by the Senate.

Chattanooga

•

•

•

•

•

•

• •

Knoxville

Columbus

Nashville

Jackson

Memphis

Huntsville

Muscle

Shoals

Bowling Green•

Bristol •

2
3 TVA/OFFICE OF THE INSPECTOR GENERAL

■ O F F I C E O F T H E I N S P E C T O R G E N E R A L

Organization

The OIG’s Audit Operations unit consists of three operational departments.

One is devoted to contract-related

topics, both preaward and post-award

reviews; the two other departments

focus on performance, financial, ADPrelated issues, and special projects.

The OIG’s Investigative Operations unit

consists of an Investigative Services and

Hotline group and two investigative

departments—Financial Investigations

and Internal Investigations. While both

departments work a variety of cases,

including employee integrity and

environmental issues, Financial Investigations focuses on contract and

workers’ compensation cases, while

Internal Investigations focuses on

nuclear issues and benefits and entitlement programs.

Office Authority

The TVA Board of Directors administratively established the OIG during

October 1985. When Congress

enacted the Inspector General Act

Amendments of 1988, TVA's OIG

became one of the statutory offices

whose Inspector General is appointed

by the agency head. TVA's Inspector

General is independent and subject only

to the general supervision of the Board

of Directors.

George T. Prosser became TVA’s third

Inspector General on April 1, 1994.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

O F F I C E O F T H E I N S P E C T O R G E N E R A L

Staffing and Budget

The OIG's offices are in the TVA

headquarters in Knoxville, Tennessee.

The OIG also has investigative satellite

offices in Chattanooga, Tennessee, and

Huntsville, Alabama.

The OIG's fiscal year 1999 budget is

about $7.3 million, and during this

reporting period, the OIG had

81 employees.

4

OFFICE OF THE INSPECTOR GENERAL

Legal Counsel

■

Richard P. Levi

Manager

(Human Resources)

■

Kay T. Myers

INSPECTOR GENERAL

■

George T. Prosser

Financial

Investigations

James M. Reed

Manager

Internal

Investigations

Ron W. Taylor

Manager

■

■

Assistant

Inspector General

(Investigations)

■

G. Donald Hickman

Financial and

ADP Audits

Deborah Meyers Thornton

Manager

Contract

Audits

Paul E. Ivie

Manager

Operational Audits

and Special

Projects

Lewis M. Ogles

Manager

■

■

■

Assistant

Inspector General

(Audits)

■

Ben R. Wagner
5 TVA/OFFICE OF THE INSPECTOR GENERAL

O F F I C E O F T H E I N S P E C T O R G E N E R A L

WAGNER APPOINTED ASSISTANT

INSPECTOR GENERAL FOR AUDITS

Ben R. Wagner was named Assistant Inspector

General for Audits (AIGA), effective January 4,

1999, replacing Ted R. Ping who retired.

Wagner is a certified public accountant and an

accounting graduate from The University of

Tennessee at Knoxville. Prior to being named

AIGA, Wagner was the Manager, Contract

Audits. He has worked in the OIG since April

1986, holding various management positions in

Preaward and Special Projects, Inspections,

Operational Audits, and Management Services.

IVIE APPOINTED MANAGER FOR

CONTRACT AUDITS

Paul Ivie was selected as the Department

Manager for Contract Audits. Ivie, a 23-year

veteran of TVA, has been with the OIG for

12 years. Ivie has been a team leader in the OIG

for over ten years and has been responsible for

numerous high-profile and sensitive assignments.

Ivie is a registered professional engineer, a

certified internal auditor, and a certified fraud

examiner. Ivie holds a bachelor’s degree in

engineering from the Georgia Institute of Technology in Atlanta, Georgia, and master’s degrees in

engineering and business administration from The

University of Tennessee at Knoxville.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

S P E C I A L F E A T U R E S ■

AUDIT AND INVESTIGATIONS WORK

TOGETHER TO UNCOVER FRAUD

During this reporting period, two former

TVA contract employees and the

brother of one of the employees pled

guilty in federal court to conspiring to

steal TVA industrial power and pneumatic tools, valued by TVA at over

$1.17 million. In addition to pleading to

the conspiracy

charge, the

brother pled

guilty to theft

of government

property. The

pleas are the

result of an

OIG investigation and audit

which arose

from allegations by employees working in

the TVA Tool

Management Program (TMP) at a TVA

location in Nashville, Tennessee.

Specifically, individuals employed in the

TMP voiced concern to the OIG Hotline

that two individuals serving in key

contract management positions (Project

Support Manager and Operations

Manager) directed the movement of

large quantities of tools from the TVA

warehouse to various locations.

TVA contracted with a private company

to manage the TMP. Tool management responsibilities included purchasing, inventorying, and dispensing tools to

TVA plant sites. To prevent theft, TVA

required the tools purchased by TMP to

be painted a copper-bronze color, barcode labeled, and inventoried prior to

use.

Upon receiving

the allegation,

the OIG initiated

an investigation

and an audit.

The audit

focused on the

extent of tools

missing from the

TVA inventory

and provided

assistance to

investigators.

The audit

reported to TVA management that over

$2 million worth of tools could not be

accounted for in the TMP. As a result

of the company’s mismanagement of

the tool inventory, TVA withheld substantial funds from the company’s

performance fee award.

6

Pictured above are Special Agent James Farr; Gerald H. McDougal, TVA Materials

Officer - Retired; and Auditor Jerry Stover. McDougal’s concerns about

the administration of the tool management program initiated

the OIG investigation and audit.
TVA/OFFICE OF THE INSPECTOR GENERAL

S P E C I A L F E A T U R E S

7

The investigation determined that during

the February/March 1994 timeframe,

the Project Support Manager and the

Operations Manager removed tools—

valued at over $73,000—from the TVA

warehouse and delivered them to the

Project Support Manager’s brother.

The brother sold the tools to another

firm through his private company.

During an eight-month period in 1994

and 1995, the contract managers

purchased tools valued at approximately

$1.2 million using TVA funds. The two

managers obtained and transferred

unmarked, non-inventoried tools to and

from TVA warehouses and private

storage units for the purpose of selling

them for personal gain. The Project

Support Manager’s brother was actively

involved in the scheme and sold large

quantities of the tools.

The three individuals are awaiting

sentencing in federal district court in

Nashville.

OIG SUPPORTS PROCUREMENT

TRAINING FOR CONTRACT

MANAGERS/CONTRACT AGENTS

TVA Procurement is changing its

process for the procurement/management of TVA’s materials and services

from a price-focused activity to management of “total cost” throughout the

life cycle of the equipment, material, or

service. The changes have resulted in

the need for a fundamental shift in the

role of TVA’s traditional purchasing

agent, which had primarily been

transaction oriented with a focus on

contract administration. In their new

role, TVA’s purchasing agents are now

called contract managers/contract

agents (CM/CA) and will focus on

contract management. The CM/CA will

proactively seek ways to lower total

cost and achieve value beyond contract

award.

To determine the skills, education, and

knowledge needed for CM/CAs to

perform their new role, Procurement
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

S P E C I A L F E A T U R E S

8

performed a study of the new process

and reviewed the best practices of other

companies. Based on information

obtained in their review, three educational modules were developed which

contain classes in areas such as policies

and procedures, strategic sourcing,

solicitations, terms and conditions,

negotiations, etc. The classes, which

are taught by Procurement managers or

other professionals outside of Procurement, are now required courses for

each CM/CA.

The OIG supports Procurement’s

training efforts. In addition to the OIG’s

ongoing role of conducting preaward

and post-award audits, the OIG is

participating in the contract administration training module. In this module, the

OIG presents an overview of the audit

process and a discussion on the value

of using audits in the contract administration process. In addition, an OIG

investigator presents an overview of the

investigative process and contract fraud

awareness.
9 TVA/OFFICE OF THE INSPECTOR GENERAL

■ A U D I T S

Audits are initiated from (1) the OIG

annual workplan, (2) issues identified by

the OIG subsequent to the annual

workplan, (3) issues identified by

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

management or others. During this

reporting period, we issued 38 audit

reports which identified over $1.1 million

in questioned costs and more than

$1.4 million in funds which could be put

to better use (see Appendix 1).

Summary of

Representative Audits

Our audits included performance

reviews of TVA programs, processes,

and systems, as well as compliance and

preaward audits of TVA contractors.

PRESCRIPTION DRUG PROGRAM

In 1994, TVA contracted for administration of the prescription drug program for

all TVA medical benefit plans. For

calendar year 1995 and subsequent

years, the program was limited to TVA’s

Trades and Labor employees because a

contract for administration of a separate

prescription drug program for management, specialist, and salary policy

employees was awarded to another

contractor. The Trades and Labor

program provided pharmacy benefit

management services, including claims

adjudication and participation in a

prescription drug manufacturers’ volume

discount program.

We assessed whether the contractor

(1) complied with the cost and benefit

provisions of the contracts in adjudicating prescription drug claims and (2) correctly calculated the drug manufacturer

rebates due TVA. In summary, we

found the contractor complied with the

cost and benefit provisions in adjudicating claims but owed TVA $401,468 in

unpaid prior-year rebates and accrued

interest. TVA subsequently received the

full amount questioned.

RECOMMENDATIONS FOR

POTENTIAL COST SAVINGS IN

CONTRACT NEGOTIATIONS

We conducted six preaward audits to

assist TVA management in negotiation

of procurement actions. One contract

compliance audit also resulted in

recommendations for forward pricing of

the contract. These audits resulted in

recommendations that $749,000 could

be put to better use by negotiating

contract proposal or forward pricing

reductions. Management generally

agreed with our findings and negotiated

savings of $307,100.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

A U D I T S

10

REVIEW OF GOVERNMENT

PERFORMANCE AND RESULTS ACT

OF 1993 PERFORMANCE

MEASURES

TVA submitted a strategic plan covering

fiscal years 1997 through 2002 to

Congress and the Office of Management and Budget. The strategic plan is

supported by annual performance plans,

which include performance goals and

performance indicators. We reviewed

the data sources and information

systems that support the Delivered Cost

of Power (DCP) and Energy Sales

Growth (ESG) performance indicators

and found the sources and systems are

adequate and reliable.

Additionally, we found TVA’s accounting

method for power sales to other utilities

was not revised to reflect changed

circumstances. As a result, their DCP

and ESG were affected for fiscal years

1996 and 1997. We also found TVA’s

presentation of sales to other utilities in

the annual income statements for fiscal

years 1996 and 1997 did not fully

comply with the Federal Energy Regulatory Commission’s Uniform System of

Accounts and utility industry accounting

practice. TVA management has taken

corrective actions.

CONSTRUCTION AND

MODIFICATIONS CONTRACT

OVERBILLINGS

We audited billings for work performed

under a contract for construction and

modifications work at TVA facilities. We

questioned overbillings totalling $291,000

for United Way matching contributions,

nonmanual wage rates, and payroll tax

markups. TVA management agreed

with our findings and to date has

collected $152,000. Also, during this

period, TVA recovered an additional

$108,000 of overbillings from a review of

this contractor reported in a previous

period.

COAL AND COAL FREIGHT

BILLINGS

During fiscal year 1998, TVA purchased

over 44 million tons of coal at a cost of

$936 million. During calendar year

1998, TVA paid $255.6 million in freight

costs associated with over 46 million

tons of coal transported. Because

these costs are a significant part of

TVA’s budget, we audited contracts

with billings of over $232 million with

TVA’s coal and coal freight vendors for

contract compliance. We found

generally coal and freight costs are billed

in accordance with the contracts.
TVA/OFFICE OF THE INSPECTOR GENERAL

A U D I T S

11

UNRESOLVED AUDIT REPORTS WHICH WERE

ISSUED PRIOR TO OCTOBER 1, 1998

Listed below are audit reports we issued before this reporting period began and for

which no management decision was made by March 31, 1999.

Date Audit Why Management Decision

Issued Number Report Title Has Not Been Made

There were no audit reports in this reporting category as of March 31, 1999.

TVA’S FINANCIAL STATEMENTS

PricewaterhouseCooper (PwC) performs

the independent audit of TVA’s financial

statements and performs internal audit

work in support of the financial statement audit. We reviewed their audit of

TVA’s fiscal year 1998 financial statements and determined the audit complied with generally accepted auditing

standards, government auditing standards, and other significant contractual

requirements. We are also reviewing

PwC’s internal audit work to ensure

compliance with government auditing

standards.

MANAGEMENT FORMS CROSSFUNCTIONAL TEAM TO ENSURE

GOOD INTERNAL CONTROLS OVER

J-TYPE CONTRACTS

J-Type contracts are blanket purchase

orders that do not require end-user

organizations to key-enter purchase

order releases or receive reports. TVA

Procurement has expanded the use of

J-Type contracts in recent years to

reduce administrative cost and streamline purchases of services and noninventory items.

We reviewed internal controls associated with these contracts and selected

seven large contracts to review for

contract compliance. During our

review, TVA management formed a

cross-functional team and implemented

our recommended control improvements. Also, management agreed to

meet periodically to review the

adequacy of internal controls over

J-Type contracts and ensure the

controls are working properly. Five of

the seven compliance audits have been

completed with no findings of

noncompliance.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999 12

I N V E S T I G A T I O N S ■

During the last six months, we substantiated allegations in 27 of the 66 investigations we closed—over 40 percent.

Our investigations resulted in over

$3 million in savings and recoveries, six

individuals indicted, and one company

and eight individuals convicted. Representative investigations are highlighted

below.

Summary of

Representative

Investigations

EMBEZZLEMENT

As a result of our investigation with the

Federal Bureau of Investigation (FBI) and

Kentucky State Police, a former

executive director of a Kentucky nonprofit corporation pled guilty to eight

felony counts—one count of bank fraud

and seven counts of money laundering—related to his fraudulently obtaining

over $780,000 from the corporation.

The corporation, which managed a

bond-assurance fund to assist minority

and female contractors, received

contributions from various federal, state,

and local government agencies,

including $100,000 from TVA. The

former executive director’s crimes

deprived the previously successful

corporation of almost all its funds.

A federal judge sentenced the individual

to pay full restitution of $780,089 to the

fund and to serve 41 months in prison,

followed by 5 years’ supervised release.

FALSE CLAIMS - OFFICE OF

WORKERS’ COMPENSATION

PROGRAMS (OWCP)

To receive benefits through the Federal

Employees’ Compensation Act (FECA),

recipients must periodically submit forms

to OWCP that require the recipient to

report all employment, including selfemployment. OWCP uses the forms to

determine a recipient’s continuing

eligibility for FECA benefits. Failure to

disclose employment information to

OWCP violates state and federal laws.

During this reporting period, our FECA

fraud investigations led to recoveries and

long-term savings of over $2 million.

Highlights of investigative results follow.

■ A former TVA Construction Services

warehouseman pled guilty in the

State of Alabama Circuit Court,

Lauderdale County, to one count of

first-degree theft for making false

statements to receive FECA benefits.

The individual was sentenced to

three years in state prison, suspended. He was placed on one

year’s supervised probation, followed

by four years’ unsupervised probation, and was ordered to pay
TVA/OFFICE OF THE INSPECTOR GENERAL

I N V E S T I G A T I O N S

13

$14,732 in restitution to TVA. OWCP

terminated the individual’s benefits,

as well, resulting in long-term savings

to TVA of over $480,000.

■ A former Sequoyah Nuclear Plant

steamfitter was sentenced to

15 months’ imprisonment and

3 years’ supervised release; his wife

was placed on probation for a term of

3 years. The two were jointly

ordered to make full restitution of the

loss to TVA—$100,224. (During a

previous period, a jury in the Middle

District of Florida convicted the

former steamfitter on five counts of

making false statements to obtain

OWCP benefits. The jury also found

the individual and his wife guilty of

conspiracy in connection with his

fraudulent claims.)

■ A federal judge sentenced a former

Colbert Steam Plant steamfitter to

three years’ probation, to include six

months’ home detention, and

ordered him to pay partial restitution

to TVA. (During a previous period,

the former steamfitter pled guilty to

making a false statement to obtain

OWCP benefits.)

■ A federal judge sentenced a former

TVA carpenter to four years’ probation, to include six months’ home

detention. Additionally, the individual

was ordered to pay restitution to

TVA. (During a previous period, the

former carpenter pled guilty to four

counts of making false statements to

obtain OWCP benefits. As part of

the individual’s plea, he agreed to

pay $46,626 in restitution.)

ENVIRONMENTAL CRIMES JOINT

TASK FORCE (ECJTF)

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

comprised of members from numerous

state and federal agencies, including the

OIG, FBI, Environmental Protection

Agency, and Department of Justice.

Our participation in ECJTF furthers one

of TVA’s corporate goals—“Supporting a

thriving river system.”

ECJTF focuses enhanced law enforcement resources against individuals and

companies involved in environmental

crimes and prosecutes those individuals

and companies by applying the most

effective federal and state criminal and

civil statutes.

Highlights of investigative results during

this reporting period include the

following.

■ A Tennessee coal company, its

president, and its chief engineer pled

guilty to violating the Clean Water Act

by negligently discharging, and
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

causing to be discharged, mine

waste water without a permit.

The waste water was discharged

from a mine that had not been active

in over 75 years. As mining operations nearby approached the inactive

mine, concern existed that if the

miners “punched through” to the

inactive mine, sudden flooding could

occur, endangering the active mine

and the miners within. Water was

subsequently drained from the

inactive mine into United States

waters, despite the lack of a permit

to discharge the waste water. The

coal company was fined $19,000

and agreed to pay $175,000 to be

used for environmental protection.

The company’s president and chief

engineer were each fined $3,000.

■ An individual who previously pled

guilty to illegally discharging waste oil

into United States waters in Bradley

County, Tennessee, in violation of the

Clean Water Act, was sentenced

during this reporting period to nine

months’ home detention and three

years’ probation.

FALSE CLAIMS - TEMPORARY

LIVING EXPENSES (TLE)

We continued our efforts to reduce TVA

contract costs by identifying fraudulent

and ineligible TLE paid to TVA contractors. During this reporting period, our

TLE investigations led to recoveries of

over $63,800. Specifically,

■ A federal judge sentenced a former

United Energy Services Corporation

(UESC) contractor at Watts Bar

Nuclear Plant (WBN) to pay full

restitution of $37,087 and placed him

on probation for a term of three

years, to include three months’

home detention. (During a previous

reporting period, the former contractor pled guilty in federal court to two

counts of submitting false claims to

receive TLE, and he stipulated his

responsibility for the acts charged in

60 additional counts.)

■ A federal judge sentenced another

former UESC/WBN contractor to

three years’ probation and ordered

him to pay a $1,000 fine and to

make full restitution of $26,263 to

TVA. (During a previous period, the

former contractor pled guilty to

submitting false statements to

receive TLE.)

EMPLOYEE MISCONDUCT

■ Investigation revealed that a former

TVA senior project manager used a

TVA credit card for personal

purchases (including motorcycle

repairs), and evidence indicated he

I N V E S T I G A T I O N S

14
TVA/OFFICE OF THE INSPECTOR GENERAL

I N V E S T I G A T I O N S

15

reimbursed TVA for the purchases of

over $900 only because the OIG

questioned them.

The senior project manager resigned

during our investigation. In addition,

based on our findings, management

reminded all employees in the former

manager’s organization of the

responsibilities and limitations associated with the use of TVA credit cards

and put in place improved controls

and checks for timely reporting and

approvals.

■ Investigation revealed a TVA Nuclear

(TVAN) employee violated TVAN

policy by failing to report he was

arrested, and the individual subsequently made false statements to

management and the OIG concerning his arrest record. Additionally,

evidence indicated the employee

attempted to steal TVA property and

verbally threatened a subordinate.

Following our report to management,

the employee resigned in lieu of

termination.

■ We investigated a report that a TVA

employee was observed concealing

a weapon on his person and subsequently entering TVA premises. Our

immediate investigation determined

the employee, who had rented a

vehicle for official TVA business, had

placed a semiautomatic pistol in the

glove box of the vehicle, then parked

it on TVA property.

The employee offered to the OIG as

mitigating circumstances that he

normally carried the pistol for personal

protection. (Although we confirmed

the employee carried a permit from

the State of Tennessee to carry a

concealed firearm, such weapons on

site are prohibited.) At the conclusion

of the individual’s OIG interview, he

unloaded the firearm and removed it

from TVA property. Management

counseled the employee and issued

a disciplinary warning letter.

BACKGROUND INVESTIGATIONS

At the request of TVA management, we

continued to perform background

investigations for sensitive positions and

for national security clearances. These

investigations ensure individuals being

hired for sensitive positions meet

applicable requirements. By using the

OIG rather than the Office of Personnel

Management to perform these investigations, TVA saves an average of over

$2,000 per investigation.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999 16

I N V E S T I G A T I O N S

*Prosecutive referrals are shown at Appendix 3.

14.5%

22%

Resignations/

Terminations Suspensions/

Demotions

Administrative and Disciplinary Actions Since

October 1, 1992*

Total = 432

Oral/Written

Warnings

Reemployment

Flagged

17.5% 11.5%

26%

CAO/

Business Services

Transmission & Power Supply

44%

6%

Fossil Power

TVA Nuclear

4.5% 3%

12%

4.5%

Other

River System Operations

& Environment

Customer Service &

Marketing

The breakdown of the 66 closed investigations involving

TVA organizations are shown below.

34.5%

Counseling/

Management Techniques
TVA/OFFICE OF THE INSPECTOR GENERAL

All Hotline Contacts During This Reporting Period

Total = 3,223

TVA/Contractor

Employees &

Contractor Companies

General

Public

Former TVA/Contractor

Employees

41.5% 41.5%

13%

Information

Requests

Referrals for

OIG Investigations or

Audit Action

OIG Business

Calls

Referrals to TVA

for Management Action

1.5%

25.5%

.5%

72.5%

Nature of Calls

Referrals for OIG Investigations or Audit Action

Total = 46

Sources of Calls

Raising Concerns

4% Anonymous

17

I N V E S T I G A T I O N S
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999 18

In addition to conducting audits and

investigations, our office continues to

perform special projects upon request

by our customers, primarily the Board of

Directors, TVA management, and

Congress. During this reporting period,

we conducted 18 such projects.

CONCERNS RESOLUTION

PROGRAM

In 1986, TVA committed to the Nuclear

Regulatory Commission (NRC) that this

office would periodically review TVA’s

Concerns Resolution Program regarding

employee and contractor willingness to

report nuclear safety and quality

problems. For the last four review

cycles, we used a standardized survey

approach which enables us to compare

and trend survey results.

During this period, we surveyed a

sample of TVAN employees and

contractor employees at all nuclear

sites. We also reviewed closed investigative files as well as historical NRC

allegation data pertaining to the TVA

nuclear program. In summary, we

found (1) the workforce generally felt free

to raise nuclear safety and quality

issues, (2) issues associated with the

closed files are reviewed, and (3) the

number of allegations made directly to

NRC by TVAN’s workforce has declined

since 1993.

S P E C I A L P R O J E C T S ■

TVA RISK MANAGEMENT

At the request of TVA management, we

reviewed TVA’s electricity trading

processes, proposed procedures for

limited financial trading, and draft

specifications for a new bulk power

transaction management system. As a

result of these reviews, we suggested

that TVA management:

■ Consider establishing an enterprisewide risk policy for TVA that defines

TVA’s appetite for significant risks.

■ Consider establishing an independent

risk management function to implement the risk policy.

■ Address power trading control

concerns in the areas of organizational clarity, risk limits and vulnerabilities, and trading systems and

processes.

■ Enhance and clarify the audit trail and

other security and control provisions

in the specifications for a new

transaction management system.

TVA’s Board subsequently requested us

to draft an enterprise-wide risk policy.

The project will be completed in April

1999.
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

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

Appendix 1

Page 1 of 2

OIG AUDIT REPORTS ISSUED DURING

THE SIX-MONTH PERIOD ENDING MARCH 31, 1999

The following table summarizes final audit reports issued by the OIG from October 1, 1998 through March 31, 1999.

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

10/7/98 98-060F Bear Creek Development

Authority

10/7/98 98-067C Hartford Steam Boiler

Proposal - Nuclear

Inspection Services $196,000

10/16/98 98-059F Review of J-Type Contracts

and Associated Internal

Controls

10/20/98 98-053F Delivered Cost of Power and

Energy Sales Growth

10/23/98 98-022C-01 Coopers & Lybrand -

Review of Costs Billed Under

Knoxville Contracts $80,761

10/23/98 98-022C-02 Coopers & Lybrand -

Review of Houston Contract 82,908

10/23/98 98-022C-03 Coopers & Lybrand -

Review of Atlanta Contract 18,956

10/29/98 98-062C P & A Consultants, Corp. -

Preaward

10/30/98 98-072C Centennial Resources, Inc. -

Contract

11/3/98 98-043C Mesa Associates, Inc. - Contract 71,498 608,502

11/3/98 98-063C Ecolochem, Inc. - Contract 1,043

11/6/98 98-068C Peabody Coal Company - Contract

11/17/98 99-010F TVA Compliance With Federal

Energy Regulatory Commission

Uniform System of Accounts

11/25/98 98-052C Martin-Williams International,

Inc. - Contract 24,000

12/11/98 98-006C TSW International - Contract 22,940

12/17/98 98-066F TVA’s Annual Financial

Statement Audit - FY 1998
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

FUNDS

DATE REPORT QUESTIONED UNSUPPORTED TO BE PUT TO

ISSUED NUMBER REPORT TITLE COSTS COSTS BETTER USE

12/21/98 99-012C Lodestar Energy, Inc. - Contract

1/5/99 99-002C International Business Machines,

Inc. - Contract

1/5/99 99-004C Telos Field Engineer - Contract

1/5/99 99-006C A&G Tree Service - Contract

1/11/99 99-005C Porter-Walker, Inc. - Contract

1/11/99 99-023C Utility Translation System - Review

of Terminated Contract Costs $4,926 $1,926 $51,750

1/13/99 99-013C Mountain Coal Company LLC -

Contract

1/15/99 99-016C G-UB-MK - Preaward 7,547 7,547

1/20/99 99-007C Terra International, Inc. - Contract

1/20/99 99-015C East Tennessee Mechanical

Contractors - Contract 9,933 9,933

1/25/99 99-017C Roberts & Schaefer - Preaward 320,519

1/27/99 99-011C Cendant Mobility - Contract 13,236

2/19/99 98-061C Mesa Associates, Inc. - Contract 130,764

2/24/99 97-004P Review of Prescription Drug Program

Administered by BCBS-TN 401,468

2/24/99 98-055C BFI - Contract

3/9/99 98-075C Cormetech, Inc. - Preaward 200,800

3/9/99 99-008P Blue Cross Blue Shield of

Tennessee’s Proposed

Administrative Fees - Preaward

3/18/99 98-051C L. E. Meyers - Contract 291,142 291,142

3/18/99 99-009C Marathon Consulting Group,

Inc. - Contract

3/22/99 99-021C Union Pacific Railroad - Contract

3/23/99 99-033F Verification of Facts Data

3/26/99 99-039C Gartner Group - Contract

TOTAL 38 $1,137,122 $ 310,548 $1,401,571

Appendix 1

Page 2 of 2
TVA/OFFICE OF THE INSPECTOR GENERAL

OIG’S REPORT ON MANAGEMENT DECISIONS FOR THE

SIX-MONTH PERIOD ENDING MARCH 31, 1999

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

contained in final audit reports. The tables reflect amounts which were questioned and recommended to be put to better

use and track the disposition of these amounts through management decision.

TABLE I

TOTAL QUESTIONED AND UNSUPPORTED COSTS

NUMBER QUESTIONED UNSUPPORTED

AUDIT REPORTS OF REPORTS COSTS COSTS

A. For which no management

decision has been made by

the commencement of the period 1 $44,668 0

B. Which were issued during

the reporting period 13 1,137,122 $310,548

Subtotal (A + B) 14 $1,181,790 $310,548

C. For which a management

decision was made during

the reporting period 13 1,051,026 310,548

1. Dollar value of

disallowed costs 12 990,562 308,622

2. Dollar value of

costs not disallowed 3 60,464 1,926

D. For which no management

decision has been made by

the end of the reporting

period 1 130,764 0

E. For which no management

decision was made within

six months of issuance 0 0 0

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

and not disallowed by management.

*

*

Appendix 2

Page 1 of 2
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

TABLE II

FUNDS TO BE PUT TO BETTER USE

NUMBER FUNDS TO BE PUT

AUDIT REPORTS OF REPORTS TO BETTER USE

A. For which no management

decision has been made by

the commencement of the period 0 0

B. Which were issued during

the reporting period 6 $1,401,571

Subtotal (A + B) 6 $1,401,571

C. For which a management

decision was made during

the reporting period 6 1,401,571

1. Dollar value of

disallowed costs 5 980,252

2. Dollar value of

costs not disallowed 2 421,319

D. For which no management

decision has been made by

the end of the reporting

period 0 0

E. For which no management

decision was made within

six months of issuance 0 0

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

disallowed and not disallowed by management.

Appendix 2

Page 2 of 2

*

*
TVA/OFFICE OF THE INSPECTOR GENERAL

INVESTIGATIVE REFERRALS AND PROSECUTIVE RESULTS

INVESTIGATIVE REFERRALS SUBJECTS RESULTS THIS PERIOD

Subjects referred to U.S. Attorneys 4 6 Indicted

9 Convicted

10 Referrals Declined

Subjects referred to other agencies 4 OWCP reduced benefits of one

for investigative or administrative action individual, terminated benefits for

two individuals, and suspended

TOTAL 8 benefits for another, resulting in

long-term savings of $1,875,958.

Appendix 3

Page 1 of 1
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

May 7, 1999

TO THE UNITED STATES CONGRESS:

We are providing TVA’s Report on Final Actions on Inspector General audit recommendations, in

keeping with Section 5(b) of the Inspectors General Act of 1978, as amended.

The members of the TVA Board appreciate the work of the Inspector General’s office in helping TVA

improve its efficiency, productivity, and competitiveness as we strive to meet our goals and position

TVA to compete in the global marketplace of the 21st century.

Sincerely,

Craven Crowell

Enclosure

Appendix 4

Page 1 of 4
TVA/OFFICE OF THE INSPECTOR GENERAL

TVA MANAGEMENT’S REPORT ON FINAL ACTIONS FOR THE SIX-MONTH

PERIOD ENDING MARCH 31, 1999

The following Tables I and II summarize final action taken by management on OIG audit reports. The tables reflect

amounts which were agreed to by management and track the disposition of these amounts through final action.

Table III contains the explanations by audit report for final actions not taken within one year of the management

decision dates.

TABLE I

DISALLOWED COSTS

NUMBER AMOUNTS

OF AGREED TO BY

AUDIT REPORTS REPORTS MANAGEMENT

A. For which final action by

management had not been

taken by the commencement

of the period 12 $4,359,550

B. On which management decisions

were made during the reporting

period 13 990,562

Subtotal (A + B) 25 $5,350,112

C. For which final action was

taken by management during the

reporting period 15 1,613,861

1. Amounts that were

recovered by management 15 1,353,114

2. Amounts that were not

recovered by management 7 260,747

D. For which management has

taken no final action by

the end of the reporting period 11 3,736,251

* The total number of reports differs from the sum of C.1 and C.2 when a final audit action includes both amounts

recovered and amounts not recovered for a single audit report.

*

*

Appendix 4

Page 2 of 4
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

TABLE II

RECOMMENDATIONS THAT FUNDS BE PUT

TO BETTER USE

NUMBER AMOUNTS

 OF AGREED TO BY

AUDIT REPORTS REPORTS MANAGEMENT

A. For which final action by

management had not been

taken by the commencement

of the period 1 $1,408,000

B. On which management decisions

were made during the reporting

period 6 980,252

Subtotal (A + B) 7 $2,388,252

C. For which final action was

taken by management during

the reporting period 5 371,750

1. Dollar value of

recommendations

implemented by

management 5 358,850

2. Dollar value of

recommendations

not implemented by

management 1 12,900

D. For which management has

taken no final action by

the end of the reporting period 2 2,016,502

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

recommendations implemented and recommendations not implemented for a single audit report.

Appendix 4

Page 3 of 4

*

*
TVA/OFFICE OF THE INSPECTOR GENERAL

TABLE III

EXPLANATIONS FOR FINAL ACTIONS NOT TAKEN

AUDIT REPORT DATE DISALLOWED FUNDS PUT TO EXPLANATION FINAL

NUMBER ISSUED COSTS BETTER USE ACTION NOT TAKEN

Review of Environmental 1/3/97 N/A N/A TVA has finalized a new

Restricted Awards List procedure which will be issued

Contracting Process to all organizations.

96-056P

Review of Contractor’s 6/6/96 $1,073,291 $1,408,000 TVA is assessing options.

Financial Condition

96-035P

TVA Nuclear Contractor 5/2/97 15,195 0 TVA is processing final

97-020C settlement with the contractor.

N/A - Not Applicable

NOTE: This table excludes two reports in judicial appeal according to the reporting guidelines of the

Inspector General Act.

Appendix 4

Page 4 of 4
SEMIANNUAL REPORT/OCTOBER 1, 1998 ~ MARCH 31, 1999

OIG REPORTING REQUIREMENTS

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

indicated below.

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

Section 5(a)(1) Significant Problems, Abuses, and Pages 6-18

Deficiencies

Section 5(a)(2) Recommendations With Respect to Pages 6-18

Significant Problems, Abuses, and

Deficiencies

Section 5(a)(3) Recommendations Described in Previous None

Semiannual Reports on Which Corrective

Action Has Not Been Completed

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

Authorities and the Prosecutions

and Convictions That Have Resulted

Sections 5(a)(5) Summary of Instances Where Information **

and 6(b)(2) Was Refused

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

Section 5(a)(7) Summary of Particularly Significant Reports Pages 9-18

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

Audit Reports Containing Questioned Costs

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

Audit Reports Containing Recommendations

That Funds Be Put to Better Use

Section 5(a)(10) Summary of Unresolved Audit Reports Page 11

Issued Prior to the Beginning of the

Reporting Period

Section 5(a)(11) Significant Revised Management Decisions ***

Section 5(a)(12) Significant Management Decisions With ****

Which the Inspector General Disagreed

* There were no significant legislation or regulations reviewed during this reporting period.

** There were no instances where information or assistance was unreasonably refused or not provided.

*** There were no significant revised management decisions.

**** There were no significant management decisions with which the Inspector General disagreed.

Appendix 5

Page 1 of 1
TVA/OFFICE OF THE INSPECTOR GENERAL

FOR SEMIANNUAL REPORTING PERIODS

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

1999 1998 1998 1997 1997

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

CURRENT STAFFING 81 83 81 83 86

AUDITS & SPECIAL PROJECTS

AUDITS IN PROGRESS

Carried Forward 40 46 40 34 41

Started 42 34 50 46 29

Canceled (11) (13) (14) (10) (14)

Completed (38) (27) (30) (30) (22)

In Progress at End of Reporting Period 33 40 46 40 34

AUDIT RESULTS (Thousands)

Questioned Costs $1,137 $1,769 $1,191 $552 $602

Disallowed by TVA 946 1,656 636 530 542

Recovered by TVA 607 110 2,029 434 434

Funds to Be Put to Better Use $1,402 $220 $2,359 $10,585 $1,671

Agreed to by TVA 980 5,169 696 5,707 5,262

Realized by TVA 389 136 696 1,078 4,494

SPECIAL PROJECT RESULTS

Completed 18 11 13 24 15

Cost Savings Identified/

 Realized (Thousands) 0 $14,704 $843 $5,700 $38,200

INVESTIGATIONS

INVESTIGATION CASELOAD

Opened 59 78 78 56 96

Closed 66 81 74 77 93

In Progress at End of Reporting Period 133 140 144 139 160

INVESTIGATIVE RESULTS (Thousands)

Recoveries $1,145 $284 $946 $481 $2,439

Savings 1,912 3,388 645 9 2,377

Fines/Penalties 27

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 19 20 24 12 21

Actions Taken (# of Subjects) 11 22 12 14 15

Counseling/Management

 Techniques (# of Cases) 4 8

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 4 12 11 15 22

Indicted 6 5 2 7 1

Convicted 9 9 6 3 8

* Category added to Highlights during reporting period indicated.

H I G H L I G H T S

*

*
OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1499