Office of the Inspector General

Semiannual Report

October 1, 2003 ~ March 31, 2004

2004
The Office of the Inspector General

(OIG) is an independent organization

charged with reporting to the

Tennessee Valley Authority (TVA)

Board of Directors and Congress on

the overall efficiency, effectiveness,

and economy of TVA programs and

operations. The OIG meets this

responsibility by conducting audits,

investigations, and other reviews.

The OIG focuses on the prevention,

identification, and elimination of

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

and (3) inefficiencies in TVA programs

and operations.

If you want to report any matter

involving TVA programs, operations,

or employees, you should call the

OIG Hotline or write the Inspector

General’s office at the address or

number listed on the back cover.
Tennessee Valley Authority

Office of the Inspector General

Message From the Inspector General

As we continue to mark the 25th Anniversary of the Inspector General Act, we devote a portion of this

report to note the TVA OIG accomplishments over the last 18 years. Reflecting on the contributions we have

added to TVA over these many years demonstrates the value of independent reviews of TVA programs and 

personnel. On our contract audit efforts alone (including preaward audits), our office has identified on average

about $30 million annually in savings and potential avoided costs since 1986. While the work of the OIG has 

contributed to TVA’s “bottom line,” that is only part of the story. Much of our work focuses on strengthening 

controls at TVA in significant ways which cannot always be measured in dollars and cents. This is particularly

critical given widely reported corporate failures in recent years.

As reflected in this semiannual report, we continue to both add to TVA’s “bottom line” and to encourage

implementing and maintaining proper internal controls over TVA programs, practices, and systems. Our

preaward contract audits identified $12 million in potential savings, contract compliance audits identified nearly 

$5 million in questioned costs, and we found that TVA had miscalculated and misapplied indirect cost recovery

rates that resulted in underrecovery of $9.4 million of TVA’s indirect costs from the Department of Energy in 

connection with the tritium program. On the control side, we examined TVA’s 2003 financial statements and

found no material problems, recommended enhancement of the enterprise-wide risk management program, and

completed five audits that concluded that TVA’s information technology security system has improved due in part

to an increased emphasis on incorporating security best practices. 

This semiannual report comes with a new feature, “Highlights,” which is designed to summarize the

report and provide a helpful key to matters of interest to our stakeholders. We are dispensing with the hard copy

of the report in favor of the e-government format of a compact disc and access on our website,

www.oig.tva.gov, from which the entire report can be printed if desired. We are interested in feedback on this

new feature. 

I am gratified by the support for our work from the TVA Board, TVA management, and Congress. We

appreciate this support and are committed to continuing the OIG tradition of adding value to the work of TVA as

we have for all these many years.

Richard W. Moore

Inspector General

April 30, 2004
Table of Contents

TVA Office of the Inspector General

Executive Summary 1

TVA Profile 3

Office of the Inspector General 4

TVA’s Strategic Plan 13

Audits 15

Investigations 23

Legislation and Regulations 32

Appendices 34

Appendix 1 Index of Reporting Requirements Under the Inspector General Act 35

Appendix 2 Audit Reports Issued 36

Appendix 3 Audit Reports Issued With Questioned Costs and Recommendations for Better Use of Funds 39

Appendix 4 Audit Reports With Corrective Actions Pending 41

Appendix 5 Investigative Referrals and Prosecutive Results 43

Highlights 44
Executive Summary

page 1 October 1, 2003 ~ March 31, 2004

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

audits, investigations, and other projects. In accordance with our mission, our reviews

are designed to promote economy, effectiveness, and efficiency while detecting and

preventing fraud, waste, and abuse. In total, we identified over $30 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, 2003 ~ March 31, 2004

Audit Reports Issued 39

Questioned Costs $14,127,000

Funds Put to Better Use $11,904,000

Funds Recovered/Disallowed $11,150,000

Investigations Opened 162

Investigations Closed 76

Fines/Recoveries/Restitution/Savings $4,285,000

Criminal Actions 6

Administrative Actions (No. of Subjects) 75

Our 39 audits and 30 other audit-related projects during this reporting period resulted in

significant questioned costs and identification of areas for improvement. Highlights for

this semiannual period included identification of (1) about $4.7 million in questioned

costs and $12 million in funds which could be put to better use from our contract

audits, (2) needed improvements in TVA’s calculation and application of indirect cost

recovery rates, (3) about $9.4 million in underrecovered costs from the Department of

Energy (DOE) for the tritium program, and (4) needed improvements in the areas of

information technology (IT) security and TVA’s enterprise-wide risk management 

program. We also noted many positives in TVA activities. For example, our review of

TVA’s external audit for fiscal year (FY) 2003 identified no material problems with the

external auditor’s performance of the audit, and we noted TVA has made improvements

in its network monitoring process and increased the emphasis on incorporating security

best practices when implementing new IT equipment.
Executive Summary

TVA Office of the Inspector General page 2

During this reporting period, our special agents were commissioned with full law

enforcement authority under the Homeland Security Act of 2002 and the Attorney

General Guidelines for Inspectors General with Statutory Law Enforcement. We also

increased our focus on identifying and seeking prosecution of fraud. Investigative highlights included sentencing of an individual who submitted falsified documents to obtain

a $100,000 economic development loan, estimated avoided future workers’ compensation costs exceeding $857,000, and termination of a TVA employee whose credit card

misuse exceeded $25,000. We also continued our participation on three interagency

task forces––Terrorism, Environmental Crimes, and Health Care Fraud. These task

force arrangements allow individual agencies to pool resources to more effectively 

combat crime.

Definitions

Questioned Costs - A cost that

is unnecessary, unreasonable, 

unsupported, or an alleged 

violation of law, regulation, 

contract, etc.

Unsupported Costs - A 

questioned cost that is not 

supported by adequate 

documentation.

Funds Put to Better Use - Funds

that could be used more 

efficiently by implementing 

recommended actions.

Disallowed Costs - A cost that 

management agrees should not

be charged to TVA.
TVA Profile

page 3 October 1, 2003 ~ March 31, 2004

TVA was created during 1933. President Franklin Roosevelt asked Congress to create

“a corporation clothed with the power of government but possessed of the flexibility

and initiative of a private enterprise.” On May 18, 1933, Congress passed

the TVA Act, creating TVA as a federal corporation whose primary 

purposes are to provide flood control, navigation, and electric power in the

Tennessee Valley region. 

Today TVA is the nation’s largest public power company. TVA’s power

facilities include 11 fossil plants, 29 hydroelectric dams, 3 nuclear plants,

6 combustion turbine plants, a pumped-storage 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 by 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 where each dam operates

in relationship to the others for multiple purposes and public benefits, including minimizing flooding, maintaining navigation, providing recreational opportunities, and protecting

water quality in the 41,000-square-mile watershed. 

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

which helps attract and retain industries that provide quality jobs in the region. TVA

also helps communities promote sustainable economic development by providing assistance in job creation and retention and productivity improvements via capital investment, support of business incubators, specialized technical services and advice, and

recruitment for new and existing industries. 
Office of the Inspector General

TVA Office of the Inspector General page 4

Office Authority

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

under the Inspector General (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. The IG’s authority includes

conducting audits or investigations the IG deems necessary or desirable, issuing 

subpoenas, administering oaths, and granting confidentiality to individuals who provide

information to the OIG.

Organization

The OIG’s primary location is in the TVA headquarters in Knoxville, Tennessee. The OIG

also has a 12-person Inspections unit located in Chattanooga, Tennessee, and a 

1-person office at the Browns Ferry Nuclear Plant in Alabama. During this reporting

period, the OIG consisted of three primary components: Audits, Investigations, and

Inspections. In addition, the OIG has separate offices for Human Resources and Legal

Counsel.

AUDIT OPERATIONS

Audit Operations (AO) conducts and/or supervises comprehensive financial and performance audits of TVA programs and operations and makes recommendations to

ensure that program objectives and operational functions are achieved effectively and

efficiently. AO develops an annual audit plan to enable effective allocations of audit resources to issues, programs, operations, and activities

that expose TVA to significant risks and/or vulnerabilities. 
Office of the Inspector General

page 5 October 1, 2003 ~ March 31, 2004

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

Information Technology Audits. 

 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.

 Information Technology 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.

AO refers possible fraud or other wrongdoing by contractors, employees, or others

identified during its audits to Investigative Operations for further review. As needed, AO

also provides data mining and other assistance to or performs joint projects with the

Inspections and Investigations units.
Office of the Inspector General

TVA Office of the Inspector General page 6

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, loan recipients,

and others. 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. 

During this reporting period, IO employees received full law enforcement authority 

pursuant to Section 812 of the Homeland Security Act of 2002 and the Attorney

General Guidelines for Inspectors General with Statutory Law Enforcement issued on

December 8, 2003. During a commissioning ceremony in January 2004, United States

District Court Judge Thomas W. Phillips administered the oath to our law enforcement

agents. That ceremony recognized two milestones in the TVA OIG: (1) the receipt of

full statutory law enforcement authority and (2) a new investigative initiative to identify

and eradicate fraud against and within TVA. 

January 2004 Commissioning Ceremony
Office of the Inspector General

page 7 October 1, 2003 ~ March 31, 2004

INSPECTIONS

The Inspections unit, which is staffed by auditors and investigators, was formed at the

beginning of FY 2004. This unit functions in the model of a task force whose primary

mission is to identify fraud against TVA and seek prosecution of those responsible for

that fraud. By combining the respective talents of auditors and agents in a single unit,

we can more effectively pursue complex fraud cases. In addition, Inspections also will

conduct policy and program evaluations to promote economy and efficiency in the

management and administration of TVA programs and to prevent and detect fraud,

waste, and abuse. In accordance with the Quality Standards for Inspections, the objectives of inspections 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.

During this period, Charles A. Kandt, Assistant Inspector General for Inspections, was

called up to active duty in the Middle East. Mr. Kandt is a Lt. Colonel in the Army

Reserves and has been a JAG officer for 23 years. During his absence, G. Donald

Hickman, Assistant Inspector General for Investigations, is serving a dual role in heading

up both Investigations and Inspections.
Office of the Inspector General

TVA Office of the Inspector General page 8

Inspector General

Legal Counsel

Assistant Inspector

General (Audits)

Human Resource

Manager

Assistant Inspector

General (Investigations)

Assistant Inspector

General (Inspections)

Contract Audits

Financial/Operational

Audits

Information Technology

Audits 

Information Technology

Investigations 

Internal Investigations 

Financial Investigations Evaluations & Special

Inquiries

Contacts

Inspector General

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

Legal Counsel

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

Human Resource Manager

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

OIG Media Relations

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

Assistant Inspector General (Audits)

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

Assistant Inspector General (Investigations)

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

Assistant Inspector General (Inspections)

Charles A. Kandt . . . . . . . . . . . .(423) 751-4420

Contract Audits Manager

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

Financial/Operational Audits Manager

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

Information Technology Audits Manager

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

Audit Quality Manager

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

Information Technology Investigations

Manager

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

Internal Investigations Manager

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

Financial Investigations Manager

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

Evaluations & Special Inquiries Manager

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

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

OIG website: http://oig.tva.gov
Office of the Inspector General

page 9 October 1, 2003 ~ March 31, 2004

The Inspector General Act––Recognizing 25 Years of

Accomplishments

The IG Act became law on October 12, 1978, “to create independent

and objective units” for the following purposes:

 To conduct and supervise audits and investigations relating to

the programs and operations of their agencies;

 To provide leadership and coordination and recommend policies

for activities designed (1) to promote economy, efficiency, and effectiveness in the

administration of and (2) to prevent and detect fraud and abuse in, such programs

and operations; and

 To provide a means for keeping the head of the establishment and the Congress fully

and currently informed about problems and deficiencies relating to the administration

of such programs and operations and the necessity for and progress of corrective

action.

Because of problems in its nuclear program, the TVA Board adopted a resolution on

October 18, 1985, creating an IG position at TVA. Then Board Chairman Charles H.

“Chili” Dean stated “we need to develop more permanent systems for receiving and

investigating employee concerns. It appears that the formation of an Office of the

Inspector General within the agency, which would report to the Board and to the

Congress, would offer such a permanent vehicle.” Director John Waters added, “A

highly qualified Inspector General who occupies a position of independence, power, and

prestige within this organization should help to promote the efficiency and increase the

effectiveness of all TVA activities.” 

Major General von Steuben
Office of the Inspector General

TVA Office of the Inspector General page 10

TVA OIG accomplishments over the past 15 years include the following.

 In total, our contract audit efforts, including preaward audits, have identified since

1986 on average about $30 million annually in savings and potential avoided

costs. We have performed over 260 preaward audits, where our objective is to

determine if the contractor’s proposed costs are fairly stated and provided information regarding the contractor’s proposals to management to help in the 

negotiation of the best deal for TVA. Taken in conjunction with our findings,

management actions, including contract negotiations and decisions, have led to over

$328 million in savings for TVA prior to contract award. Similarly, we have 

conducted over 300 postaward contract audits which have identified 

overbillings, duplicate charges, overstated rates, ineligible charges, etc., 

and TVA management has disallowed or recovered nearly $105 million. 

 The OIG and TVA management share a commitment to improve the operation

and cost effectiveness of TVA’s workers’ compensation program, which pays

out roughly $60 million annually. In addition to working collaboratively on initiatives to

identify and eliminate unnecessary costs, our investigations of potential worker’s

compensation fraud have resulted in 42 convictions, nearly $6 million in recoveries, and over $71 million in avoided future costs. These convictions primarily

resulted from individuals who were receiving benefits but failed to disclose to the

Office of Workers’ Compensation Programs (OWCP) that they were employed

elsewhere. 

 We have committed significant resources to assessing vulnerabilities in TVA’s IT 

infrastructure, including penetration testing, pre-assessments, self-assessments, 

vulnerability assessments, and security audits. Our undertakings have significantly

helped TVA in its efforts to identify risks and take remedial steps which are key to

TVA’s ability to comply with the Federal Information Security Management Act.

 We have devoted numerous resources to conducting operational reviews of 

various TVA programs such as economic development loans, health benefits,

materials management, safety, dam safety, executive compensation and benefits,

Norman Zigrossi

First Inspector General

WIlliam Hinshaw

Second Inspector General

George Prosser

Third Inspector General

Richard Chambers

Fourth Inspector General
Office of the Inspector General

page 11 October 1, 2003 ~ March 31, 2004

contracting processes, setting of power rates, facilities, and the nuclear 

decommissioning fund. As a result of our reviews, TVA has made numerous

process improvements that enable TVA to operate more effectively and efficiently.

For example, our review of the nuclear decommissioning fund found TVA could save

an estimated $49 million in management fees over the life of the fund if TVA modified

its investment strategy. TVA has since made modifications to its investment strategy.

 Implementing and maintaining proper internal controls over TVA programs, practices,

and systems has been a focal point for OIG and TVA management, especially in light

of the corporate failures in recent years. The OIG has devoted significant resources

to performing internal control reviews. These reviews have been in areas such as

purchasing cards, hospitality expenditures, contributions, long-term debt, special

financing activities, travel, accounts payable, tax-equivalent payments, revenue,

billing, and other financial practices. We have also worked with TVA on being 

proactive with establishment of internal controls. At the request of TVA, we have

performed pre-implementation reviews of new systems to ensure proper controls are

included when a system is implemented. The results of these reviews have allowed

TVA to remediate identified deficiencies in internal controls which will ultimately help

TVA voluntarily meet the intent of the Sarbanes-Oxley Act of 2002.

 Our investigations into potential contractor fraud in per diem payments and the coal

area have resulted in nearly 30 convictions and roughly $8 million in recoveries. In

the per diem area, we have identified contractor employees who falsely certified they

had a permanent residence elsewhere so they could receive a temporary living

allowance while working at TVA. In the coal area, we found overbilling, questionable

coal weighing techniques, product substitutions, and fraud. 

On October 14, 2003, President George W. Bush met with the Inspectors General to

honor and recognize the 25th anniversary of passage of the IG Act. President Bush

applauded the IGs for their dedication to their mission of combating fraud, waste, and

abuse to make programs work better for the people. He also commended the 

community’s vigilance to remain “agents of positive change.” 
Office of the Inspector General

TVA Office of the Inspector General page 12

On December 1, 2003, the President signed a joint congressional resolution which

commended the IGs for their efforts during the past 25 years. That resolution recognized the many accomplishments of the IGs in preventing and detecting waste, fraud,

abuse, and mismanagement; commended the IGs and their employees for their dedication and professionalism; and reaffirmed the role of IGs in promoting economy, 

efficiency, and effectiveness in the administration of the programs and operations of the

federal government. We are proud to be a part of that tradition.

Meeting with President Bush
TVA’s Strategic Plan

page 13 October 1, 2003 ~ March 31, 2004

While the OIG maintains independence from TVA operations and management, we are

committed to promoting TVA’s success. TVA’s fundamental mission––to provide 

affordable and reliable electric power, environmental stewardship, and leadership in 

sustainable economic development for the people of the Tennessee Valley––has

remained unchanged for over 70 years. In today’s changing environment, TVA faces

many challenges in preserving its mission and remaining financially sound. The OIG 

recognizes these challenges and is committed to continuing and enhancing our 

presence in areas that will assist TVA in meeting its mission.

In January 2004, the TVA Board approved the TVA Strategic Plan. This Plan provides a

framework for preserving TVA’s core mission and remaining financially sound in a 

competitive market. The plan addressed changes

in TVA’s business and regulatory environment;

focused on the five vital areas of river system 

operations, generation, transmission, customer products and services, and economic

development; and reflected upon financial implications of the environment changes.

TVA plans to focus on the following four areas for the next several years:

 Developing new, more highly differentiated prices, services, and customer contract

terms that more closely tie the cost and the risk of each TVA product to the contract

terms and pricing.

 Addressing the range of issues related to wholesale market design and transmission

pricing, including how TVA will interface with the markets that are expected to 

surround the service area, as well as how TVA will price transmission 

services within the Valley when distributors can choose other suppliers.

 Accelerating debt reduction so that TVA has the financial flexibility needed

to thrive in a more competitive environment.

 Maintaining and operating generation and transmission assets to continue

to fulfill supply obligations in a safe and reliable manner.
TVA’s Strategic Plan

TVA Office of the Inspector General page 14

OIG activities have been supportive of TVA’s strategic direction in the past as reflected

throughout this and prior reports and will continue to do so in the future. An obvious

and quantifiable contribution the OIG makes is the monetary savings and recoveries

that are a direct result of our audits and investigations. Contributions from our audits

and investigations also have resulted in improvements in (1) the effectiveness and 

efficiency of various TVA programs such as workers’ compensation, economic development, and environmental management; (2) internal controls over financial reporting;

(3) contracting practices; and (4) physical and cyber security of TVA’s infrastructure. We

will continue to undertake projects, whether initiated by the OIG or requested by TVA

management, which can contribute to TVA’s success.
Audits

page 15 October 1, 2003 ~ March 31, 2004

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 39 audits which identified over

$14 million in questioned costs and almost $12 million in funds which could be put to

better use. We also identified numerous opportunities for TVA to improve program

operations. Our audits included (1) pre- and postaward contract audits, (2) other 

financial-related audits, (3) IT reviews, and (4) operational audits.

PREAWARD CONTRACT AUDITS IDENTIFY $12 MILLION IN 

POTENTIAL SAVINGS

We completed five preaward audits that identified $11.9 million in potential savings

opportunities. During this reporting period, TVA management successfully negotiated

$5.8 million in savings as a result of preaward audits issued during this and previous

reporting periods. Highlights of the more significant preaward audits follow.

 We determined a contractor’s cost proposal to provide services to TVA’s

Transmission/Power Supply program was not consistent with how the 

company accounted for its direct labor costs and could result in TVA paying

excessive labor costs. Also, the contractor’s proposal had overstated its 

indirect and payment bond costs. Based on our recommendations, TVA

agreed to allow the contractor to bill a craft labor markup that included 

recovery of all costs (nonmanual labor and indirect costs) and to reimburse the

contractors actual payment bond costs. We estimated the changes will save

TVA about $5.8 million over the five-year contract term.

 We reviewed the cost proposals submitted by three contractors to provide engineering support services. We determined one contractor’s proposal included (1) overstated labor markups, direct charge billing rates, and labor rate ranges; and

(2) excessive incentive bonuses. We estimated TVA could save $4.9 million over the

planned five-year contract term by negotiating our audit findings. We determined
Audits

TVA Office of the Inspector General page 16

the second contractor’s proposal was fairly stated except for an overstated direct

charge billing rate which we estimated would cost TVA an additional $1.2 million

over the contract term. The third contractor’s proposal was fairly stated.

Negotiations for the contract awards are ongoing.

CONTRACT COMPLIANCE AUDITS IDENTIFY NEARLY $5 MILLION 

IN QUESTIONED COSTS

During this reporting period, we completed 14 contract compliance audits that identified

about $4.7 million in ineligible and unsupported costs. Management generally agreed

with our findings and has taken or plans to take corrective action. Highlights of some

of the more significant audits follow.

 We reviewed the costs billed by two right-of-way maintenance contractors and

found (1) one contractor had billed TVA an estimated $638,000 for costs not supported by its payroll records and (2) the other contractor had not retained sufficient

supporting documentation to determine if it had complied with the

cost provisions of the contract. We also determined the companies

had not paid their employees in accordance with the labor provisions

of the contract even though they had certified they had done so.

TVA management agreed with our findings and plans to (1) recover

any overbillings and (2) require documentation to support future billings. 

 We reviewed the proposed adjustments to provisional nonmanual labor and General

& Administration billing rates submitted by two affiliated companies and determined

that one company had overstated its rates. We estimated the overstatement had

reduced a refund amount owed to TVA by $262,913. TVA management negotiated

all but about $400 of the finding amount.

 We determined TVA was overbilled about $34,700 by a contractor that provided

right-of-way clearing and restoration services. The overbilling occurred because of

the contractor’s use of incorrect terrain classifications and miscellaneous billing

errors. TVA management concurred with our findings and plans to recover any

amounts due TVA.
Audits

page 17 October 1, 2003 ~ March 31, 2004

 We determined a contractor providing steam generator replacement services had

overbilled TVA $3 million for labor, materials, supplies, and bonuses. In addition, we

found the contractor had (1) sold certain materials, supplies, and equipment to TVA

for $1.64 million and bought them back for $250,000; and (2) shipped TVA-owned

equipment to other non-TVA projects. TVA management is reviewing the audit

issues to determine the actions it plans to take.

 We determined a contractor providing Selective Catalytic Reduction catalyst had

understated a material cost adjustment due TVA by about $233,000 because (1) the

contractor’s actual material costs did not agree with the costs included in

its adjustment calculations and (2) the contractor had not included all

catalyst that had been sold to TVA. Negotiations with the contractor are

ongoing.

 We determined a contractor providing Fossil and Hydro Modifications and

Supplemental Maintenance had overbilled TVA about $243,000 because it had

(1) incorrectly calculated union fund contribution amounts for certain laborers and

(2) overpaid an employee. The contractor agreed with our findings and plans to

issue TVA a credit for the overbilled amount.

 We reviewed a contractor’s $64,445 claim for unrecovered shop costs that it 

asserted resulted when TVA delayed scheduled outage work at a TVA dam. We

determined all but about $4,200 of the claimed costs were not attributable to the

dam project. TVA management is negotiating the claim.

 We determined a contractor providing staff augmentation services had overbilled

TVA about $39,000 for (1) holiday premium pay not provided for by the contract and

(2) labor and burden rates that were higher than provided for by the contract. TVA

management stated that since the holiday pay had been paid in accordance with the

contractor’s policies, the contract would be revised to allow the payment of the 

premium. TVA also planned to revise the contract to clarify TVA’s intent regarding

the labor and burden rates and to collect any billings not in accordance with the

contract.
Audits

TVA Office of the Inspector General page 18

 We determined TVA had overpaid a coal freight contractor about $28,000 due to

overbilled demurrage costs and miscalculated tonnage. The contractor agreed with

our findings and plans to issue TVA a credit for the overbilled amount. We also

found TVA had paid the contractor over $123,000 for costs that had been verbally

agreed to but were not provided for in the contract. We recommended and TVA

management agreed that all costs paid by TVA should be provided for either in the

original contract or in subsequent contract supplements.

INFORMATION TECHNOLOGY SECURITY IMPROVES

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

to (1) security at four TVA facilities and (2) security, software change controls, and 

contingency planning for TVA’s non-electric revenue billing 

system. We found improvements were needed to address

weaknesses in the following areas.

 Logical security controls designed to prevent unauthorized

access to system programs and data, including isolation of

critical components at one facility.

 Physical controls designed to prevent security breaches and protect equipment and

personnel from hazards.

 Contingency planning designed to ensure a timely recovery in the event of a 

disaster.

TVA management agreed with our findings. TVA has implemented an agency-wide

effort to address security weaknesses in TVA’s existing IT infrastructure. Corrective

actions to address our findings are a part of this remediation effort.

During the security reviews, we noted improvements and an increased emphasis on

incorporating security best practices and configuration standards as TVA implemented

new IT equipment. In addition, TVA has improved its network monitoring process to

more easily identify unusual activity that could indicate possible security breaches.
Audits

page 19 October 1, 2003 ~ March 31, 2004

NO MATERIAL PROBLEMS IN FY 2003 FINANCIAL STATEMENTS AUDIT 

The independent auditors, PricewaterhouseCoopers LLP (PwC), issued an unqualified

opinion on TVA’s FY 2003 financial statements on January 23, 2004. On that same

day, PwC issued a report on its consideration of TVA’s internal control over financial

reporting and results of tests of compliance with certain provisions of laws and regulations for the year which ended September 30, 2003. In meeting our statutory responsibility for the financial statement audit, the OIG assessed the external auditor’s

methodology, evidence, and documentation; performed supplemental tests of accounting records and compared the results to those of the external auditor; and 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.

CALCULATION AND APPLICATION OF INDIRECT COST RECOVERY 

RATES NEED IMPROVEMENT

Various TVA organizations have programs in place to conduct external business 

projects. These projects include work for other federal agencies under the Economy

Act, such as environmental cleanup work for the Department of Defense. Additionally,

TVA performs transmission system projects for independent power producers that will

sell electric power through TVA’s grid. As part of our annual workplan, we reviewed

how five TVA business units calculated and applied indirect cost recovery rates on a

sample of external business projects. The five business units accounted for about

83 percent of TVA’s total external business revenue of $209 million for FY 2002, which

in turn represented about 3 percent of TVA’s total operating revenues. Four of the five

business units both miscalculated and misapplied indirect cost recovery rates, underrecovering indirect costs totaling $9.3 million from the external business customers.

TVA management agreed with our findings and will implement improvements in the 

calculation and application of indirect cost recovery rates.
Audits

TVA Office of the Inspector General page 20

TVA UNDERRECOVERS FOR TRITIUM PROGRAM

TVA provides irradiation services related to tritium production at the request of DOE

under the Economy Act. We audited TVA’s billings to DOE totaling over $57.5 million

for a 39-month period and determined that (1) direct costs for the irradiation services

were supported by TVA records and properly billed except for

$47,000 inadvertently not billed and (2) miscalculation and 

misapplication of indirect cost recovery rates resulted in underrecovery of $9.4 million of TVA’s indirect costs from DOE. TVA

management agreed with our findings and plans to take appropriate action in future

negotiations with DOE.

TVA ENTERPRISE-WIDE RISK MANAGEMENT PROGRAM 

NEEDS ENHANCEMENT

TVA’s policy on risk management defines (1) Risk Management Committee (RMC)

responsibilities and composition; (2) the Chief Risk Officer’s (CRO) role and primary

duties; (3) business unit responsibilities for risk identification, mitigation, and control; and

(4) Board responsibilities for approving risk tolerance levels.

We assessed the adequacy of TVA’s enterprise-wide risk management (ERM) practices

using the Committee of Sponsoring Organizations’ ERM

framework to compare TVA’s program to other successful

ERM practices. Key elements of an effective program include:

 Visible executive and Board involvement.

 Clear vision of what ERM will look like when implemented––a defined end-state.

 Linkages to strategic objectives.

 CRO and RMC that support, not supplant, management’s responsibility for 

managing risks.

 Consistent deployment throughout each organization by centralized leadership and a

common framework.
Audits

page 21 October 1, 2003 ~ March 31, 2004

 Defined and communicated policies and procedures.

 Ongoing oversight and continuous improvement.

 Clear articulation of roles and responsibilities.

While TVA has had considerable success, we recommended TVA’s Board of Directors

enhance ERM sponsorship by executive management, develop a top-down implementation strategy, and reassess key aspects of the current ERM policy. We also recommended certain actions by the CRO for program enhancement. TVA management is in

the process of readdressing its approach to ERM.

TVA GENERALLY COMPLIES WITH THE NATIONAL ENERGY 

CONSERVATION POLICY ACT (NECPA)

The NECPA of 1978 and Executive Order 13123 adopted numerous energy efficiency

requirements, including energy consumption reductions to be implemented by federal

agencies, including TVA. We determined TVA was generally complying with the requirements established by the NECPA and Executive Order 13123. However, TVA may have

trouble meeting the energy use per gross square foot target for office buildings and

related structures in part due to increased personnel density, sustainable design principles not always fully incorporated, and increased energy use at the Chattanooga Office

Complex, primarily attributed to TVA’s sublease of space in the complex to a third party. 

TVA management agreed with our findings and agreed to promote sustainable building

design for all new facilities and modifications to existing facilities and investigate ways to

implement energy reduction requirements in existing and future lease agreements.

OIG PROVIDES INFORMATION TO ASSIST TVA IN IDENTIFYING CONTROLS

The TVA Board of Directors, as part of its commitment to meet the intent of the

Sarbanes-Oxley Act of 2002, established a Corporate Accountability and Disclosure

Plan in February 2003. The plan included establishing a certification process for TVA’s

disclosure and financial reporting documents, establishing procedures to further the

independence of TVA’s outside auditor, establishing a code of disclosure and financial
Audits

TVA Office of the Inspector General page 22

ethics, creating a Disclosure Control Committee, and creating a program to train the

appropriate individuals on the act and the plan. 

As part of this effort, TVA has begun a process to document and evaluate financial 

disclosure controls and procedures, as well as the internal controls over financial 

reporting, to ensure effectiveness in both design and operation. To assist this effort, we 

provided TVA’s Chief Financial Officer with controls information from OIG reviews 

completed during FYs 2000 through 2003.
Investigations

page 23 October 1, 2003 ~ March 31, 2004

Summary of Representative Investigations

OIG special agents and managers were commissioned with full law enforcement

authority under the Homeland Security Act as part of our initiative to identify and eradicate fraud affecting TVA programs and operations. Our efforts in this area include combining audit and investigative resources in an Inspections unit designed to operate

under a task force model to seek out fraud. In addition, we have assigned investigators

as “road agents” to serve as key contacts at specific TVA facilities in order to more

effectively identify cases, become more familiar with TVA operations, and establish key

business contacts. To better focus on fraud, we also are referring more administrative

allegations, such as personnel issues, to management for resolution. While it will take

time for this initiative to get off the ground, we expect that over the next two years our

efforts will begin producing results and will serve as a strong deterrent against fraud. 

During the past six months, we closed 76 investigations, including allegations and 

concerns received from ratepayers, TVA management and employees, governmental

and congressional staffs, and OIG auditors. Our investigations, including task force

projects, resulted in (1) almost $4.3 million in recoveries, projected savings, and

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

investigative activities are highlighted below.

ALABAMA MAN ORDERED TO PAY NEARLY $100,000 FOR MINORITY

ECONOMIC DEVELOPMENT LOAN FRAUD

During this reporting period, an Alabama resident was sentenced to one year and one

day in prison and ordered to pay $95,754 in restitution to TVA. The defendant pled

guilty to a felony count for providing false financial statements to TVA in order to obtain

an economic development loan. In addition to defrauding TVA, the defendant also pled

guilty to one felony count for providing false financial statements to a federally insured

bank to obtain another loan. The defendant directed one of his employees to enter

false financial transactions into the company’s accounting records, which caused the

company’s net profit and cash position to be overstated. Based on the false documentation he submitted, TVA approved a $100,000 loan from the Minority Business
Investigations

TVA Office of the Inspector General page 24

Development Fund. The purpose of the loans was to finance business startup, 

including building construction. Subsequent to receiving the loans, the company filed

for bankruptcy under Chapter 11. The ordered restitution will cover the outstanding

balance of the TVA loan. 

WORKERS’ COMPENSATION INVESTIGATIONS SAVE TVA OVER $857,000

During this reporting period, we provided the OWCP with results from a computer

match which revealed several workers’ compensation recipients may be

receiving higher benefits than they are entitled to receive. We also 

determined a TVA employee submitted a false claim for workers’ 

compensation benefits. 

Computer Match

In accordance with the Computer Matching and Privacy Protection Act of 1988, we

conducted a computer match between (1) earnings records reported to the state of

Tennessee and (2) workers’ compensation records from the Department of Labor

OWCP. The purpose of the match was to identify beneficiaries

potentially receiving for the same period both (1) wage loss compensation for disability and (2) wages. That information was then used to

determine whether individuals receiving workers’ compensation 

benefits may have underreported or failed to report their wages to OWCP. 

Our review disclosed that the claimants generally reported their earnings. We found

several cases, however, where OWCP had not adjusted the claimants’ benefits based

on their earnings. The results from the computer match raised questions about 16 TVA

workers’ compensation recipients. We found that in one case OWCP had already terminated the individual’s benefits. After reviewing the matching results, we opened

investigations into nine individuals who appeared to have earnings at least 25 percent

greater than their rated loss of wage-earning capacity. (One factor to be considered in

deciding whether to modify a claimant’s wage-earning capacity is whether they are

earning at least 25 percent more than the job they were rated in.) OWCP subsequently

terminated benefits for three of those individuals, as follows.
Investigations

page 25 October 1, 2003 ~ March 31, 2004

 One individual, a former TVA laborer, was rated as a salesman trainee but was

employed as a store manager with an annual salary which exceeded $40,000.

During 2001, this individual reported his employment as a store manager to OWCP.

During October 2003, OWCP issued a final notice terminating his compensation.

We estimate the avoided future costs for this claimant are $354,622. 

 One claimant, a former welder, was rated as a respiratory therapist. During 2002, he

reported earning $7,000 per month as a pain management specialist, and during

2003 he reported earnings of $44 per hour as a physician’s assistant. During March

2004, OWCP terminated his compensation for wage loss. We estimate the avoided

future costs for this claimant are $376,552. 

 A third claimant, a former TVA laborer, was rated as a part-time personal care 

attendant. However, the computer match indicated he was earning substantially

higher wages, roughly $90,000 in one year. OWCP also obtained information that

this individual had earned roughly $183,600 over a two-year period. Accordingly,

during February 2004, OWCP issued a final decision concluding his medical 

condition had improved, enabling him to go from part-time to full-time personal care

attendant, and he was no longer entitled to workers’ compensation benefits. We

estimate the avoided future costs for this claimant are $126,340. 

The projected long-term cost avoidance as a result of benefits being terminated for

these three individuals exceeded $857,500. In addition, TVA has requested OWCP to

consider terminating benefits for two other individuals. 

False Workers’ Compensation Claim

Our investigation showed a TVA employee submitted a false workers’ compensation

claim. The employee submitted a claim that he was injured while working at a TVA site.

However, during a subsequent interview, the employee admitted he had injured himself

at home. The employee was terminated, and TVA has controverted his claim. 
Investigations

TVA Office of the Inspector General page 26

CONTRACTOR EMPLOYEES CHARGED CRIMINALLY

Two contractor employees were charged criminally during this reporting period. In the

first case, we investigated an allegation that anonymous, obscene telephone calls were

being made to a female minor from a telephone at a TVA fossil plant.

Our investigation identified the person who was making the calls as a

laborer working for a TVA contractor. When interviewed, he 

confessed and his employment was terminated. He subsequently

pled guilty in Alabama state court to a charge of harassing communications. He

received a 90-day suspended sentence, two years’ probation, a $250 fine, and was

ordered to complete a sex offender program as part of his probation. 

In the second case, a former contractor who worked as a biologist at TVA was

arraigned in Tennessee state court for submitting false timesheets. After his employment with the contractor ended, the defendant entered a locked TVA building at night

and faxed falsified timesheets to the contractor which showed he was still working.

The contractor paid the former employee for several timesheets, and TVA reimbursed

the contractor before the falsifications were discovered. 

EMPLOYEE MISUSES GAS CREDIT CARDS

Our investigation found a TVA employee was misusing Wright Express (WEX) credit

cards, which are issued in TVA vehicles to purchase gas. The employee, who was 

terminated, used three different WEX cards at area service stations

to put gas in cars belonging to friends and people he did not

know. He would approach people at the gas station and offer to

double the amount of gas they wanted in exchange for cash. For

example, if the person wanted $10 in gas he would take the $10

cash and put $20 in gas in the vehicle by charging it on the WEX

card. The estimated loss to TVA exceeded $25,000. We have referred this case for

prosecutive consideration. 
Investigations

page 27 October 1, 2003 ~ March 31, 2004

EMPLOYEES MISUSE COMPUTER RESOURCES

During an investigation of an alleged child pornography case––that was not 

substantiated––the OIG discovered substantial misuse of TVA’s computing resources.

The misuse included employees installing unauthorized 

software; chatting on-line with others for extended periods of

time; sending inappropriate, sexually related e-mails; and

downloading sexually explicit material. The misuse involved

approximately 50 TVA employees and contractors working in

the fossil organization. Some individuals simply received and read the material, while

others distributed the inappropriate material to other employees and contractors.

Management responded to our findings by taking disciplinary action against the 

identified people, including oral and written warnings, suspensions, and terminations. 

PLANT EMPLOYEES USED INCORRECT ITEM DESCRIPTIONS TO ORDER

UNAUTHORIZED ITEMS

In an investigation of purchasing activities at a fossil plant, we determined that eight

TVA employees intentionally used incorrect item descriptions to order unauthorized

items, namely pocket knives. They used descriptions such as “packing cutters,”

“cleaning scrapes,” and “hole punch” when ordering pocket knives, because they

believed the knives would not be ordered if they correctly described them. The knives

ordered with incorrect item descriptions cost TVA roughly $3,000. The most expensive

item ordered was a collectible knife in a custom gift tin, which sold for $45.50. The

vendor generally identified the requested pocket knife by the correct item number used

and included the incorrect item description on the invoices submitted to TVA.

Management issued warning letters to the employees involved and conducted training

to ensure the employees understand TVA’s procurement policy. 

TWO TVA EMPLOYEES MISUSE TVA VEHICLES

We completed two cases involving misuse of a TVA vehicle. In one case, we found a

senior TVA manager used his TVA-assigned vehicle on a daily basis, including when

driving between home and work. The manager was under the impression that he was
Investigations

TVA Office of the Inspector General page 28

authorized to use his assigned vehicle in this manner. He was issued a warning letter

and guidance was issued to other managers reminding them of the rules regarding

vehicle usage. 

In the other case, a supervisor violated TVA policy by driving a TVA vehicle

while under the influence of a prescription medication and was involved in

a one-car accident. Personal firearms were found in the vehicle at the

scene of the accident, also in violation of TVA policy, although he had a

permit for the weapons. The supervisor claimed he was in effect sleepwalking due to the side effects of the medication, and he did not know

how the guns got in the car. We also found that he had been on temporary assignment

since 1999, and he had used his assigned vehicle for personal purposes when at his

official duty station. The supervisor retired from TVA before disciplinary action was

taken. 

CONTRACTOR DID NOT WILLFULLY FALSIFY QUALITY 

ASSURANCE DOCUMENT

We investigated a possible falsification of a Quality Assurance (QA) document by a

Quality Control (QC) Inspector working for a contractor on the Browns Ferry Nuclear

Unit 1 restart project. The QC Inspector allegedly signed off on a work order step 

without performing the required cleanliness verification. Our investigation did not find a

willful intent to falsify a QA document. Rather, neither of the contractor QC Inspectors

on site during the shift in question could wear a respirator, which was required to 

conduct the verification. The QC Inspector discussed the matter with others and

believed he could rely on a third party to conduct the required observation. 

HARASSMENT ALLEGATIONS LEAD TO DISCIPLINE

Two harassment investigations during this reporting period led to discipline. In one

case, we investigated an allegation that a foreman harassed a subordinate employee by

acting inappropriately toward her. We did not substantiate the allegation of harassment

by the foreman. However, we developed information that the subordinate employee

used a racial slur and showed inappropriate pictures in the workplace. Based on the
Investigations

page 29 October 1, 2003 ~ March 31, 2004

information developed during our investigation, TVA management counseled the 

foreman and suspended the subordinate employee for five days. 

In the second case, while our investigation did not reveal harassment, it did find inappropriate actions by a supervisor, including making inappropriate comments and berating employees. Based on our investigation, TVA management altered the supervisor’s

work assignments, issued a warning letter, and monitored the supervisor’s behavior. 

Task Forces

We participate on three interagency law enforcement task forces in the Eastern District

of Tennessee involving terrorism, health care, and the environment. Pooling multiagency resources, both state and federal, allows us to enhance limited law enforcement

resources and pursue the most effective remedies against individuals and companies

who violate the law. 

JOINT TERRORISM TASK FORCE

On February 24, 2004, Federal Bureau of Investigation (FBI) Director Robert S. Mueller

testified before the Senate Select Committee on Intelligence. He listed several success

stories in the efforts to identify terrorists and dismantle terrorist networks.

He attributed these successes to the close coordination and information

sharing “with other members of the Intelligence Community, our overseas

partners, and with the essential force multipliers––state and local law

enforcement officials who participate on our 84 Joint Terrorism Task

Forces (JTTFs).” As stated by Mr. 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 the JTTF led by the FBI’s Knoxville Field Division.

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

TVA Office of the Inspector General page 30

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

basis. We will continue to support these efforts to the best of our abilities.

HEALTH CARE FRAUD TASK FORCE

TVA operates a self-insured health benefits plan, and claims of health care fraud involving TVA and others are investigated by the Health Care Fraud Task Force. The Task

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

includes representatives from the investigative arms of federal, state, and local 

agencies, and Blue Cross/Blue Shield of Tennessee’s Special Investigations Unit.

In our last semiannual report, we noted that an orthopedic surgeon was found guilty of

95 counts of health care fraud-related charges after a three-week trial. The surgeon

had, among other things, submitted health care claims for nerve blocks when trigger

point injections, which are lesser reimbursable procedures, were actually performed.

During this reporting period, the surgeon was sentenced to 41 months in prison and

3 years of supervised release, and was required to make $3,183,710 in restitution to

five victim health care programs, including $139,948 to TVA. The surgeon’s practice

provided care to TVA OWCP patients for years. 

ENVIRONMENTAL CRIMES JOINT TASK FORCE

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

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

federal and state agencies. During this reporting period, one individual pled guilty as an

accessory after the fact to the illegal transportation of hazardous waste

without a manifest. During an investigation into the shipment of 

hazardous waste, namely 111-trichloroethane (TCA), by truck without a

required hazardous waste manifest, the defendant told investigators

that the TCA was not a hazardous waste and could be recycled. The

company and the individual who transported the TCA had previously

pled guilty to charges of, respectively, improper storage and disposal of

the waste. 
Investigations

page 31 October 1, 2003 ~ March 31, 2004

Administrative and Disciplinary Actions

April 1, 1999 ~ March 31, 2004*

Total = 391

Oral/Written 

Warnings

31.25%

Suspensions/

Demotions/

Transfers

8%

Resignations/

Retirements/ 

Terminations

10%

Counseling/

Management 

Techniques

40.5%

Reemployment

Flagged

10.25%

*Prosecutive referrals are shown in Appendix 5.

Closed Cases by Area

October 1, 2003 ~ March 31, 2004

Total = 76 

River System 

Operations &

Environment

11%

TVA Nuclear

18%

Fossil Power

24%

Other

47%

Sources of Hotline Calls Warranting Further OIG Action 

October 1, 2003 ~ March 31, 2004

Total = 54

Other Agencies

4%

Contract

Employees

7%

Anonymous

26%

General Public

15%

Former TVA

& Former 

Contract

Employees

17%

TVA Employees

31%
Legislation and Regulations

TVA Office of the Inspector General page 32

During this reporting period, legislative areas of interest included matters

pertaining to the IG community and TVA, as well as the TVA OIG budget. 

THE IG COMMUNITY

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

the President’s Council on Integrity and Efficiency (PCIE). The overall 

mission of this Committee is to ensure the PCIE is kept abreast of congressional 

matters of interest to the IG community as a whole or which may impact OIG statutory

authority, duties, and organization. The Committee also develops, coordinates, and 

represents to Congress official PCIE positions on particular legislative issues. Finally,

the Committee serves as a resource base for the IG community on congressional rules,

operation, and procedures. We shall continue to follow legislative items of interest to

the IG community and work with the PCIE in keeping Congress apprised of our views

on those matters.

TVA

We continued to follow issues of interest to TVA, including federal energy legislation

which included a provision to restructure the TVA Board. We believe the pros

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

forward to working with both TVA and Congress in these matters. We also

responded to requests for information from members of Congress and their staffs.

THE OIG BUDGET

In Budget Passback Guidance to TVA, dated November 25, 2003, the Office of

Management and Budget (OMB) stated that TVA’s OIG will be proposed to be funded

through a separate annual appropriation account beginning in FY 2005. As stated by

OMB, this will enhance the independence of the TVA OIG as well as remove the

appearance of a conflict of interest. The funding source for this activity will continue to

be TVA revenues. OMB stated that TVA’s OIG will create a separate budget request to

be submitted to OMB with TVA’s annual budget request for approval prior to its 

transmission to Congress. TVA responded on December 3, 2003, that appropriations

language was neither necessary nor appropriate.
Legislation and Regulations

page 33 October 1, 2003 ~ March 31, 2004

The President’s budget for FY 2005 as submitted to Congress included a separate

appropriation account for the TVA OIG to be funded by TVA with power funds. We

understand there is disagreement about whether an amendment to the law is necessary in order for the TVA OIG budget to be reviewed and approved by Congress. We

continue to believe having the OIG budget reviewed and approved by Congress, like

other OIGs, is necessary to avoid any appearance of a lack of independence caused by

the agency having unreviewable control over the OIG budget. TVA is the only 

“establishment” agency, where the IG is appointed by the President, whose budget is

not reviewed and approved by Congress. We shall continue to work with Congress,

TVA, and OMB to resolve this issue.
APPENDICES APPENDICES
Appendix 1

page 35 October 1, 2003 ~ March 31, 2004

Index of Reporting Requirements Under the Inspector General Act

REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 32

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 15-31

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies 15-31

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 15-31

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 36

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2003-023C

10/29/03 Duratek, Inc.

2003-059F

11/05/03 Selected Invoices Under Contracts 

TV-98295U and 98PCG-226677 

for Cumberland Membership 

Electric Corporation $54,971

2003-063C

11/21/03 Dillard Smith Construction Company - 

Preaward $5,800,000

2003-029C

11/25/03 Numanco, LLC 39,056

2003-045C

12/02/03 Three Rivers Contracting

2003-046C

12/02/03 Southeastern Construction &

Equipment Company, LLC 34,703

2003-022C

12/18/03 Cormetech, Inc. 233,302 $233,302

2003-042P

01/15/04 Canal Barge Company, Inc. - 

Contracts TR0187 and TR0297 28,126

2003-060C

01/28/04 Alstom Power, Inc. - Annual 

Adjustment of Provisional Rates 262,913

2003-057C

02/10/04 GUBMK Constructors Contract 

No. 99998999 (formerly Contract 

No. 99PMJ-232187) 242,874 242,874

2004-018C

02/20/04 Pinkerton Government Services - 

Retroactive Pay Adjustment

2004-026C

02/20/04 Voith Siemens Hydro - Chatuge

Delay Claim 60,177

2003-041C

03/05/04 Bechtel Power Contract 99999075 

for the Removal and Replacement of 

Sequoyah Unit 1 Steam Generators 3,068,142 110,596

2004-019C

03/09/04 Burns & McDonnell/Science 

Applications International 

Corporation - Preaward 4,903,800

CONTRACT
Appendix 2

page 37 October 1, 2003 ~ March 31, 2004

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2003-066C

03/18/04 Pullman Power, LLC - Subcontractor

for Advatech, LLC - Preaward

2004-009F

03/18/04 TVA’s Travel Services

2004-021C

03/22/04 Parsons E&C/Acres International

Corporation - Preaward 

2003-004C

03/30/04 A & G Tree Service, Inc. $638,542

2004-020C

03/30/04 Sargent & Lundy - Preaward $1,200,000

2003-019F-02

11/14/03 TPS Overhead Recovery

2003-024F

11/18/03 TVA’s Accounts Receivable and the

Allowance for Doubtful Accounts

2003-019F-05

12/23/03 Administration Overhead Recovery

2003-019F-03

01/07/04 CS&M Overhead Recovery

2003-055F

01/12/04 Controls Over Reimbursable Projects for

Independent Power Producers

2004-023F

01/26/04 Performance of IG Agreed-Upon Procedures

for Intragovernmental Activity & Balances

2003-019F-04

01/29/04 TVAN Overhead Recovery

2003-044F

01/29/04 Tritium Program - DOE and TVA 

Interagency Agreement 

No. DE AI02 00DP00315 9,458,235

2003-061F

02/04/04 FY 2003 Review of TVA’s

Financial Statement Audit

FINANCIAL

CONTRACT (continued)
TVA Office of the Inspector General page 38

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2004-022F

02/05/04 Verification of Summarized Facts Data -

FY 2003

2004-029F

03/22/04 Review of TVA’s 1st Quarter 2004 

Financial Information by PwC

2003-054T

11/13/03 Chickamauga Hydro Plant IT

Security

2003-049T

11/18/03 Bill Out Subsystem (BOSS)

2003-068T

01/22/04 Cordova Substation IT Security

2004-007T

01/26/04 John Sevier Fossil Plant DCS 

IT Security

2003-040T

03/30/04 WBN IT Security

2003-026P

10/02/03 Enterprise-Wide Risk Management

2003-013P

12/15/03 Coal Demurrage Costs $5,900

2003-067P

02/02/04 Compliance With the National

Energy Conservation Policy Act

2004-001F

03/09/04 Transmission/Power Supply’s Employee

Recognition and Safety Awards

TOTAL 39 $14,126,941 $586,772 $11,903,800*

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

PERFORMANCE

FINANCIAL (continued)

INFORMATION TECHNOLOGY

Appendix 2
Appendix 3

page 39 October 1, 2003 ~ March 31, 2004

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 3 $1,829,961 $1,254,039

B. Which were issued during the reporting period 12 $14,126,941 $586,772

Subtotals of A and B 15 $15,956,902 $1,840,811

C. For which a management decision was made during

the reporting period 12* $12,595,281 $1,496,913

(i) Dollar value of disallowed costs 10 $10,452,834 $292,692

(ii) Dollar value of costs not disallowed 6 $2,142,447 $1,204,221

D. For which no management decision has been made by

the end of the reporting period 3 $3,361,621 $343,898

E. For which no management decision was made within

six months of issuance 0 $0 $0

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

C.(i) and C.(ii) when the same reports contain both costs disallowed and not disallowed by management.
TVA Office of the Inspector General page 40

Audit Reports Issued With Recommendations for Better Use of Funds

NUMBER DOLLAR VALUE

A. For which no management decision has been

made by the commencement of the reporting period 0 $0

B. Which were issued during the reporting period 3 $11,903,800

Subtotals of A and B 3 $11,903,800

C. For which a management decision was made during

the reporting period 1 $5,800,000

(i) Dollar value of costs agreed to by management 1 $5,800,000

(ii) Dollar value of costs not agreed to by management 0 $0

D. For which no management decision has been made by

the end of the reporting period 2 $6,103,800

E. For which no management decision was made within

six months of issuance 0 $0

Appendix 3
Appendix 4

page 41 October 1, 2003 ~ March 31, 2004

Audit Reports With Corrective Actions Pending

Final corrective actions on recommendations in two contract compliance audits, three operational audits, one financial

audit, and nine IT audits have not been fully implemented; however, all are being implemented in accordance with currently established milestones.

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2001-064T Hydro Automation Security-HDCC

12/21/01 This report contained recommendations regarding physical and logical security of the Hydro

Dispatch Control Cell. TVA plans to complete final action by September 30, 2004.

2001-074T Application Review of Pegasys

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

options for addressing these recommendations.

2001-087C Canberra Industries

04/30/02 This report included recommendations to recover ineligible costs and improve contract administration. TVA has taken action to address the contract administration issues and is in the

process of negotiating a settlement of the ineligible costs.

2002-004C-01 Electric Power Research Institute

07/24/02 This report included recommendations to strengthen contract terms in several areas and

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

the contractor.

2002-012T-01 Security Review of Nuclear Facility Access Control Systems-SQN

10/25/02 This report contained recommendations regarding facility access control. TVA plans to 

complete final action by October 31, 2004.

2002-017T Hydro Automation-Dams

06/25/02 This report included recommendations regarding the physical and logical security of hydro

automation systems at seven hydroelectric facilities. TVA management plans to complete final

action by September 30, 2004.

2002-025T Security of Windows 2000/Windows XP

08/07/02 This report contained recommendations to strengthen environmental and logical controls of

TVA’s implementation of Windows 2000 and Windows XP. TVA management plans to complete

final action by September 30, 2004.

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

01/06/03 This report included recommendations to strengthen power billing system controls. TVA 

management plans to complete final action by September 30, 2004.

2002-051T Information Technology Store

09/27/02 This report contained recommendations to strengthen IT Store purchase approval controls.

TVA management is developing a new procurement procedure to address this issue.
TVA Office of the Inspector General page 42

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

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

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

reimbursement or appropriation investment provisions of the TVA Act, limit the uses of GSA 

surplus property to those which are consistent with GSA rules, correct the weaknesses of a

personal services contract forming a bartering arrangement, and improve the process for tracking property obtained through the GSA program. TVA management agreed with all of our findings. Management is negotiating with GSA to determine an appropriate reimbursement, has

reevaluated the process for future GSA acquisitions, has discontinued the bartering agreement,

and has updated the GSA database addressing discrepancies.

2002-075E Integrity of Selected Fossil Power Data Used in TVA’s Energy Trading Model

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

TVA’s energy trading decision support model. TVA management plans to complete final action

by the fall of 2004.

2002-092T Fixed Asset System General Computer Controls

06/19/03 This report contained recommendations to strengthen logical controls of TVA’s Fixed Asset

System. TVA completed final action as of April 1, 2004.

2003-015F Review of Completed Plant Retirements

07/28/03 This report contained recommendations to correct completed plant retirement inaccuracies,

improve accounting for completed plant retirements, and strengthen management’s controls

over retirements processing. TVA management agreed to implement most of our recommendations and expects to complete final action by December 31, 2004.

2003-025P Review of Electronic Coal Supply RFP System

08/12/03 This report included recommendations to ensure Web application and database server password control settings comply with TVA policy and future Web application development is 

compatible with TVA policy. TVA management plans to complete final action within the next few

months.

2003-032F Integrity of Generation Data Used to Estimate Unbilled Revenue

05/20/03 This report included recommendations to improve the accuracy and integrity of generation data

used to estimate unbilled revenue. TVA management plans to complete final action by June 1,

2004.

Appendix 4
Appendix 5

page 43 October 1, 2003 ~ March 31, 2004

Investigative Referrals and Prosecutive Results*

Referrals

Subjects Referred to U.S. Attorneys 15

Subjects Referred to Other Agencies or State/Local Authorities 5

Results

Subjects Indicted 3

Subjects Convicted 3

Referrals Declined 7

As a result of our investigations, OWCP terminated wage-replacement benefits for

three individuals, which is projected to save TVA a total of $857,514 over the 

individuals’ lifetimes.

* These numbers include task force activities.
Highlights

TVA Office of the Inspector General page 44

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

2004 2003 2003 2002 2002

ANNUAL BUDGET (In Millions of Dollars) $8.8 8.5 8.5 8.0 8.0*

CURRENT STAFFING 78 78 84 87 86

AUDITS IN PROGRESS

Carried Forward 37 38 35** 33 38

Started 36 41 41 44 43

Canceled (5) (8) (4) (4) (8)

Completed (39) (34) (34) (40) (40)

In Progress at End of Reporting Period 29 37 38 33 33

AUDIT RESULTS (Thousands)

Questioned Costs $14,127 $1,908 $1,125 $3,816 $1,780

Disallowed by TVA 10,453 137 989 911 267

Recovered by TVA 697 3,499 221 387 225

Funds to Be Put to Better Use $11,904 $6,951 $34,755 $52,037 $31,874

Agreed to by TVA 5,800 6,551 37,969 44,944 6,069

Realized by TVA 11,708 0 38,172 16,014 6,090

OTHER AUDIT-RELATED PROJECTS

Completed 30 15 36 16 12

Cost Savings Identified/Realized (Thousands) 00000

INVESTIGATION CASELOAD

Opened 162 100 87 78 93

Closed 76 92 75 89 114

In Progress at End of Reporting Period 221 135 127 115 126

INVESTIGATIVE RESULTS (Thousands)

Recoveries $3,412 $100 $879 $961 $233

Savings 863 875 366 8 1,175

Fines/Penalties 10 421 56 86 0.1

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 8 21 15 18 22

Actions Taken (# of Subjects) 75 24 16 7 6

Counseling/Management

Techniques Employed (# of Cases) 13 21 16 24 15

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 17 63 12 19 5

Indicted 34695

Convicted 3 10 4 4 3

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

expense accounts.

** Adjusted from previous reporting period.

*** These numbers include task force activities.

AUDITS

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

Contact the OIG Hotline

1-800-323-3835

Contact the OIG Hotline

1-800-323-3835

To report:

• Contract or computer fraud

• Computer misuse or crimes

• False statements or false 

claims

• Irregularities in financial 

reporting

• Conflicts of interest and other 

ethics violations

• Travel fraud 

• Theft or misuse of TVA 

property

• Management reprisal

• Workers’ compensation fraud

• Bribery, kickbacks, or 

gratuities

• Health care fraud

• Environmental, health, and 

safety violations

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

Contact the OIG Hotline

1-800-323-3835

Contact the OIG Hotline

1-800-323-3835

To report:

• Contract or computer fraud

• Computer misuse or crimes

• False statements or false 

claims

• Irregularities in financial 

reporting

• Conflicts of interest and other 

ethics violations

• Travel fraud 

• Theft or misuse of TVA 

property

• Management reprisal

• Workers’ compensation fraud

• Bribery, kickbacks, or 

gratuities

• Health care fraud

• Environmental, health, and 

safety violations

Tennessee Valley Authority

Office of the Inspector General

Tennessee Valley Authority

Office of the Inspector General

Help Track Down Fraud,

Waste, and Abuse at TVA

Help Track Down Fraud,

Waste, and Abuse at TVA
OFFICE OF THE INSPECTOR GENERAL OF THE TENNESSEE VALLEY AUTHORITY

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401