Office of the Inspector General

Semiannual Report

October 1, 2006 ~ March 31, 2007

Tennessee Valley Authority
The Office of the Inspector General

(OIG) is an independent organization

charged with reporting to the

Tennessee Valley Authority (TVA)

Board of Directors and Congress on

the overall efficiency, effectiveness,

and economy of TVA programs and

operations. The OIG meets this

responsibility by conducting audits,

inspections, and investigations.

The OIG focuses on the prevention,

identification, and elimination of

(1) waste, fraud, and abuse; 

(2) violations of laws, rules, or 

regulations; and (3) inefficiencies in

TVA programs and operations.
Tennessee Valley Authority

Office of the Inspector General

Message From the Inspector General

This report to the TVA Board and to Congress concludes a full year for the newly constituted TVA Board

which was sworn in on March 31, 2006. Legislation signed by President Bush in 2004 expanded the Board from

three full-time members to nine part-time members with a full-time chief executive officer to run TVA on a day-today basis. As Director Skila Harris recently noted in an address to the TVA OIG, this change amounted to a

“reinvention” of the TVA Board. Director Harris noted the differences in her role as one of the previous full-time

Board members to her current service with her fellow part-time Board members. She also aptly noted that while

most of the new Board members were familiar with independent auditors in private sector corporations, they had

not worked before with Inspectors General. 

As this year concludes a full year of service for the new Board, it seems appropriate to offer some

observations about how this new structure has worked thus far. First, I heartily agree with Director Harris’

assessment that the current Board has exhibited a commitment to TVA’s best interests with the level of 

professionalism they have brought to their work. Secondly, this Board is keenly interested in the OIG providing

objective and accurate reports about TVA issues. While it is true, as Director Harris noted, that many of the 

current Board members have not worked with an Inspector General previously, all of the Board members have

demonstrated a respect for the independence of the OIG and concomitantly recognized the service that the OIG

can provide to the Board. The OIG is being asked both by the TVA Board and the Chief Executive Officer to

assist in assessing complex issues to ultimately make life in the Tennessee Valley better for everyone. Finally, this

Board has shown an appreciation for the duty the OIG has to make public findings that identify problems at TVA. 

With each of these letters that I write to the Board and to Congress, I am sensitive to the 

self-congratulatory tone they can have. I have been reminded appropriately, however, that our reason for existing

is performance. This semiannual report speaks for itself and demonstrates the commitment and professionalism

the OIG staff has to making TVA better. Each finding, recommendation, and dollar saved represents the fine

efforts of a staff devoted to higher performance. 

Therefore, it is with great pride that I submit this report to you highlighting the work done by the TVA

OIG for the past six months.

Richard W. Moore

Inspector General

April 1, 2007
Table of Contents

TVA Office of the Inspector General

Executive Summary 1

TVA Profile 3

Office of the Inspector General 5

Special Features 11

Audits 15

Inspections 21

Investigations 24

Legislation and Regulations 34

Appendices 36

Appendix 1 Index of Reporting Requirements Under the Inspector General Act 37

Appendix 2 Audit Reports Issued 38

Appendix 3 Audit Reports Issued With Questioned Costs and Recommendations for Better Use of Funds 40

Appendix 4 Audit Reports With Corrective Actions Pending 42

Appendix 5 Investigative Referrals and Prosecutive Results 44

Highlights 45
Executive Summary

page 1 October 1, 2006 ~ March 31, 2007

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

audits, inspections, and investigations. In accordance with our mission, our reviews are

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

preventing fraud, waste, and abuse. In total, we identified over $10.5 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, 2006 ~ March 31, 2007

Audit Reports Issued 18

Questioned Costs $1,252,456

Disallowed Costs* $1,429,334

Funds Recovered $694,984

Funds Put to Better Use $8,913,475

Funds Realized by TVA $3,603,475

Investigations Opened 73

Investigations Closed 50

Fines/Recoveries/Restitution/Savings $430,684

Criminal Actions 4

Administrative Actions (No. of Subjects) 4

Inspections Completed 7

*Disallowed costs exceed questioned costs because disallowed 

costs include management decisions within this reporting period 

on questioned costs from prior periods.

Our 18 audits and 12 other audit-related projects during this reporting period resulted in

questioned costs, funds to be put to better use, and the identification of areas for

process and control improvements. Highlights include (1) contract audits which 

identified over $1.2 million in questioned costs and $8.9 million in funds which could be

put to better use, (2) information technology (IT) audits which identified needed control

improvements, and (3) financial-related and operational reviews which identified areas

for improving control documentation and effectiveness. TVA management used 

information from our audits to recover about $.7 million and negotiate about $3.6 million

in contract cost savings.
Executive Summary

TVA Office of the Inspector General page 2

Our Inspections unit completed seven projects which identified several opportunities for

improved program operations. Inspection topics include inventory accounting 

practices and controls over milestone-driven performance awards at the Browns Ferry

Nuclear Plant (BFN), coal royalty receipts, and the accuracy of daily coal weights

recorded at 9 of TVA’s 11 fossil plants.

Investigations highlights include (1) use of technology to proactively detect and 

prosecute fraud, including data mining, cyber security, and computer forensics; (2) other

proactive efforts to reach out to employees and others to make OIG more accessible;

and (3) recoveries or avoided costs which totalled over $400,000.

We also are providing support for TVA’s Audit and Ethics Committee, and we have 

several initiatives underway to improve office efficiency. These initiatives include 

implementing High Performance Organization principles, process improvements, 

telework, and upgrading office automation.

Definitions

Questioned Costs - Costs that

are unnecessary, unreasonable, 

unsupported, or an alleged 

violation of law, regulation, 

contract, etc.

Funds Put to Better Use - Funds

that could be used more 

efficiently by implementing 

recommended actions.

Disallowed Costs - Questioned

costs that management agrees

should not be charged to TVA.
TVA Profile

TVA has now completed its transition from a full-time three-member Board of Directors

actively managing TVA to a part-time nine-member Board that is more of a policy 

making body. With the resignation of a Board member during January 2007, however,

there are currently only eight Board members. The new Board appointed TVA’s first

Chief Executive Officer, Tom D. Kilgore, on October 13, 2006.

Below are some highlights of TVA history and operations.

 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.

TVA’s threefold mission includes power 

production, environmental stewardship, and

economic development.

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

$9.2 billion in fiscal year (FY) 2006. TVA’s power facilities include 11 fossil plants, 

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

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

service area covers 80,000 square miles in the Southeastern United States, including

almost all of Tennessee and parts of Mississippi, Kentucky, Alabama, Georgia, North

Carolina, and Virginia. By providing wholesale power to 158 municipal and 

cooperative power distributors, and by directly serving 62 large

industries and federal facilities in the Valley, TVA 

supplies the energy needs of 8.7 million people.

page 3 October 1, 2006 ~ March 31, 2007

President Roosevelt signed the legislation 

creating TVA in 1933.

TVA provides electricity in seven states.
TVA Profile

TVA Office of the Inspector General page 4

 As a regional development agency, TVA supplies affordable, reliable power; supports

the nation’s fifth largest river system, the Tennessee river system; and promotes 

economic development. TVA dams are part of a totally integrated resource 

management system for a 41,000-square-mile watershed where each dam operates

in relationship to the others for multiple purposes and public benefits, including flood

control, maintaining navigation, providing recreational opportunities, and protecting

water quality.

TVA dams produce electricity

and provide flood control.
Office of the Inspector General

page 5 October 1, 2006 ~ March 31, 2007

Office Authority

Created by the TVA Board of Directors in 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. 

OIG RESPONSIBILITIES

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

abuse.

 Conduct and supervise audits and investigations relating to TVA programs and 

operations.

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

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

operations.

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

report on the progress made in implementing such actions.

 Assure work performed by non-federal auditors complies with government 

auditing standards.

 Issue semiannual reports to TVA Board and Congress.

OIG AUTHORITIES

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

 Access all TVA records or other material.

 Issue subpoenas and administer oaths.
Office of the Inspector General

TVA Office of the Inspector General page 6

 Receive complaints and grant confidentiality.

 Have direct and prompt access to the TVA Board.

 Hire employees and contract for services as necessary.

Organization

The OIG’s primary location is adjacent to the TVA headquarters in Knoxville,

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

Investigations offices in Mayfield, Kentucky, in Chattanooga, Tennessee, and at

BFN near Athens, Alabama, as well as an Inspections unit located in

Chattanooga. The OIG consists of three primary components: (1) Audits,

(2) Inspections, and (3) Investigations.

OIG STRATEGIC PLAN

VISION

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

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

and operations.

MISSION

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

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

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

LEADERSHIP PHILOSOPHY

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

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

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

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

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

collaborative decision-making.

The OIG is primarily

located in the TVA

Towers in Knoxville.
Office of the Inspector General

page 7 October 1, 2006 ~ March 31, 2007

STRATEGIC GOALS

STRATEGIC OBJECTIVES

PERFORMANCE

Perform timely

reviews that

address 

stakeholder 

concerns and

areas of highest

risk

WORKFORCE

Cultivate and

retain a highly

skilled, 

innovative, and

motivated 

workforce

STAKEHOLDER

Effectively 

communicate with

stakeholders and

deliver services

that meet their

needs

 Focus efforts on areas

of highest impact and

risk

 Ensure processes are

efficient and effective

 Maintain highest levels

of quality

 Stay abreast of 

emerging issues and

industry trends

 Stay abreast of 

stakeholder concerns

 Continue to develop 

innovative methods for

fraud detection

 Hire and retain the

best

 Manage pay to stay 

competitive with target

market

 Develop staff to

achieve the highest

level of capabilities

 Motivate staff to excel

 Ensure accountability

in individual 

performance

 Promote a 

balanced lifestyle

 Manage stakeholder 

perceptions of the

OIG to promote

(1) high credibility,

and (2) independence

and objectivity

 Respond to customer

needs

 Improve stakeholder

awareness of OIG

 Ensure stakeholders

are kept informed

 Ensure stakeholders

have an opportunity to

provide input in the

annual audit planning

process and each

individual review, as 

appropriate

 Increase effectiveness

of OIG hotline
Office of the Inspector General

TVA Office of the Inspector General page 8

AUDITS

Audits conducts and/or supervises comprehensive financial and performance

audits of TVA programs and operations. Based upon the results, Audits

makes recommendations to ensure that program objectives and operational

functions are achieved effectively and efficiently. Audits develops a plan

annually to achieve the most beneficial allocation of resources. The annual

plan addresses those issues, programs, operations, and activities that have

the greatest likelihood of placing TVA at risk for fraud, waste, abuse, or in

regards to IT, malicious or other intrusion. 

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

and IT Audits. 

 Contract Audits has lead responsibility for contract compliance and pre-award

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 audit and related services performed by TVA’s external auditor; (2) reviews

of TVA’s internal controls related to financial reporting, operational efficiency, and 

compliance with laws and regulations; and (3) operational reviews to assess the

results and economy and efficiency of TVA programs.

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

infrastructure, application controls, and general controls associated with TVA 

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

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

developing and supporting an independent OIG computer network.
Office of the Inspector General

page 9 October 1, 2006 ~ March 31, 2007

INSPECTIONS

The Inspections unit was formed at the beginning of FY 2004. Inspections provides

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

and efficiency in the management and administration of TVA programs. In

accordance with the Quality Standards for Inspections, the objectives of the

Inspections unit include providing a source of factual and analytical 

information, monitoring compliance, measuring performance, assessing the

efficiency and effectiveness of operations, and/or conducting inquiries into 

allegations of fraud, waste, abuse, and mismanagement.

INVESTIGATIONS

Investigations conducts and coordinates investigative activity related to fraud, waste,

and abuse in TVA programs and operations. The activities investigated include possible

wrongdoing by contractors, employees, and economic development

loan recipients. Investigations 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. Investigations 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.

THE OIG HIRES A COMMUNICATIONS SPECIALIST

As part of the OIG’s goal to become a higher performing organization, Stefanie

Hoglund was recently hired as a communications specialist. She will oversee

media relations and communications planning for the OIG.

Ms. Hoglund, who formerly served as the Public Information Officer for the Knox

County Health Department and the East Tennessee Regional Health Office, has a 

master’s degree in Health Education and a bachelor’s degree in Communications, both

from The University of Tennessee.
Office of the Inspector General

TVA Office of the Inspector General page 10

Inspector General

Legal Counsel

Assistant Inspector

General

(Audits &

Inspections)

Human

Resources

Manager

Communications

Specialist

Assistant Inspector

General

(Investigations)

Contract Audits

Director

Financial/

Operational

Audits Director

Audit Quality

Manager

Information

Technology

Audits Director

Supervisory

Special Agent

Supervisory

Special Agent

Deputy

Assistant

Inspector

General

(Inspections)

Contacts

Inspector General

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

Legal Counsel

Richard P. Levi . . . . . . . . . . . . . . .(865) 632-3956

Assistant Inspector General (Audits &

Inspections)

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

Deputy Assistant Inspector General

(Inspections)

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

Assistant Inspector General (Investigations)

Charles A. Kandt . . . . . . . . . . . . .(865) 632-3956

Assistant Inspector General (Administration

& Government Relations)

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

Audit Quality Manager

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

Contract Audits Director

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

Financial/Operational Audits Director

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

Information Technology Audits Director

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

Supervisory Special Agent

Curtis D. Phillips . . . . . . . . . . . . .(865) 632-3956

Supervisory Special Agent

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

Human Resources Manager

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

Communications Specialist

Stefanie D. Hoglund . . . . . . . . . .(865) 632-2233

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

Assistant Inspector

General

(Administration &

Government

Relations)
Special Features

OIG Works with TVA Audit Committee 

In December 2004, President Bush signed the 2005 Consolidated Appropriations Act,

which included legislation to expand TVA’s Board from three full-time to nine part-time

members. That Act also required TVA to establish an Audit Committee. The

Committee, formally titled the Audit and Ethics Committee, held its first meeting in 

June 2006. 

Since the Committee’s formation, it has relied on the IG to review internal control and

financial reporting practices and keep it apprised of any violations of law by employees,

significant deficiencies in controls, and aggressive accounting practices. The

Committee also is responsible for recommending to the Board, in consultation with the

IG, the external auditor who is responsible for the annual financial statement audit and

quarterly review of TVA financial information. The IG meets with the Committee at least

quarterly to inform members of audits planned, initiated, and completed. Also

addressed are any violations of law, including fraud, detected by the OIG. 

OIG Internal Enhancements

As discussed below, our efforts to enhance OIG performance include implementation of

High Performance Organization (HPO) principles, process improvements, telework, and

upgrading office automation.

HPO IN ACTION 

We continue implementation of HPO principles, which are centered on using a 

diagnostic/change model to build a high performing organization. This initiative, started

in August 2005, is intended to improve OIG performance by helping us focus on topics

such as vision, values, leadership, work product, and results. 

Since the inception of HPO, OIG employees representing all levels of the organization

generally have met monthly as a Leadership Council to help make HPO a way of life in

the OIG. Examples of HPO in action include (1) defining vision, values, and organization

page 11 October 1, 2006 ~ March 31, 2007
Special Features

TVA Office of the Inspector General page 12

philosophy; (2) increasing flexibility/innovation such as in work schedules and openness

to doing things differently; (3) improving teamwork by eliminating silos within and across

organizations; (4) promoting leadership roles for everyone in the office; and 

(5) developing a better line-of-sight between each individual’s work and OIG goals.

These principles have been embedded through revisions to our performance appraisals,

changes to the career path, and incorporation in our business plans.

PROCESS IMPROVEMENTS

One major element of HPO is process improvements. We challenge each person in the

OIG to constantly examine the way we do business and suggest better methods as we

work to eliminate the “we’ve always done it this way” mentality. We adopted a 

mechanism for submitting process improvements to ensure they receive consideration

at the Assistant IG level. Suggestions include improving teamwork accountability, 

creating an internal discussion board, improving database information, and enhancing

technology.

TELEWORK

As another HPO initiative, we are moving toward extended telework. We envision 

giving employees the ability to telework three or more days per week. By using 

results-based management, we believe this initiative will lead to improved office 

performance.

Our initial pilot program will involve 11 volunteers from Audits and Investigations who

will telework at least 3 days a week and share cubicle space when they are in the

office. Through this pilot program, we hope to ensure appropriate technology 

support is in place and to identify any barriers or impediments to an effective telework

program.
Special Features

page 13 October 1, 2006 ~ March 31, 2007

UPGRADING OFFICE AUTOMATION

We have upgraded office automation. We were using two different systems––a project

management system plus a document management system––and a lot of paper to

accomplish our mission. 

Our goal was to use just one on-line system that would meet both project and 

document management needs. After a review of several software packages, we 

purchased a system which allows us to do both project and document 

management––a one-stop shop for all information on a project. 

The system also allows us to move from hard copy work papers to electronic work

papers. We have moved investigations, legal, administrative, and audit files to this 

system, which also supports our telework initiative. 

Contract Audits & Procurement––A Continuous 

Improvement Process

Contract Audits works with TVA Procurement to improve the TVA contracting process.

Our role includes conducting pre-award and contract compliance audits, providing

advice to TVA Procurement officials, and conducting process reviews. Procurement, in

turn, acts on our findings and recommendations through negotiating cost savings for

TVA and implementing process improvements. While we are organizationally and 

functionally independent, we work together with Procurement to maximize the positive

impact.

Over the past ten FYs, our audits have identified average cost savings of over 

$30 million per year and various areas for potential improvements. During August

2006, we completed a review of TVA’s contracting process that identified several areas

where contract management could be improved for greater contractor compliance with

pricing terms and conditions. We recently began a review of TVA’s contract award

process to identify areas for improvement. 
Special Features

TVA Office of the Inspector General page 14

Based on our audit findings, during the past two FYs Procurement has acted to recover

nearly $10 million and agreed with over $24 million in funds which could be put to 

better use. During the past year, Procurement has initiated numerous improvement

efforts in TVA’s contracting process, partially in response to Contract Audit’s review of

the contracting process. These efforts include the following:

 Implemented management and peer team assessments of contract files and 

contract pricing terms and conditions;

 Developed training curriculum program tailored for new employees, supervisor 

workshops, and knowledge transfer sessions;

 Streamlined contract approval processes;

 Began identification and elimination of non-value added activities;

 Centralized tracking, document management, and processing of agency-wide 

contracts;

 Consolidated contract and contracting process information resources into one 

website;

 Increased focus on the technical contract managers in TVA’s Strategic Business

Units through (1) reinforcement of the technical contract manager’s role by meeting

with executive management in the Strategic Business Units; (2) standardization of

the invoice review process and improved monitoring by Procurement’s contract 

managers; (3) improved training, access to contract process resources, and periodic

newsletter communications; and (4) joint contract meetings for sharing lessons

learned; and 

 Implemented new software to improve administration of staff augmentation 

contracts and new accounting practices to improve tracking of all contract labor.

We will continue these joint efforts in contracts and other areas as we work with TVA to

improve program operations and effectiveness.
Audits

page 15 October 1, 2006 ~ March 31, 2007

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 18 audits identifying over

$1.2 million in questioned costs and over $8.9 million in funds which could be put to

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

operations. Our audits include (1) pre- and post-award contract audits, (2) financialrelated audits, and (3) IT audits. We also completed 12 other audit-related projects.

PRE-AWARD CONTRACT AUDITS IDENTIFIED $8.9 MILLION 

IN POTENTIAL SAVINGS OPPORTUNITIES

To support TVA management in negotiating procurement actions, we completed 

pre-award audits of (1) a cost proposal submitted by a company to provide engineering

services for TVA Nuclear and (2) the indirect cost recovery rates included in a contract

with a company providing construction and modification and supplemental maintenance

services for TVA Nuclear. Our audits identified $8.9 million in potential savings 

opportunities for TVA to negotiate, including reduced rates and volume discounts. TVA

has or is planning to use the results of our findings to negotiate better contract terms. 

CONTRACT COMPLIANCE AUDITS IDENTIFIED $1.2 MILLION

IN QUESTIONED COSTS

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

identified $1.2 million in ineligible and unsupported costs. Highlights of these audits 

follow.

 We audited $18.6 million of payments TVA made to a contractor for services of TVA

retirees who provided engineering and technical assistance to the Federal

Emergency Management Agency (FEMA) for major disasters and emergencies. We

found the contractor overbilled TVA an estimated $149,584 for labor, travel, 

miscellaneous costs, and administrative fees. Additionally, we noted control 
Audits

TVA Office of the Inspector General page 16

deficiencies regarding the authorization and payment of costs by the contractor to

employees and by TVA to the contractor. The contractor stated it (1) concurred with

our conclusions and recommendations but is continuing to find documentation that

should reduce the overbilled amount and (2) has instituted controls regarding 

payments to employees and subsequent billing of costs to TVA. 

 We audited $11.4 million of costs billed by a TVA contractor who provided 

engineering and procurement services to install NOxStar (NOx emissions reduction

technology) at a TVA fossil plant. We determined the contractor overbilled TVA

about $886,000 in royalty fees, labor, materials and manufacture costs, unapproved

travel and other project costs, and overhead and general and administrative costs.

TVA management stated they agreed with our findings and plan to pursue recovery

of the overbilled amount. 

 We audited $3.4 million of costs billed by a TVA contractor who performed surveys

of historic properties and determined the contractor overbilled TVA an estimated

$4,964, including overstated labor costs and unsupported and ineligible travel and

miscellaneous costs. The contractor submitted a refund to TVA for the estimated

overbilled amount.

 We audited $22.2 million of costs billed by a TVA contractor for construction and

modification services for TVA generating plant switchyards, substations, electrical

transmission system, and power control communication facilities. We found 

overbillings and overpayments of about $58,000 including (1) overbillings for small

tools due primarily to the contractor’s application of a recovery rate to an incorrect

cost base, (2) craft wages and benefits that exceeded amounts provided for by

TVA’s labor agreements, and (3) miscellaneous overpaid and unsupported costs.

The contractor and TVA management agreed with our findings except for the 

overbilled craft wages and benefits. In response to that issue, TVA management

stated TVA Labor Relations had decided certain variances from the labor 

agreements would be allowed and most of the variances identified in this review

were within the guidelines established by Labor Relations. 
Audits

page 17 October 1, 2006 ~ March 31, 2007

 We audited $5.6 million of costs billed by a TVA contractor for construction and

modification services for TVA generating plant switchyards, substations, electrical

transmission system, and power control communication facilities. We found TVA

was overbilled an estimated $186,378 for (1) craft labor costs that exceeded

amounts provided for by TVA’s labor agreements, (2) misclassified subcontractor

labor, (3) ineligible subsistence allowance payments, and (4) unsupported costs. The

contractor agreed with most of our issues and provided credits to TVA. However,

the contractor stated it planned to perform a 100-percent review of craft labor costs

associated with the audit period rather than rely on the audit estimate of the 

overbilling. TVA management plans to work with the contractor to recover the 

overbilled craft labor costs. 

OTHER CONTRACT-RELATED AUDITS AND PROJECTS

FEMA MISSION ASSIGNMENTS

TVA provides engineering and technical assistance to FEMA for major disasters and

emergencies using TVA retirees who work for a TVA subcontractor. In April 2006, the

Department of Homeland Security requested all IG offices to perform a review of the

2005 Gulf Coast Hurricane Assignments performed by their agency. The purpose of

the audit was to evaluate their agency’s procedures pertaining to the billing and 

reimbursements for FEMA mission assignments. 

Our review found TVA (1) did not have adequate controls in place to ensure the 

accuracy of costs TVA paid its contractor and subsequently billed to FEMA and

(2) could not provide documentation of FEMA’s approval of TVA use of a markup rate to

recover its costs of administering the retiree subcontract. TVA management 

subsequently instituted new procedures to correct the deficiencies identified by our

audit. Based on the new procedures, we determined TVA was generally in compliance

with federal guidelines pertaining to the billing and reimbursement for FEMA mission

assignments. However, we recommended FEMA provide written authorization for TVA

use of a specific markup to recover its costs of administering the retiree subcontract.
Audits

TVA Office of the Inspector General page 18

GENERAL ASSISTANCE

We provided advice to TVA management regarding (1) deficiencies in certain contracts,

(2) billings to other agencies, and (3) evaluations of contractor proposals. We also 

provided assistance to OIG Investigations in various contractor investigations and fraud

risk assessments.

FINANCIAL-RELATED AUDITS

During this semiannual period, we completed four financial-related audits, one 

attestation engagement, and testing of financial reporting controls over various 

processes to assist with TVA’s initiative to comply with Section 404 of the SarbanesOxley Act of 2002 (SOX). Highlights of these audits follow.

 TVA contracted with the independent certified public accounting firm of

PricewaterhouseCoopers LLP (PwC) to audit TVA’s balance sheets as of

September 30, 2005 and 2006, and the related statements of income, changes in

proprietary capital, and cash flows for each of the three years in the period which

ended September 30, 2006. In addition, the contract called for the review of TVA’s 

quarterly financial information associated with the filing of its quarterly report on

Form 10-Q with the Securities and Exchange Commission for the first quarter of

FY 2007. The contract required that audit and related work be done in 

accordance with generally accepted government auditing standards. We reviewed

PwC’s reports and related audit documentation, interviewed their representatives,

and performed such other procedures as we deemed appropriate in the 

circumstances to provide reasonable assurance the audit and related work were 

performed in accordance with generally accepted government auditing standards.

Our reviews disclosed no instances where PwC did not comply, in all material

respects, with generally accepted government auditing standards. 

 We surveyed TVA and financial institutions in the Tennessee Valley to identify 

(1) TVA-owned cash accounts not currently accounted for by TVA Treasury and

(2) non-TVA-owned cash accounts set up in TVA’s taxpayer identification number
Audits

page 19 October 1, 2006 ~ March 31, 2007

(TIN). In summary, we identified (1) one certificate of deposit in TVA’s TIN not 

accounted for by TVA Treasury, (2) three non-TVA-owned accounts incorrectly set up

in TVA’s TIN, (3) one account set up in TVA’s TIN without sufficient information to 

determine if TVA owned the funds, and (4) ten accounts reported as TVA or related

accounts by one financial institution that would not confirm the TIN which were not

listed by TVA Treasury as TVA-owned accounts. TVA Treasury agreed to follow up

with the financial institutions regarding our findings. 

 We reviewed TVA’s first Fuel Cost Adjustment (FCA) that went into effect January 1,

2007. The objective of our review was to determine whether the FCA for the second

quarter, FY 2007, was calculated correctly and in accordance with the agreed-upon

methodology. In summary, we found the FCA was calculated correctly and in 

accordance with the agreed-upon methodology. 

 We performed procedures agreed-upon with TVA management over the FY 2006

performance measures and found (1) changes to the FY 2006 goals were properly

approved with seven exceptions, two of which impacted the payout; (2) actual 

year-to-date inputs for each indicator agreed with the respective “reason for

improvement” sheet; (3) actual inputs for the eight TVA-wide metrics agreed with the

underlying support provided by the Strategic Business Units with one exception

which did not impact the payout; and (4) the payout percentages were 

mathematically accurate. 

 In support of TVA initiatives to comply with SOX, we completed 49 projects to test or

retest financial reporting controls in 43 processes of the more than 70 key business

processes determined to be in scope for SOX compliance. These projects were

designed to provide the Vice President and Controller with information to assess

TVA’s readiness to comply with SOX. We identified control deficiencies in over

65 percent of the controls tested. The deficiencies included needed improvements

in control design (about 45 percent), control not being performed as designed (about

31 percent), and inadequate documentation retained to demonstrate the control

operated in the period tested (about 24 percent). The process owners provided

actions planned or taken to address the deficiencies identified. 
Audits

TVA Office of the Inspector General page 20

IT AUDITS

During this semiannual period, we completed two audits in the IT environment 

pertaining to (1) penetration testing for selected TVA network systems and 

(2) remediation action for securing the general ledger database. In addition, we 

completed four interim reviews for SOX readiness testing of IT general control areas and

issued a summary report for SOX readiness testing performed between March 2006

and January 2007.

In the penetration test, we noted improvements could be made to address weaknesses

in logical security controls designed to prevent unauthorized access to system 

programs and data. Management generally agreed with our findings and either has

implemented or is in the process of implementing corrective actions.

In the remediation action audit and SOX readiness reviews, we noted either (1) controls

were operating effectively or (2) documentation and/or controls required some level of

remediation. Management generally agreed with our findings and either has 

implemented or is in the process of implementing corrective action.
Inspections

page 21 October 1, 2006 ~ March 31, 2007

Summary of Representative Inspections

Inspections may be initiated from various sources including (1) annual project planning,

(2) management requests, (3) audit/investigative referrals, and (4) spin-off reviews 

resulting from an ongoing inspection. During this semiannual period, we completed

seven inspections which identified over $15,000 in questioned costs. We also identified 

various opportunities for TVA to improve program operations. Highlights of our 

inspections follow.

INVENTORY ACCOUNTING PRACTICES

At the request of the TVA Chief Nuclear Officer and Executive Vice President, we 

conducted a review of inventory accounting practices at BFN. Specifically, we were

requested to determine (1) whether proper accounting practices and TVA policies were

followed when returning material and components (i.e., spare parts) to inventory after

being removed from installed locations and (2) whether existing procedures provided

adequate guidance on returning spare parts to inventory. In summary, we found:

 Noncompliance with generally accepted accounting principles and TVA policies and

procedures; 

 TVA policies and procedures did not adequately address (1) how to account for the

return of material/components to inventory from installed locations (i.e., spare parts)

and (2) the inventory tracking of spare parts; and

 No indication of intent to manipulate the entries to achieve outage performance

goals, although the circumstances could create an appearance to do so. 

TVA management agreed with our findings and recommendations and has initiated or

plans to initiate corrective action. 
Inspections

TVA Office of the Inspector General page 22

DAILY COAL REPORTS

In support of the fraud risk assessment for Fuel Supply, Fossil Power Group, we 

conducted an inspection regarding the accuracy of the Daily Coal Reports (DCR) 

relating to nine fossil plants. The DCR is used to (1) identify variances between

vendor/terminal and TVA shipment weights and (2) graph the identified variances. The

objective of our review was to verify whether TVA and vendor/terminal shipment weights

were accurately entered into the respective DCR for the period December 1, 2005,

through May 3, 2006. In summary, we found:

 Of the 482 coal shipments tested from the 9 fossil plants, 33 shipments were not

recorded in the DCR in accordance with TVA weight documentation and/or

vendor/terminal bills of lading;

 Variances between vendor terminal weights and TVA shipment weights ranged from

-31.42 to 60.69 percent, and the net effect of all variances showed that TVA

received approximately 75,113 tons of coal less than were reported on the vendor/

terminal bills of lading;

 Shipment weights for missing and/or extra rail cars were not consistently accounted

for at plants receiving coal by rail;

 Missing and extra rail cars were not consistently tracked at all fossil plants receiving

coal by rail; and 

 Comments were not consistently noted on the DCR when TVA or vendor/terminal

weights were not available or when exceptions existed for certain shipments.

TVA management agreed with our findings and recommendations and has initiated or

plans to initiate corrective action.

ROYALTY PAYMENT REVIEWS

At the request of the Coal Acquisition and Supply, Fossil Power Group, we initiated an

inspection to obtain and review information related to a coal company’s cost and 

profitability assertions. The company leased land from TVA and paid TVA a royalty fee
Inspections

page 23 October 1, 2006 ~ March 31, 2007

per ton on all coal removed from a mine which was on the leased premises. Due to

increased costs and reduced profitability, the company requested TVA to consider

revising the contract to reduce the royalty fee payments. 

In summary, our review of selected financial and production report information and 

supporting cost documentation pertaining to the TVA mine found (1) nothing to indicate

cost and profitability assertions were not accurate, (2) some costs and coal revenues

were a function of market conditions which impacted the company’s profitability, and

(3) the company began allocating costs on internal financial reports in August 2006

which more accurately depicted profitability. In addition, the company discovered 

royalty fee payments were underpaid by approximately $15,000 when providing

requested information during our review. 

INVENTORY MANAGEMENT SYSTEMS

We conducted a review to determine whether TVA’s inventory management system,

PassPort, accurately reflected the reported $14.3 million in inventory housed at the

Hartsville facility as of December 20, 2006. We compared PassPort data to physical

inventory on hand for 93 catalog identification numbers (CAT IDs). We found PassPort

accurately reflected the location and quantity on hand for 89, or 95.7 percent, of the

CAT IDs selected for review. 

We also compared inventory on hand for 38 judgmentally selected CAT IDs to PassPort

and found (1) inventory held for use was commingled with surplus materials and

(2) materials were not always accurately reflected or were excluded in PassPort.

According to Procurement, it was waiting on plant direction for the disposition of 

several materials housed at Hartsville, including some items corresponding to the CAT

IDs we reviewed.

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

corrective action.
Investigations

TVA Office of the Inspector General page 24

Summary of Representative Investigations

During the past six months, we closed 50 investigations based, in part, on allegations

and concerns received from ratepayers, TVA managers, TVA employees, contractor

employees, and OIG auditors. While our investigations in the past have largely been

reactive, we are implementing programs to develop a more proactive fraud detection

and prevention program. Below we discuss (1) our use of technology to more 

proactively detect and prosecute fraud, (2) other proactive programs, (3) fraud risk

assessments, and (4) our support of law enforcement task forces.

USE OF TECHNOLOGY TO PROACTIVELY DETECT AND PROSECUTE FRAUD

Widespread use of and advances in technology create new and greater risks for TVA.

Conversely, data mining, cyber security, and computer forensics provide greater 

opportunities for detecting and prosecuting fraud. 

DATA MINING

Our data mining efforts can encompass every area electronic records are available,

including contracts, credit cards, medical payments, and workers’ compensation.

Some examples follow.

 We examine contract payment records for significant

price changes over time, which may identify (1) artificially

low bids to obtain a contract and (2) significant price 

differentials in the same commodity between vendors.

We have opened several investigations as a result of

these types of reviews.

 We periodically review TVA credit card charges for red flags, such as purchases on

weekends or holidays and charges to certain merchant categories––pursuant to the

Standards Industrial Classification Code––such as casinos, pet stores, and jewelry

stores. We also compare charges to travel reimbursement to ensure the cardholder

was in travel status when the card was being used outside the home base. In 
Investigations

page 25 October 1, 2006 ~ March 31, 2007

addition, we review use of government travel cards to identify prohibited personal

use. Our reviews routinely identify questionable charges. For example, during this

reporting period, we identified an individual whose travel card charges were twice as

high as claimed travel expenses and included personal, prohibited charges. The

employee was given a warning, and the employee’s travel card was suspended.

 Our review of medical payments has identified instances of prescription drug abuse.

We look for individuals who obtained prescriptions for the same drug from more than

one doctor and/or obtained refills at multiple pharmacies. We also look for doctors

or pharmacies which seem to be overprescribing certain Schedule II or III drugs such

as Oxycontin and Hydrocodone.

 In the workers’ compensation area, we analyze information and use routines to 

identify individuals who may be receiving benefits they are not entitled to. These

routines include identifying individuals who (1) may need to return to work because a

court order has reduced their available income, (2) use only post office boxes,

(3) have minimal medical payments, or (4) move a substantial distance from where

the injury occurred. We also look for excessive prescription narcotic drug use.

CYBER SECURITY CONFERENCE

We helped host the second Cyber Security Summit in Knoxville, Tennessee, with the

Federal Bureau of Investigation (FBI), The University of Tennessee, and TVA IT Security.

This summit brought together security professionals from academia, government, and

private industry. Topics included the state of incident response, analyzing malicious

code, emerging cyber threats, and a roundtable discussion on the United States 

fighting the cyber war.

The importance of cyber security cannot be overemphasized. In making October the

National Cyber Security Awareness Month, Congress noted:

 The importance of the internet to individuals and businesses;

 How our nation’s critical infrastructures rely on the secure and reliable operation of

our information networks; 
Investigations

TVA Office of the Inspector General page 26

 That cyber security is a critical part of our nation’s overall homeland security; 

 That terrorists and others have demonstrated an interest in utilizing cyber means to

attack our nation; and

 That national organizations, policymakers, government agencies, private sector 

companies, nonprofit institutions, schools, academic organizations, consumers, and

the media all recognize the need to increase awareness of computer security and

enhance our level of computer and national security in the United States.

Attacks against private and public networks show no signs of abating. Whether the

attacks are simple or sophisticated, they cause (1) damage to user confidence, 

(2) privacy violations, and (3) significant economic losses. During this reporting period,

for example, we worked with the United States Computer Emergency Readiness Team

in responding to a possible intrusion into the TVA system. 

COMPUTER FORENSICS

We have a computer lab and expertise which allows us to search and recover 

information on computers or networks which may have been used to perpetrate a

crime. We also participate in incident responses and network monitoring. For example,

one investigation during this reporting period found a contractor employee was using

Peer-to-Peer software on his TVA computer in violation of TVA policy. His downloads 

included music and pornographic movies. The contractor employee was terminated.
Investigations

page 27 October 1, 2006 ~ March 31, 2007

OTHER PROACTIVE PROGRAMS

Our efforts to reach out to employees and others include creating a design for the OIG

hotline, Empowerline; a reward program; and reaching out to employees and others to

make the OIG more accessible.

EMPOWERLINE

Employees, contractors, and the general public can report suspected fraud, waste, or

abuse affecting TVA to the OIG-sponsored hotline system, Empowerline. Empowerline

is administered by a third-party contractor and can be reached 24 hours

a day, 7 days a week, either by a toll-free phone call or over the web.

Individuals who report concerns can do so anonymously or they can

request confidentiality. They also can use Empowerline to track the 

outcomes of concerns they report. This outsourced system offers a

convenient mechanism for individuals to report their concerns and 

provide assurance they can remain anonymous or maintain 

confidentiality. 

REWARD PROGRAM

Under our reward program, a source of information (“source”) may receive a cash

reward for disclosing to the OIG information about criminal or unlawful activities 

involving TVA programs and personnel. To apply for a reward, a source must provide

substantial information not previously known to the OIG that leads to a felony charge or

a substantial monetary recovery from an individual who defrauded a

TVA program. Rewards, which are solely within the discretion of the

IG, may be given to any person except current and former OIG

employees and employees of other law enforcement agencies.
Investigations

TVA Office of the Inspector General page 28

OUTREACH PROGRAM

Our outreach program includes (1) designating Knoxville-based special agents for each

TVA plant; (2) assigning one agent to Kentucky, one to Chattanooga, Tennessee, and

two to northern Alabama; (3) visiting TVA facilities; and (4) introducing new employees to

the OIG through TVA’s orientation program and a letter from the IG.

Our 2005 survey of TVA employees and contractors, as well

as other input, indicated that some individuals were not 

familiar with the OIG or what constitutes fraud. As a result,

the OIG is determined to increase awareness of its 

mission––to assist employees, contractors, and the public in

identifying and reporting fraud. Training all new TVA

employees is crucial in this effort. We introduce all new TVA employees to the OIG and

their responsibility to report suspected fraud. We send each new

employee a letter welcoming them to TVA and explaining the OIG 

function. There also is a section in the New Employee Orientation 

program devoted to the role of the OIG. New employees watch a video

introduction by the IG addressing the need to be vigilent for those who

would victimize TVA or otherwise improperly profit from their relationship

to TVA. New employees also receive training on their responsibility to

cooperate with the OIG.

FRAUD RISK ASSESSMENTS

We work with TVA management to conduct fraud risk assessments (FRA) of major

processes throughout TVA. An FRA is a process for management and business

process owners to identify and analyze fraud risk factors that may be common to 

general business practices and also specific to the organization and its operations. The

OIG serves as facilitator and consultant during the FRA process. This process is 

intended to identify (1) types of fraud which can occur, (2) the likelihood and significance

of fraud occurring, (3) the controls in place to prevent fraud, and (4) actions needed to

Paul Houston and Ryan Wilson, stationed at BFN, 

serve northern Alabama and central Tennessee.

Craig Yates, assigned to

Mayfield, Kentucky, 

provides coverage of the

northern Tennessee

Valley area.
Investigations

page 29 October 1, 2006 ~ March 31, 2007

improve fraud-preventive controls. As part of this process, we provide fraud 

awareness training.

During this reporting period, we completed an FRA in Bulk Power Trading, including

processes used to buy and sell power, analyze power needs, construct strategic power 

purchasing plans, and procure and protect information systems. There were 5 fraud

risk areas identified and 24 possible fraud schemes considered. Based on an 

evaluation of the controls in place to prevent the fraud schemes, one recommendation

was made. That recommendation was to strengthen internal controls by requiring Bulk

Power Trading employees to complete an annual confidential financial disclosure report.

WORKERS’ COMPENSATION FRAUD

This reporting period’s results involving workers’ compensation include elimination, 

suspension, and reduction of benefits. The total long-term savings and recoveries to

TVA from three cases discussed below, including amounts attributable to this and prior

reporting periods, are projected to exceed $1.4 million.

In order to receive workers’ compensation benefits under the Federal

Employees’ Compensation Act (FECA), a recipient must periodically submit

disclosure forms to the United States Department of Labor, Office of Workers’

Compensation Programs (OWCP), which requires the recipient to report all

employment, including self-employment, in which the recipient has participated

during the time periods covered by the forms. OWCP uses those reports to

assist in determining whether an individual has a continuing entitlement. Our

workers’ compensation investigations focus on individuals’ failures to report

employment. While there are other types of workers’ compensation fraud, such as

claiming an injury occurred on the job when it occurred elsewhere, most of our cases

involve someone lying to continue receiving benefits. 

We previously reported that a former TVA Nuclear employee pled guilty to one count of 

filing a false statement to obtain benefits under the FECA, namely that he falsely 

reported to OWCP during April 2003 that he was not employed or self-employed when,
Investigations

TVA Office of the Inspector General page 30

in fact, he was employed as a truck driver. Because any individual convicted of 

committing fraud in connection with the application for or receipt of workers’ 

compensation benefits loses his entitlement to any future benefits, his benefits were

stopped, saving TVA an estimated $501,322. During this reporting period, the former

employee was sentenced to five years’ probation and ordered to pay $5,005 in 

restitution. OWCP declared a forfeiture on an additional $27,608 in benefits he

received.

The FECA also provides that individuals who are incarcerated based on a felony 

conviction cannot receive benefits while incarcerated, although eligible dependents

could receive compensation at a reduced rate. 

 We identified individuals in western Kentucky who were receiving total disability 

benefits, but records showed they incurred limited medical expenses. We 

determined that one of those individuals was serving a 20-year prison sentence for

attempted robbery. That individual’s benefits were suspended while he is 

incarcerated. The projected long-term savings to TVA total $515,320; we also

recovered $9,886 in previously issued workers’ compensation checks.

 Our investigation of a former TVA fossil plant employee receiving workers’ 

compensation benefits revealed the individual was incarcerated due to a conviction

for felony narcotic violations and sentenced to 60 months in federal prison. While

his dependents will continue to receive compensation, his benefits were suspended

while he is incarcerated, saving TVA over $80,000. 

TASK FORCES

We recognize the importance of sharing investigative resources and information with

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

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

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

to provide investigative resources to the Environmental Crimes Joint Task Force, the

Joint Terrorism Task Force, and the Health Care Fraud Task Force.
Investigations

page 31 October 1, 2006 ~ March 31, 2007

ENVIRONMENTAL CRIMES JOINT TASK FORCE

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

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

and state agencies. Our participation on this task force supports TVA’s goal of 

supporting a thriving river system. During this reporting period, task force results

include the following.

 During December 2006, a subcontractor providing waste management services at a

Department of Energy facility in Tennessee pled guilty to a misdemeanor charge of

violating the Rivers and Harbors Act following the release of

waste water containing radionuclides from a settling pond.

The company was sentenced to pay a $10,000 fine and to

make $290,000 in restitution to be used for remediation and

education and protection to improve and enhance the natural

environment in Tennessee, including Anderson County where

the violation occurred.

 A former Waste Water Treatment Plant operator pled guilty to one count of making a

material false statement in a document required to be filed and maintained under the

Clean Water Act. The former operator falsified entries on the Monthly Operating

Report and Discharge Monitoring Report. The falsified Discharge Monitoring Report

was filed with the Tennessee Department of Environment and Conservation. 

JOINT TERRORISM TASK FORCE (JTTF)

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

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

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

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

central role in virtually every terrorism investigation, prevention, or interdiction within the

United States . . . JTTFs team up FBI agents with police officers, members of the

Intelligence Community, Homeland Security, and other federal partners to coordinate
Investigations

TVA Office of the Inspector General page 32

counterterrorism investigations and share information. They are also a critical conduit

between the FBI and the officer on the beat.”

HEALTH CARE FRAUD TASK FORCE

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

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

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

others are investigated by this task force. The task force includes representatives from

the investigative arms of federal, state, and local agencies, and the BlueCross

BlueShield Tennessee Special Investigations Unit.
Investigations

page 33 October 1, 2006 ~ March 31, 2007

Closed Cases by Area

Total = 50

Fossil Power

Group

28%

TVA Nuclear

22%

Other

12%

Administrative

Services

24%

River System

Operations & 

Environment

6%

Power

System

Operations

8%

Concerns OIG Received 

Total = 85

Discrimination/

Reprisal 

18

Falsification

of

Records

3

Theft/

Destruction/

Computer 

Crimes

3

Fraud

12

Ethics Issues/

Employee

Misconduct

Other 24

13

Accounting/

Internal

Controls

4

Waste/

Abuse

5

Environmental

Crimes

3
Legislation and Regulations

TVA Office of the Inspector General page 34

We are responsible under the IG Act for reviewing proposed legislation

and regulations that relate to the programs and operations of TVA.

Although TVA’s Office of General Counsel reviews proposed or enacted

legislation that could affect TVA activities, the OIG independently follows

and reviews proposed legislation that affects the OIG and/or relates to

waste, fraud, and abuse in TVA programs or operations.

During this reporting period the Accountability in Government Contracting Act of 2007,

S. 680, currently pending in the Senate Committee on Homeland Security and

Governmental Affairs, and its companion bill, H.R. 1362, passed by the House on

March 15, 2007, are major pieces of legislation being followed by the TVA OIG.

Among other items, as currently proposed, the Senate version of the Accountability in

Government Contracting Act of 2007 contains several amendments to the IG Act. We

generally support those provisions, which we believe will improve OIG operations. The

House version, however, does not contain these provisions. IG Richard Moore is a

member of the PCIE Legislation Committee and is working with the Committee to

ensure the position of the IG community is communicated to both houses of Congress.
page 35 October 1, 2006 ~ March 31, 2007
TVA Office of the Inspector General page 36

APPENDICES APPENDICES
Appendix 1

page 37 October 1, 2006 ~ March 31, 2007

Index of Reporting Requirements Under the Inspector General Act

REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 34

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 15-32

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, and Deficiencies 15-32

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 15-32

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 38

Audit Reports Issued

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2006-016C*

11/20/06 Review of TVA’s Contract with 

National Emergency Assistance $116,488 $116,488 

2006-015C

12/18/06 Mitsui Babcock 886,178 1,816

2007-002C

12/19/06 Pre-award Audit of Bechtel Power 

Corporation’s Proposal for DSEP 

Services at WBN $403,475 

2006-036C

01/17/07 Compliance Audit of TRC Garrow 

Associates, Inc. 4,964 895

2006-022C*

01/25/07 Henkels & McCoy, Inc. - Contract 

No. 0028496 - Compliance Audit 58,448 406

2006-038C

01/26/07 Stone & Webster Construction, Inc. - 

Contract No. 14703 - Review of 

Indirect Markup Rates 8,510,000

2006-011C*

01/31/07 Review of TVA Contract No. 28499 

With Dillard Smith Construction 

Company 186,378 5,716

2006-040F*

12/18/06 Review Of PricewaterhouseCoopers’ 

Audit of the TVA FY 2006 Financial 

Statements

2007-018F

02/14/07 SOX Readiness Testing for 

Perform Closing

2007-025F

02/15/07 Audit Of PricewaterhouseCoopers’ 

Review of TVA’s 1st Quarter FY 2007 

Financial Statements

2005-062F

03/14/07 TVA’s Financial Reporting Controls - 

SOX Readiness Testing

* These reports or a summary can be found on our web page http://insidenet.tva.gov:8042/2007audits.html.

CONTRACT

FINANCIAL
Appendix 2

page 39 October 1, 2006 ~ March 31, 2007

AUDIT REPORT

NUMBER QUESTIONED UNSUPPORTED FUNDS PUT TO

AND DATE TITLE COSTS COSTS BETTER USE

2006-034T-02

10/23/06 Security of TVA’s Network Perimeter - 

Blue Level Testing

2007-021T

01/30/07 Remediation Testing of Login Trigger 

Implementation for IBS Databases

2006-014T

02/15/07 IT General Controls - SOX 

Readiness Testing

2007-003F*

10/27/06 Agreed Upon Procedures for TVA 

FY 2006 Performance Measures

2006-039C*

01/26/07 Review of TVA’s Controls Over the 

Execution of FEMA’s Mission 

Assignments

2007-005F*

03/15/07 Identification of TVA’s Cash Accounts

2007-017F*

03/15/07 Review TVA’s Fuel Cost Adjustment 

Process

TOTAL 18 $1,252,456 $125,321 $8,913,475

* These reports or a summary can be found on our web page http://insidenet.tva.gov:8042/2007audits.html.

PERFORMANCE

INFORMATION TECHNOLOGY
Appendix 3

TVA Office of the Inspector General page 40

Audit Reports Issued With Questioned Costs

QUESTIONED COSTS

NUMBER TOTAL UNSUPPORTED

A. For which no management decision has been

made by the commencement of the reporting period 2 $550,807 $125,941

B. Which were issued during the reporting period 5 $1,252,456 $125,321

Subtotals of A and B 7 $1,803,263 $251,262

C. For which a management decision was made during

the reporting period 7* $1,803,263 $251,262

(i) Dollar value of disallowed costs 7 $1,429,334 $251,262

(ii) Dollar value of costs not disallowed 3 $373,929 $0

D. For which no management decision has been made by

the end of the reporting period 0 $0 $0

E. For which no management decision was made within

six months of issuance 0 $0 $0

* The total number of reports differs from the sum of C(i) and C(ii) when the same reports contain both costs disallowed

and not disallowed by management.
Appendix 3

page 41 October 1, 2006 ~ March 31, 2007

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 2 $6,836,000

B. Which were issued during the reporting period 2 $8,913,475

Subtotals of A and B 4 $15,749,475

C. For which a management decision was made during

the reporting period 3* $7,239,475

(i) Dollar value of costs agreed to by management 3 $4,533,774

(ii) Dollar value of costs not agreed to by management 2 $2,705,701

D. For which no management decision has been made by

the end of the reporting period 1 $8,510,000

E. For which no management decision was made within

six months of issuance 0 $0

* The total number of reports differs from the sum of C(i) and C(ii) when the same reports contain both costs agreed to

and not agreed to by management.
Appendix 4

TVA Office of the Inspector General page 42

Audit Reports With Corrective Actions Pending

Final corrective actions stemming from one contract compliance, two operational, one financial, and six IT audits are not

complete; however, corrective action is underway and scheduled for completion in accordance with the current revised

milestones.

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2001-074T Application Review of Pegasys

01/07/02 This report contained recommendations regarding facility access control. Implementation of the

new access control system is underway and is expected to be complete in 2008.

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

03/30/04 TVA asserted a claim against A&G for $638,542 for unsupported billings under the contract. A

formal Contracting Officer’s Decision was rendered in March 2005 that concurred with our audit

findings and TVA’s claim and directed A&G to reimburse TVA for overpayments of $638,542

under a closed contract. During May 2005, TVA stopped A&G from performing work under a

subsequent contract and recovered part of TVA’s damages by withholding payments totaling

$88,362 on invoices under the subsequent contract. A&G filed two lawsuits against TVA (1) for

the payments withheld and (2) to appeal the Contracting Officer’s Decision. The timeframe for

resolution of these lawsuits is indeterminate.

2003-040T Nuclear Plant IT Security

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

generation facility. TVA management has completed remediation action on all but one 

recommendation which is targeted for completion by September 30, 2007.

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

06/30/05 This report included recommendations to strengthen control over the system. TVA 

management is implementing planned remediation action for the three open recommendations

which are expected to be complete by June 30, 2007.

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

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

Remediation was completed on 12 recommendations. TVA management is implementing

planned remediation actions for the remaining four items which are expected to be complete by

April 13, 2007.

2005-034F Internal Controls Over Time Reporting

01/30/06 The Controller agreed to rewrite Accounting Procedure 14 to emphasize specific information

applicable to role definitions, expectations and accountability, and continued periodic refresher

training for System Administrators (SAs), as well as implement a mandatory on-line training 

module for the SAs. The Controller is currently developing SOX documentation related to the

time reporting process. This documentation, which is expected to address these issues, is to

be complete in June 2007. 

2005-039T eWorkplace Application, Access, and General Controls

01/30/06 This report included 15 recommendations to strengthen control over the time reporting system.

Weaknesses were identified in processing controls, direct data changes, logical access 

controls, change management, and backup and contingency planning. TVA management has

completed remediation action on 12 recommendations and is implementing planned actions for

the remaining 3 recommendations. Actions are expected to be complete by June 30, 2007.
Appendix 4

page 43 October 1, 2006 ~ March 31, 2007

Audit Reports With Corrective Actions Pending

AUDIT REPORT

NUMBER

AND DATE DESCRIPTION

2005-052F Follow-up Review of TVA’s Hospitality Program

02/23/06 The Controller agreed with our recommendation to revise Business Practice 7 and will include

specific reference to form TVA 17901 and use of the purchasing card for hospitality spending.

Responsibility for this action was transferred to Human Resources. To date, the finding is not

remediated. The OIG is currently performing a routine review of the hospitality program.

2005-055T Integrated Contractor System Logical Access and General Controls

01/24/06 This report contained 13 recommendations to strengthen logical access and general controls

over TVA’s Integrated Contractor System. TVA management agreed with our 

recommendations. Remediation for six recommendations is complete, and the remaining 

recommendations are targeted for remediation by June 30, 2007.

2005-059F Summary of SOX Process and Controls Documentation Reviews

12/06/05 The Chief Financial Officer (CFO) organization agreed to implement changes to various business

processes and update related documentation in the Risk Control Tracking System to implement

our recommendations. The CFO organization is tracking planned process changes in the

Summary of Aggregated Gaps Report. The planned improvements are to be complete 

in FY 2007. 
Appendix 5

TVA Office of the Inspector General page 44

Investigative Referrals and Prosecutive Results*

Referrals

Subjects Referred to U.S. Attorneys 6

Subjects Referred to State/Local Authorities 1

Results

Subjects Indicted 2

Subjects Convicted 2

Referrals Declined 3

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

page 45 October 1, 2006 ~ March 31, 2007

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

2007 2006 2006 2005 2005

AUDITS IN PROGRESS

Carried Forward 16 20* 24 30 28

Started 42 23 22 41 35

Canceled (4) (1) (3) (11) (2)

Completed (18) (26) (22) (29) (31)

In Progress at End of Reporting Period 36 16 21 24* 30

AUDIT RESULTS (Thousands)

Questioned Costs $1,252 $1,411 $774 $6,422 $8,859

Disallowed by TVA 1,429 782 1,122 4,969 7,586

Recovered by TVA 695 793 1,641 5,016** 2,312

Funds to Be Put to Better Use $8,913 $10,839 $700 $5,634 $24,306

Agreed to by TVA 4,534 2,790 633 1,251 20,181

Realized by TVA 3,603 2,287 740 6,002 7,886

OTHER AUDIT-RELATED PROJECTS

Completed 12 11 11 10 3

Cost Savings Identified/Realized (Thousands) $103 $0 $36 $0 $0

INVESTIGATION CASELOAD

Opened 73 70 80 84 84

Closed 50 105 71 84 103

In Progress at End of Reporting Period 148* 113 148* 157 157

INVESTIGATIVE RESULTS (Thousands)

Recoveries $332.5 $643.1 $2,966.5 $1,880.3 $216.3

Savings 87.9 1,038.7 1,625.4 36 1,581.5

Fines/Penalties 10.2 .5 6.2 6.7 .4

ADMINISTRATIVE AND

DISCIPLINARY ACTIONS

Recommended (# of Cases) 5 16 17 10 11

Actions Taken (# of Subjects) 4 6 9 13 16

Counseling/Management

Techniques Employed (# of Cases) 7 14 14 16 12

PROSECUTIVE ACTIVITIES (# of Subjects)

Referred 6 3 5 8 12

Indicted 2 1343

Convicted 2 1 3 5 4

Completed 7 20 14 13 14

Cost Savings Identified/Realized (Thousands) $15 $0 $0 $118 $0

* Adjusted from previous semiannual report.

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

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

AUDITS

INVESTIGATIONS***

INSPECTIONS
OIG LEADERSHIP PHILOSOPHY

The TVA OIG strives to be a high performing

organization made up of dedicated individuals

who are empowered, motivated, competent, and

committed to producing high quality work that

improves TVA and life in the Valley.

Each of us has important leadership, 

management, team, and technical roles.

We value integrity, people, open communication,

expansion of knowledge and skills, creative 

problem solving and collaborative 

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

400 WEST SUMMIT HILL DRIVE

KNOXVILLE, TENNESSEE 37902-1401