Tennessee Valley Region Table of Contents

Message from the Inspector General...... 5

W.V. Executive Summary ...... 6

IL. KENTUCKY Office of the Inspector General ...... 10 Paradise Fossil Plant VIRGINIA Kentucky MISSOURI Marshall Dam & Lock Clear Creek Combustion Turbine Beaver Creek Special Feature ...... 16

Ft. Patrick Henry South Holston Boone Wilbur Doakes John Sevier Fossil Plant Creek & Dam Cumberland Watauga Fossil Plant Noteworthy Undertakings...... 19 AR. Gleason &Combustion Turbine Combustion Turbine Norris Cherokee

Bull Run Nolichucky Johnsonville Fossil Plant Douglas Fossil Plant & Combustion Turbine Kingston Melton Fossil Hill Lock Audits ...... 22 Plant & Dam TENNESSEECedar Great Falls Ft. Loudoun Dam & Lock Pin Oak Tellico NORTH Lagoon Creek Redbud Combustion Turbine Beech Dogwood Watts Bar Watts Bar CAROLINA Nuclear Plant Dam & Lock Pine Lost Creek Inspections ...... 28 Sycamore Normandy Fontana

Sequoyah Nuclear Plant Apalachia Hiwassee Tims Ford Dam Ocoee #1 & Lock Ocoee #2 Chatuge Investigations ...... 32 , Combustion Turbines, & Methane Facility & Lock & Lock SOUTH Ocoee #3 CAROLINA Colbert Fossil Raccoon Nottely Plant & Mountain Combustion Pumped Blue Ridge Turbine & Lock Widows Creek Storage Browns Ferry Fossil Plant Legislation and Regulations ...... 36 Wilson Nuclear Plant Dam & Lock Cedar Creek Guntersville Little Bear Creek Dam & Lock LEGEND Bear Creek State Line Appendices ...... 38 Upper Bear Creek GEORGIA Water Power Service Area TVA Watershed Appendix 1 – Index of Reporting Requirements TVA Hydroelectric Dam Caledonia Under the Inspector General Act ...... 39 Combustion Turbine TVA Non-Power Dam TVA -Fired Plant TVA Nuclear Plant Appendix 2 – Audit and Inspection Reports Issued ...... 40 TVA Combustion Turbine Plant TVA Pumped-Storage Plant TVA Customer Service Office Kemper Appendix 3 – Audit and Inspection Reports Issued with Questioned Combustion Turbine TVA Economic Development Office Green Power Switch® Solar Site Costs and Recommendations for Better Use of Funds...... 41 Green Power Switch® Wind Site Green Power Switch® Methane Site 0204060 mi. Appendix 4 – Investigative Referrals and Prosecutive Results...... 42 June 2006 N t Appendix 5 – Audit and Inspection Reports v with Corrective Actions Pending ...... 43 a

Appendix 6 – Highlights...... 44 3 o Glossary, Abbreviations, and Acronyms ...... 45 i g

Semiannual Report | Challenging Times Message From The Inspector General

media to the Exxon Valdez spill) pre- Our reports provide an independent cipitated intense Congressional scru- perspective of TVA operations in key tiny at two public hearings as well as a strategic areas . We issued the customer barrage of media coverage . Congress relations report during the prior OIG has vowed to provide more oversight semiannual period, and the remaining of TVA and the ensuing litigation from reports will be issued during the next residents of Roane County, , semiannual period . promises to keep TVA in the spotlight The work of the OIG for this report- for years to come . As one TVA execu- ing period spans a broad gamut of risk tive aptly put it…“this event—painful areas for TVA . Our goal is to help TVA and uncharacteristic as it may be—is reduce those risks as they address the now part of our history as well” despite gaps that we identify . TVA manage- the laudable contributions of TVA to This report to Congress and the TVA ment’s response has been positive and the Valley and the Nation in years past . Board comes at a time of historic commitments have been made to make challenges for TVA. We chronicle These events with significant adverse the necessary corrections . some of those recent challenges economic consequences for TVA are Finally, we are grateful that our work is in the “Special Feature” on page compounded by an economy that has understood and fully supported by the 16 of our report. In many ways, a driven down revenues for TVA due to TVA Board which enables us to fulfill “perfect storm” has developed that business constrictions across the Ten- our mission . has changed the landscape of TVA nessee Valley region . TVA’s rates to its forever. As we note, a federal district wholesale customers have fluctuated court in Asheville, North Carolina, with the sharp increases drawing fire >> Challenging Times has ruled that a number of TVA’s fos- from retail residential customers while sil fuel plants have created a “pub- reductions in rates by TVA receive scant lic nuisance” that must be abated attention . Thus, TVA finds itself seem- Richard W. Moore in short order. This has significant ingly embattled on almost every front . Inspector General t implications for the composition of v Message from the We raise the question in the Special TVA’s energy fleet and requires re- a Feature article, “How is TVA doing?” thinking how TVA will meet the de- While this question is of particular rele- Inspector mand for power across the Valley. 5 vance today, the OIG started posing the o General Perhaps the darkest of clouds for TVA question before TVA was beset with the came on the night of December 22, current crisis . We had previously com- i 2008, when a coal ash pond at Kings- mitted to doing assessments that would g ton, Tennessee, spilled five million relay to TVA’s stakeholders how TVA cubic yards of water and coal fly ash was doing with regard to finances, cus- onto approximately 300 acres including tomer relations, environmental stew- about 8 acres of privately owned prop- ardship, and operational effectiveness . erty . This incident (compared in the

Semiannual Report | Challenging Times Representative Audits and Inspections

In these challenging times for indi- equipment placed in surplus and sub- from business with the federal govern- viduals and businesses, government sequently disposed of; (3) packing and ment; (2) could improve its process by corporations such as the Tennessee labeling monitors in surplus to ensure including certain requirements from Valley Authority (TVA) are not im- disposals comply with environmental the Federal Acquisition Regulations in mune to the wide-spread liquidity requirements; (4) certifying hard drives its procedures; and (3) lacked a formal and credit pressures of the troubled on resold, donated, or redistributed process for identifying parties that have economy. It is times such as these equipment are wiped; and (5) ensuring been found unsatisfactory by TVA and that greater need for and reliance on current procedures are followed . preventing them from transacting fu- the Office of the Inspector General ture business with TVA . (OIG) to ferret out waste, fraud, and Internal Control Audits of nearly $350 million of con- abuse is sought by the company’s Reviews tract expenditures identified potential stakeholders. This report describes The OIG continued its support of TVA overbillings and waste of up to approx- the initiatives of our office in these initiatives to comply with Section 404 imately $1 2. million . The questioned regards: a brief synopsis of the more of the Sarbanes-Oxley Act of 2002 costs were discovered during contract significant audits, inspections, and (SOX) . During the period, business compliance audits of the TVA medical investigations performed during this process and information system con- benefits plan administrator and ven- semiannual period follows. trols were tested again for operational dors providing nuclear engineering and effectiveness . This included follow-up asbestos abatement services to TVA . testing of controls to provide TVA IT Audits TVA is taking or has taken action to Our audit of general computing con- management assurance of continued recover these dollars . trols at a vendor which hosts a TVA effectiveness or successful remediation system significant to TVA financial of controls where initial tests showed Monitoring of External reporting found the vendor needs to: improvements were needed . >> Challenging Times Auditors’ Work (1) strengthen account management The OIG is responsible for all audits procedures to ensure accountability; Contract Audits of TVA, whether performed by federal (2) develop a standard configuration TVA spends billions of dollars annu- or nonfederal auditors, to assure the t baseline for all systems on the produc- ally for goods and services provided work is performed in accordance with v Executive tion network; (3) implement sufficient by contractors . TVA needs assurance generally accepted government audit- a security to detect attempted or success- it is not contracting with those parties ing standards . TVA contracted with an ful system intrusions; and (4) strength- or entities that have been debarred or Summary independent registered accounting firm 7 en physical security controls . suspended from doing business with for the audit of its fiscal year (FY) 2008 the federal government or found un- o A review of TVA’s practices for track- financial statements and the review of its satisfactory by TVA as a result of prior i ing and disposing of surplus computer interim reports filed with the Securities relations . An audit of TVA’s contracting g equipment found TVA needs to im- and Exchange Commission (SEC) . In process found TVA: (1) lacked formal prove its processes for: (1) updating addition, TVA contracted with another procedures to assure the company inventory records for computer equip- independent registered accounting firm does not knowingly contract with par- ment taken out of service and placed for the audit of its restated FY 2007 and ties previously debarred or suspended in surplus; (2) recording all computer FY 2006 financial statements . The OIG

Semiannual Report | Challenging Times monitored the work of these firms and Inspections tools used in the nuclear unit construc- Administrative in- We also investigated a matter in which found no instances of noncompliance tion project showed improvements Statistical Highlights A review of qualifications of contractor October 1, 2008 ~ March 31, 2009 quires during this a contractor at the John Sevier Fossil with standards by either firm . were needed to: (1) ensure the accuracy and subcontractor employees assigned Audit Reports Issued ...... 14. semiannual period Plant had threatened a TVA employee . of data in the contractor tool track- to the nuclear unit construction project Inspections Completed...... 4. include actions taken TVA terminated the contract with the Operational Audits found the need to: (1) include mini- ing system; (2) define value criteria for Questioned Costs...... $1,225,713. following the discov- individual . n A review of TVA’s telework initiatives mum requirements for each position in bulk items; (3) ensure compliance with Disallowed Costs...... 828,697 ery of three alleged found: (1) the company has a frame- the job requisitions; (2) document the small tool and equipment procedures; Funds Recovered...... $643,525 hangman’s nooses . work for telework, but there was little rationale for accepting any candidate and (4) safe-keep tools in unlocked sea/ Funds to be Put to Better Use...... $0 In one, a noose was evidence of compliance with the policy, who does not meet the minimum re- land containers . Funds Realized by TVA ...... $0 found at the Kingston especially with regard to training and Investigations Opened...... 171 quirements for a position; (3) evaluate A review of TVA’s purchasing card Fossil Plant (KFP) approval of teleworking; (2) some tele- Investigations Closed...... 91. the qualifications of employees who do program found: (1) key controls were in September 2008, working occurs, but TVA has no system Fines/Recoveries/Restitution. . . . $11,077,996. not meet minimum qualifications and not functioning in the review of trans- hanging approxi- for identifying those who telework or Criminal Actions ...... 7 determine if they are qualified to per- actions; (2) purchases were made that mately 20 feet from a for tracking the extent of teleworking; Administrative Actions (No . of Subjects) . . . .3 form the work; and (4) assure resumes were disallowed by TVA policy; (3) cer- stairway . During the (3) approvals are demonstrated by are thoroughly reviewed and any dis- tain best practices were not in place; investigation of this granting remote access to TVA systems investigation of environmental crimes crepancies resolved prior to hiring the and (4) known or suspected instances matter, a second was reported which instead of following the approval pro- initiated during the semiannual period . individual . of waste, fraud, and abuse were not re- had purportedly been hanging approx- cess; and (4) there are no additional In November 2008, an operator at a ported to the OIG as required by TVA’s imately 30 feet in the air on structural plans for the program at this time . Evaluation of controls to account for Tennessee wastewater treatment plant n steel outside of the Selective Catalytic accepted business practices . was sentenced to a term of 18 months Reduction (SCR) for more than four probation, 40 hours of community years . The third alleged noose was lo- service, and a $100 special assessment Representative Investigations cated at the Widow’s Creek Fossil Plant after he pled guilty to a felony count (WCF) . The TVA OIG’s investigation Although a significant amount of In- ably higher than in previous reporting TVA contractor Stone & Webster Con- under the Clean Water Act . The case, determined, however, that the “noose” vestigative resources have been focused periods . struction, Inc . worked jointly with the Environmen- on the recent environmental events at (SWCI), agreed was actually a looped tie-off rope used Two Kentucky tal Protection Agency (EPA) Criminal TVA, our focus remains on major fraud to pay $6 .2 mil- to suspend vacuum tubing for fly ash men were con- Investigation Division (CID), involved investigations . During this reporting lion to resolve a removal . victed of bank the operator falsifying reports relating period, final actions were taken in two A confidential connection for reporting fraud, contract fraud t fraud, mail waste or abuse affecting TVA. to fecal coliform and chlorine tests for Another administrative inquiry in- t major investigations resulting in two investigation . v fraud, and nine www.OIGempowerline.com discharge that flowed into a creek end- volved an incident of unauthorized v criminal convictions and restitution 1-877-866-7840 The settlement a counts of mon- ing in the , which is part computer port scanning at a TVA facil- a of more than $4 5. million in one case EmPowerline™ is sponsored by the Office of the Inspector General amount reflects ey laundering . and operates independently of TVA. of the TVA Watts Bar Watershed area . ity . We recommended that TVA review: and a civil settlement of $6 2. million double dam- 8 They were A second case ended in a guilty plea (1) the pertinent contract to determine 9 in the other . Efforts also continue in ages negotiated in view of the False ordered to pay more than $4 5. million in January 2009, and it involved Her- the need for contractors to have TVA o the investigation of environmental Claims Act violations involving under- o in restitution after they diverted funds aeus Metal Processing, Inc ,. located in log-on access and (2) the contractors’ i crimes, which resulted in a guilty plea stated injury reporting . Significantly, i from two loans obtained for specified Wartburg, Tennessee, which made false ability to operate independently of di- g to a Clean Water Act violation and a the company also agreed to enter into g business purposes to unrelated uses . statements in and omitted information rect TVA supervision . Additionally, we guilty plea under the Clean Air Act . Ad- the first Corporate Integrity and Moni- Lloyd Aaron Smith was sentenced to 30 from a document required by the Clean recommended TVA look further into ditionally, the number of investigations toring Agreement in TVA history be- months incarceration, and co-defen- Air Act . The corporation was sentenced this matter to determine relevant Infor- opened from calls to our complaint tween the OIG and a TVA contractor . dant Neal Gordon Wall was sentenced to pay a $350,000 fine and serve 18 mation Technology (IT) security con- line, Empowerline, has been consider- to 28 months confinement . TVA OIG also pressed forward in the months probation . cerns and weaknesses of TVA systems .

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Office Responsibilities OIG Responsibilities OIG Authority And Authority _ Promote economy and efficiency _ Conduct any audit, inspection, or _ Created by the TVA Board of Direc- while preventing and detecting investigation the IG deems neces- tors in 1985, the TVA OIG became fraud, waste, and abuse sary or desirable statutory under the Inspector _ Conduct and supervise audits, _ Access all TVA records or other General Act Amendments of 1988 inspections, and investigations material (IG Act) . The authority to appoint relating to TVA programs and op- _ Issue subpoenas and administer the TVA Inspector General (IG) erations oaths was transferred to the President _ Keep the TVA Board and Congress in November 2000 by Public Law  _ Receive complaints and grant con- fully and currently informed con- fidentiality No . 106-422 . cerning fraud and other serious problems, abuses, and deficiencies _ Have direct and prompt access to relating to TVA programs and op- the TVA Board erations _ Hire employees and contract for _ Recommend corrective actions services as necessary concerning problems, abuses, and deficiencies, and report on the progress made in implementing such actions _ Assure work performed by nonfed- eral auditors complies with Gov- ernment Auditing Standards _ Issue semiannual reports to TVA Board and the Congress

>> Challenging Times

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Semiannual Report | Challenging Times OIG Strategic Plan Goals & Objectives Office of Inspector General—Tennessee Valley Authority Mission Performance Perform timely reviews that address stakeholder concerns and areas of highest risk Promote excellence in TVA’s operations Richard W. Moore Inspector General through the conduct of investigations, _ Focus efforts on areas of highest impact and risk audits, inspections, and advisory ser- _ Ensure processes are efficient and effective vices designed to promote economy, _ Stay abreast of emerging issues and industry trends efficiency, and effectiveness and prevent _ Stay abreast of stakeholder concerns and detect fraud, waste, and abuse _ Produce work that is timely, relevant, and of high quality Vision Workforce Cultivate and retain a highly skilled, productive, and fully engaged workforce To be a highly effective organization Ben R. Wagner Charles A. Kandt Stefanie D. Hoglund that promotes positive change by iden- _ Hire and retain a well-qualified workforce Deputy Inspector General Legal Counsel Communications Specialist tifying opportunities for improvements _ Maintain competitive pay and award programs that allow for rewarding team Audits & Inspections in the performance and efficiency of and individual contributors TVA’s programs and operations _ Develop leadership, team and technical skills of each employee _ Ensure accountability in individual performance Core Values _ Promote effective communications within OIG _ Independence  Stakeholder Jill M. Matthews Robert E. Martin Gregory C. Jaynes _ Integrity Deputy Assistant Inspector Assistant Inspector General Deputy Assistant Inspector  Communicate effectively with stakeholders and deliver services that meet their needs General, Audits and Support Audits and Inspections General, Inspections _ Innovation _ Improve stakeholder awareness of OIG _ Initiative  _ Ensure stakeholders are kept informed _ Quality  _ Results _ Ensure stakeholders have an opportunity to provide input in the annual au-  dit planning process and each individual review, as appropriate _ Leadership Lisa H. Hammer Louise B. Beck David P. Wheeler Phyllis R. Bryan  Director, Financial and Manager, Audit Quality Director, Contract Audits Director, IT Audits _ Teamwork Organization Operational Audits and Support _ Communication The OIG is headquartered in the TVA East Tower in Knoxville, Administration & Government Relations _ Respect for Individual Tennessee, across from the TVA headquarters, which is in the t West Tower . The OIG has a major satellite office in the Edney t v Building in Chattanooga, Tennessee, where the Inspections unit v a and several investigators are located . There also is a staffed field office a at , Tennessee, to which an auditor and investigator are 12 Ronald Wise Kay T. Myers 13 assigned . In addition, the Investigations unit has staffed field offices in Nashville, Assistant Inspector General Manager, Human Resources Administration and o Tennessee; Huntsville, Alabama; and Mayfield, Kentucky . Government Relations o i As of March 31, 2009, the OIG was composed of 104 individuals . This includes: Investigations i g (1) 62 individuals with the Audit and Inspections units; (2) 32 individuals with the g Investigations unit; and (3) 10 individuals with the Administrative unit . The number of personnel located at each staffed office is as follows: Knoxville - 76, Watts Bar Nuclear Plant - 2, Chattanooga - 18, Nashville - 3, Huntsville - 4, John E. (Jack) Brennan Nancy J. Holloway Paul B. Houston and Mayfield, Kentucky - 1 . Assistant Inspector General Special Agent In Charge Special Agent In Charge Investigations

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Administration Inspections group makes recommen- between TVA and its distributors . allegations of fraud, waste, abuse, and dations to enhance the effectiveness These audits are a first for the IG, mismanagement . The administrative section works and our first-year plans include and efficiency of TVA’s programs and closely with the IG, Deputy IG, and developing and refining a sustain- Audit and inspection findings vary operations . The group uses an impact- able audit approach and sampling Assistant IGs to address the day-to-day depending on the objectives of the and risk-based approach to developing plan . operations of the OIG and to develop project . Issues can be generalized into an annual work plan . The group’s plan _ Financial/Operational Audits has policies and procedures . Responsibili- lead responsibility for: (1) over- specific categories depending on the considers TVA’s strategic plans, major ties include operations for personnel CONTRACONTRACT CT DISDISTRIBUTORTRIBUTOR sight of TVA’s financial statement type of engagement performed . The management challenges, enterprise risk AUDITAUDITS S AUDITAUDITS S administration, budget and financial audit and related services per- following graphic shows some repre- management process, and other input InflaInftedla tedProposals Proposals ContContractraorct or formed by TVA’s external auditor; management, purchasing and contract NoncomplNoncomplianceiance (2) reviews of TVA’s internal con- sentative examples of issues commonly services, facilities, conferences, and gov- from TVA management . The planning ContContractra ct trols related to financial reporting, n OverOvpaerymentspayments MissMisstatementtatement of of reported . ernment relations . model also evaluates each potential en- PowePorwer operational efficiency, and compli- gagement from the standpoint of ma- InferInferior ior ance with laws and regulations; PerfPeorrfmanceormance SalesSales to TV toA TVA and (3) operational reviews to as- teriality (i .e ., costs or value of assets), Investigations FraudFraud FraudFraud sess the results and economy and Investigations conducts and coordi- potential impact, sensitivity (including efficiency of TVA programs . nates investigative activity related to public and/or congressional interest), _ IT Audits has lead responsibility for audits relating to the security fraud, waste, and abuse in TVA pro- and likelihood it will result in recom- of TVA’s IT infrastructure, applica- grams and operations . The activities mendations for cost savings or process tion controls, and general controls investigated include possible wrongdo- improvements . The result of the OIG INFORMAINFORMATIONTION FINANCIALFINANCIAL associated with TVA systems . This group also performs operational ing by contractors, employees, eco- audit and inspections planning process TECHNOLOGTECHNOLOGY Y AUDITAUDITS S AUDITAUDITS S reviews of the effectiveness of nomic development loan recipients, is a focus on those issues of highest InterInternalnal Contr Control ol DefDeficienciciencies ies IT-related functions . In addition and others who commit crimes against impact and risk of fraud, waste, abuse, UnauthorUnauthorizedized to its audit mission, IT Audits is AccessAccess MaterMaialter ial responsible for developing and TVA . Investigations maintains liaison or in regards to IT, malicious, or other InadequaInadequate Contrte Controlsols MissMisstatementstatements supporting an independent OIG with federal and state prosecutors and intrusion . LackLa ofck Da ofta Da ta LegalLegal computer network . reports to the Department of Justice The Audits group, based in Knoxville, IntegrIntegrity ity NoncomplNoncomplianceiance The Inspections group, based in Chat- whenever the OIG has reason to believe conducts and/or supervises compre- FraudFraud FraudFraud tanooga, Tennessee, seeks to ensure that there has been a violation of federal hensive financial and performance au- program objectives and operational criminal law . Investigations works dits of TVA programs and operations . functions are achieved effectively and with other investigative agencies and efficiently . It performs both compre- t It consists of four departments—Con- OPERAOPERATIONALTIONAL INSPECTIONSINSPECTIONS t organizations on special projects and hensive reviews and more limited v tract Audits, Distributor Audits, Finan- AUDITAUDITS S v assignments, including interagency law InterInternalnal Contr Control ol scope policy and program reviews . In a cial/Operational Audits, and IT Audits . OperOperationalational Ineff Inefficiencyiciency DefDeficienciciencies ies a enforcement task forces on terrorism, accordance with the Quality Standards NotNo Acthiev Achieving ingIntended Intended OperOperationalational 14 the environment, and health care . _ Contract Audits has lead respon- ResulResults ts for Inspections, the objectives of the 15 sibility for contract compliance IneffInefficiencyiciency Inspections group include provid- o and preaward audits . In addition, InferInferior iorPerf Peorrfmanceormance PolPolicy icy o Audits And Inspections this group performs reviews of TVA NoncomplNoncomplianceiance ing a source of factual and analytical i Legal/Legal/ Regul Regulatoratyor y i The Audits and Inspections group contracting processes and provides NoncomplNoncomplianceiance FraudFraud information, monitoring compliance, g performs a wide variety of engage- claims assistance and litigation g support . FraudFraud measuring performance, assessing the ments designed to promote positive efficiency and effectiveness of opera- _ Distributor Audits has lead respon- change and provide assurance to TVA sibility for contract compliance tions, and/or conducting inquiries into stakeholders . Based upon the results reviews of TVA’s distributors . This of the engagements, the Audits and group assesses compliance with the terms of the power contracts

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Special Feature: VA is facing challenges of historic proportions. Some of these challenges include decreasing revenues due to a national eco- T nomic crisis, fluctuating rates for TVA customers due to chang- ing fuel costs, an adverse federal environmental judgment in North Carolina with severe financial ramifications for TVA, and finally but not least, an unprecedented environmental spill publicly compared to the Exxon Valdez spill. This puts TVA squarely in the crosshairs. So, does any of that impact the way the TVA OIG does its work?

“More than ever, our job is to pro- Additionally, the OIG has launched an vide some level of assurance to our independent assessment of the cause . stakeholders that there is an objective ‘watchdog’ evaluating all of the current challenges TVA is facing,” says Inspec- tor General Richard Moore .“We have a heavier burden to fairly report the facts than ever before ”. During this reporting period, TVA’s public scrutiny was magnified due to a dike failure near Kingston, Tennessee, that allowed approximately 5 million cubic yards of water and coal fly ash Kingston Ash Spill Aerial View to flow out onto approximately 300 acres, including about 8 acres of pri- The spill, coupled with a ruling in a vately owned land . Some of this mate- North Carolina lawsuit that judicially rial flowed into the nearby Watts Bar established emissions from four of Reservoir, and the spill rendered three TVA’s coal-fired plants constituted t t homes uninhabitable because of struc- public nuisances, brought even more v v tural damage . intense focus on TVA’s use of coal as a a a source to generate power . The spill received international at- 16 tention and sparked visits to the area Before TVA’s onslaught of public 17 from renowned environmentalist plights, Moore had already launched o o Erin Brockovich who met with Kings- a strategic initiative to evaluate TVA i i ton residents impacted by the spill . Nu- and answer the very basic question of, g g merous lawsuits were filed against TVA “How is TVA doing?” in a series of au- in regard to the spill . dit reports . These reviews benchmark the largest U S. . power provider against TVA has retained an independent en- other comparable power providers in gineering firm to perform an analysis the country in the areas of customer to determine the cause of the release .

Semiannual Report | Challenging Times Semiannual Report | Challenging Times fair and an impar- energy capacity… .We will put Ameri- tial manner ”. cans to work in new jobs that pay Noteworthy Undertakings well—jobs installing solar panels and The first bench- OIG Conducts COOP Drill was placed in telework status on the if their corporate culture discourages wind turbines; constructing energy-ef- marking report on It’s 8:30 a .m . on February 25, 2009, same day . fraudulent acts by their employees and ficient buildings; manufacturing fuel- that their ethics goes beyond a poster customer relations and the disaster response team for the For the OIG, this scenario was the efficient vehicles; and developing the on the wall? We think so . assessed key per- OIG is summoned to the Emergency initial test of the COOP and recent tele- new energy technologies that will lead formance measures Operations Center . In a room flanked work-related information technology to even more jobs and more savings, and their align- by computers, seven members of the (IT) upgrades . During the post-drill putting us on the path toward energy ment with the key Inspector General’s staff have gathered meeting, the first response team pro- independence for our Nation and a strategic objectives, to hear an announcement by Deputy vided the following lessons learned . cleaner, safer planet in the process ”. evaluated TVA’s Inspector General Ben Wagner .“A train results relative to This Presidential initiative will present _ The COOP was executed smoothly . carrying toxic chemicals on board de- The core team was assembled by targets and available TVA with yet another challenge fol- railed in downtown Knoxville at 3 a .m . 8:30 a m. . and, by 9 a m. ,. the team Kingston Ash Spill benchmark infor- lowing the intense scrutiny the agency The subsequent chemical leak has ren- had accounted for all affected Knoxville employees . mation, and identi- is undergoing as a result of the Kings- dered the Knoxville office space unin- relations, finance, environmental stew- _ The IT issues encountered were fied key management challenges that ton ash spill on December 22 . The habitable . All Knoxville employees will  ardship and operations . They also eval- generally minimal, primarily in the could affect how successful TVA is in TVA OIG’s benchmarking report will be required to work from home until area of user assistance for those IG Richard Moore uate how well TVA achieves the goals it achieving these strategic objectives . naturally highlight TVA’s response to the situation is resolved,” says Wagner . employees who (1) had not previ- sets for itself . the Kingston ash spill, but the report ously teleworked and (2) had not The second report on finance will be The Deputy IG’s report hushes the used the internal virtual private The OIG encouraged TVA Ethics and “I thought it was important to create a will also analyze TVA’s overall envi- released this spring, followed by a re- room, setting off a flurry of activity as network . However, the laptop for Compliance officer Peyton Hairston to format that would allow us to effective- ronmental record prior to the coal ash one core team member malfunc- bring in TVA’s key contractors to start port on environmental stewardship the team shifts into response mode . In tioned during the test . All IT is- ly answer one basic question: ‘How is spill at Kingston, Tennessee . The OIG and operations . Financial performance reality, there was not a train derailment sues arising throughout the day the process of “talking culture ”. At TVA, TVA doing?’” Moore notes .“This seems will issue several reports on the Kings- is a prime determinate of sustainable or chemical leak . This was only part of were successfully resolved . the belief is that good ethics equals to me to be a question that an IG’s of- ton spill in the coming months that success . The strategic challenges facing a drill the OIG devised to test its conti- _ The OIG recognized there needed good business, and TVA strives to drive fice, which is congressionally charged will focus on its cause, TVA’s response to be provision for spare IT equip- that belief throughout the organization . TVA require a sound, long-term finan- nuity of operations plan (COOP) and ment added to the supplies pro- with providing oversight to an agency, to it, and efforts to prevent such a spill cial plan and vision, which this report identify technology challenges associ- vided at the alternate site . No Employees are expected to adhere to should be able to answer about that in the future . n will evaluate . ated with the entire workforce working other changes to the COOP were more than the Office of Government t agency . While all of our work should identified . Ethics rules . They are to embody a cul- t The report on environmental steward- from remote locations . Prior to this v cumulatively answer that question, The COOP test provided the OIG a ture of honesty and accountability that v ship has the potential to generate sig- daylong exercise, the OIG employees a compiling data in four basic reports per valuable experience that will help the outstrips rules about the dollar limits a nificant interest in light of the current knew they would be participating in year informs stakeholders about TVA’s OIG respond to real emergencies in a on gifts . TVA took the admirable step Presidential Administration’s focus a drill . However, they weren’t told the 18 performance in a clearer way . If the IG’s more effective and efficient manner . of creating an Ethics and Compliance 19 on utilizing renewable energy sources exact nature of the “emergencies” they office can’t answer the basic question Office that seeks to drive the corporate o to generate power while drastically would face . o of ‘How is TVA doing?’ then I am not Ethics – Going Beyond i ethics of the business throughout the i reducing reliance on coal-powered While telework is an everyday occur- sure that we are truly doing our job . Paper organization . g plants . President Barack Obama has g We are in a uniquely qualified position rence at the TVA OIG, with approxi- How much should federal agencies or stated, “To finally spark the creation The OIG questioned, however, how to be able to provide this information mately 30 to 50 percent of the OIG any business know about their contrac- of a clean energy economy, we will effective any agency’s ethical firewall as our mission is always fact-finding in Knoxville workforce teleworking on tors? Do we need to know anything make the investments in the next three can be if it doesn’t have a like commit- nature and our independent authority a given day, this was the first occasion beyond their written code of ethics or years to double our nation’s renewable ment from its contractual partners . The demands that we report these facts in a where everyone in the Knoxville office their financials? Would it help to know

Semiannual Report | Challenging Times Semiannual Report | Challenging Times building more Compliance Officer . He stressed TVA’s overview of the legal and regulatory The TVA OIG releases New Fraud Video than a contractual current outreach program to ensure framework of TVA . The TVA OIG’s latest video release addresses the thought, “If only it were easy relationship . An TVA’s contractors and vendors were At the end of the day, the contractors’ to spot fraud ”. The four-minute video showcases what it might look like if this ethics and compli- aware that TVA’s ethical conduct stan- representatives were asked if they felt were easy, but because it’s not, a message from the Inspector General highlights ance forum was dards, processes and the OIG’s initiative that the experience was helpful . There what employees can do if they suspect fraud . jointly sponsored go beyond paper . They’re part of the was widespread agreement that this by the TVA Of- contracting and communication pro- kind of exchange was healthy, and fice of Corporate cesses of TVA . If only it were this easy many expressed appreciation that TVA to spot the bad guys. Responsibility and Conference attendees benefited from the OIG . Contrac- the participation of Eric Feldman, a tors came from as former inspector general and now the far away as Colo- CFO Kim Greene lays out to Senior Advisor for Procurement In- rado, Connecticut, contractors TVA’s expectations. tegrity at the National Reconnaissance Illinois, and Texas Office . Feldman, who has 30 years of to work with the first step is simply getting to know who experience in federal audit work, pro- TVA OIG to find the best ways to en- you do business with on more than a vided an in-depth review of the new sure that honesty and fairness are pres- superficial level . What if we could get mandatory fraud disclosure rule re- ent in our business relationships and our contractors to train their employ- cently added to the Federal Acquisition TVA Assistant General Counsel to smooth the way for self-reporting Ralph Rodgers explaining the ees on our ethical standards? What if Regulations . rules TVA employees must follow. we demonstrated that TVA’s ethics are of issues that may arise . The expecta- tion is that self-reporting will result in more than skin deep? These questions officials had initiated the process . There addressing and resolving issues before prompted TVA to invite its largest con- was interest by the contractors to have Help us stop fraud, waste and abuse. they turn into major problems, and less Protect your job, your benefits , your future. tractors (those with contracts of $25 TVA officials and the OIG go on-site litigation will occur as a result . The true power of TVA million and more) to meet in Knox- to the contractors’ locations to become comes from you.

1-877-866-7840 OIG Office of the ville, Tennessee, to start the first in a The contractors attended a reception acquainted with the contractors’ ethics Inspector General OIGempowerline.com Tennessee Valley Authority series of “cultural exchanges ”. and dinner where they had the oppor- and compliance programs . n Richard Moore, TVA’s Inspector Gener- tunity to meet key TVA officials as well Our office initiated this effort to encourage TVA employees, contractors, and the t al, told of his own personal experience as the Inspector General’s staff . The public to report possible instances of fraud, waste, abuse, and mismanagement t v of seeing for the first time representa- next day, TVA officials presented TVA’s to the office’s hotline, the Empowerline, which allows users to report anony- v code of conduct and stressed TVA’s ex- Eric Feldman explaining the a tives of a major TVA contractor in a fraud disclosure rule. mously if they choose . a federal district courtroom .“I thought pectations for both TVA employees and To view the video, visit www.oig.tva.gov, and click on the video link . n the contractors’ employees . In opening 20 to myself that was a poor way to do TVA Vice President Terrell Burkhart 21 the program, TVA Chief Financial Offi- o business . I knew nothing about the discussed TVA’s contracting process, o cer (CFO) Kim Greene pointedly stated i company’s culture and whether we and TVA’s contractors were made i that when it comes to ethical integrity, g were dealing with ‘rogue employees’ or aware of the strictures pertaining to g “Close is good enough is not accept- a company that winked at fraud ”. TVA employees by Ralph Rodgers, able . . . it has to be pristine, it has to be Twenty-three representatives from 17 TVA’s Assistant General Counsel for perfect ”. of TVA’s largest contractors responded Procurement & Corporate Contracts to the challenge to start a process of Senior Vice President Peyton Hairston as well as the Designated Agency Eth- described his role as TVA’s Ethics and ics Official . Rodgers also provided an

Semiannual Report | Challenging Times Semiannual Report | Challenging Times During this reporting period, we General Computing Controls Need Improvement completed 14 audits, reviews, and for Financially Significant System agreed-upon procedures, which We reviewed general comput- identified more than $1.2 million in ing controls relating to servers questioned costs. We also identified at a vendor hosting one of opportunities for TVA to strengthen TVA’s financially significant its system of internal control. These systems . We found the vendor projects included IT audits, financial- had not: (1) implemented ad- related engagements, operational equate account management audit, and contract reviews. In ad- procedures to ensure account- dition, we completed eight other ability; (2) adequately config- audit-related projects. ured systems on the production network; and (3) implemented IT Audits sufficient security to detect attempted or successful attacks . In addition, weakness- “With technology advancement and es were identified related to physical access to the processing facility . The vendor changes in the associated risks, we are agreed with our findings . challenged more than ever before to promote security effectiveness .” Control Improvements Needed for Surplus Phyllis R. Bryan Computer Equipment Director We performed a review to determine IT Audits & Support whether TVA’s: (1) process used to During this semiannual surplus and dispose of computer equip- period, we completed ment is adequate and ensures TVA three audits in the IT information is not improperly disclosed environment pertain- and (2) disposal process meets environ- >> Challenging Times ing to: (1) general computing controls mental regulations . We found TVA’s process for a financially significant application; for the disposal of surplus computer equip- (2) controls over TVA’s process used to ment does not adequately protect TVA dispose of computer equipment; and resources or track the disposition of surplus t (3) pre-implementation review of con- Summary of equipment . Specifically, we determined: v trols for a new access request system . (1) the equipment inventory was not cor- a We also completed two audits in sup- rectly updated when equipment was re- Representative port of TVA’s FY 2008 efforts to comply moved from service; (2) equipment trans- 23 with SOX . Highlights of these audits ferred to surplus was not tracked to prevent o follow . Audits unnecessary storage, loss, or theft; (3) monitors transferred to surplus were not i packaged and labeled to meet environmental requirements; (4) the organization g responsible for surplus equipment did not maintain an inventory of equipment received for disposal or reconcile equipment received with equipment indentified as surplus; and (5) the disposition records maintained did not account for the dis- position of 6,631, or 63 .9 percent, of the computers identified as surplus .

Semiannual Report | Challenging Times Pre-implementation cess requests; (3) database containing and (2) roll-forward, remediation and Agreed-Upon Procedures TVA Telework Initiatives We recommended TVA management: Review Concludes New approval information was regularly nonoccurrence testing for 18 IT general Applied to 2008 Winning We reviewed TVA’s efforts to imple- _ Work with other TVA organiza- Access Request System backed up; and (4) application’s Web controls and 31 application controls, Performance Payouts ment telework, as well as any planned tions to determine which jobs and Controls Were Adequate page program code had adequate input which were initiated at the end of the We performed agreed-upon proce- telework initiatives . Our review deter- functions in TVA are conducive to We performed a pre-implementation telework . checks to prevent unauthorized ma- previous FY . Overall, we noted oppor- dures, which were requested solely to mined: review of TVA’s new automated access nipulation or disclosure of data . tunities to improve SOX documenta- assist management in determining the _ Consider a pilot program that would be informative in future request system . We found: the (1) ap- validity of the Winning Performance _ TVA’s Business Practice 20, Off- tion, operating effectiveness of controls, site Use of Business Equipment decisions concerning telework proval process worked as documented FY 2008 IT SOX Testing and areas where control gaps existed . payout awards for the FY ended Sep- (BP 20), provides a framework for and identify ways to use telework and restricted users from approving Identified Opportunities tember 30, 2008 . telework; however, we found little to facilitate COOP planning and TVA management generally agreed with responding to emergency situa- any request for which they were the for Improvement evidence of compliance with the tions such as pandemics or natural During the first half of the semiannual our findings and has taken or is in the In summary, we found: policy, especially as related to requestor or the initiator; (2) applica- required training and method of disasters . period, we completed (1) compliance process of taking corrective action to tion maintained adequate approval _ The FY 2008 Winning Performance approval . _ Implement a telework policy that remediate issues noted in these audits . goals were properly approved .  information to allow for audit of ac- testing of controls for one application _ Pockets of teleworkers exist provides a method for approving _ Actual year-to-date inputs for the throughout TVA . However, TVA has employees to telework, appropri- sampled metrics agreed with the no system for tracking individu- ate training to supervisors and all Financial and FY 2008 Financial Statement Audit respective supporting documenta- als who telework or the extent to employees authorized to telework, Operational Audits Complied with Standards tion . which they telework . a tracking system for individuals who telework, and effective com- “Our group strives to provide manage- TVA contracted with the independent public accounting firm of Ernst & Young _ Actual inputs for the three incen- _ Employees are approved to tele- tivized TVA-wide metrics agreed  munication of TVA’s telework policy ment with information regarding the LLP (Ernst & Young) to audit TVA’s balance sheet as of September 30, 2008, and work by being granted remote ac- to TVA employees . effectiveness of TVA’s financial report- with the underlying support pro- cess to TVA systems instead of fol- the related statements of income, changes in proprietary capital, and cash flows ing and operational controls .” vided by the Strategic Business lowing the BP 20 approval process . _ Consider designating a Telework for the year then ended . In addition, the contract called for the review of TVA’s Units with one exception related Managing Officer . Lisa H. Hammer We did not identify any planned tele- fiscal year 2008 interim financial information filed on Form 10-Q with the to the equivalent availability fac- _ Consider requiring that essential Director tor metric . This one exception did work initiatives . However, telework is  SEC . The contract required the work be performed in accordance with gener- employees take their laptop com- Financial & not affect the payout . being considered by Facilities Manage- puters home at the end of their Operational Audits ally accepted government auditing standards . Our monitoring of this work _ The payout percentages were ment in its space-reduction plans . Any workday in the event an emergen- cy occurs and they are unable to disclosed no instances where Ernst & Young did not comply, in all material mathematically accurate after decisions made would require buy-in noted exceptions were corrected . move to the alternative location . respects, with generally accepted government auditing standards . from management . In addition, should During this semiannual The Chief Administrative Officer SOX Testing Identifies the number of concurrent remote users period, we completed Audit of TVA’s Restatement of FY 2007 and 2006 (CAO) and Executive Vice President Improvement Areas increase, TVA may need to increase its two audits related to our monitoring Financial Statements Complied with Standards (EVP), Administrative Services, agreed We completed testing of 56 control remote access capabilities . t of TVA’s external auditor; performed TVA contracted with the independent certified activities within 21 key TVA business to work with other TVA organizations t agreed-upon procedures related to v public accounting firm of PricewaterhouseCoo- processes designated by TVA’s Financial We also reviewed TVA’s COOP and to determine which jobs and func- v TVA’s 2008 Winning Performance; a pers LLP (PricewaterhouseCoopers) to audit the Compliance & Regulatory Controls Pandemic plan and determined both tions in TVA are conducive to telework . a tested financial reporting controls for restated balance sheets and the related statements Group as requiring supplemental test- adequately included the use of tele- Upon completion of that assessment, 24 various business processes to assist with 25 of income, changes in proprietary capital, and cash ing for SOX compliance purposes . We work in those programs . However, the CAO and EVP, Administrative TVA’s initiative to comply with SOX; o flows as of September 30, 2007, and 2006, and the noted that 45 of the controls were op- the COOP does not require essential Services, will take appropriate actions o and conducted one operational audit results of its operations and cash flows for each of employees to take their laptop com- regarding our other recommendations . i erating effectively, eight controls were i related to telework . Highlights of these the three years in the period ended September 30, puters home in the evenings to ensure g not operating as intended, and three g projects follow . 2007 . The contract required the audit be done in were not tested because no events oc- continuity of operations in the event accordance with generally accepted government curred to trigger the associated control they are unable to move to the alternate auditing standards . Our monitoring of this work in the relevant period . location during an emergency . disclosed no instances where PricewaterhouseCoopers did not comply, in all mate- rial respects, with generally accepted government auditing standards .

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Contract Audits have committed a civil or criminal Contract Compliance Nuclear Engineering paying $343,548 in excessive paid time Other Projects offense . “During this period of economic un- Audits Services off costs for certain contractor personnel During this reporting period, we also _ TVA does not have a formal pro- certainty, it is more important than  We completed audits on $350 million We audited the costs billed to TVA assigned to the BFN Unit 1 project . provided: (1) advice to Procurement ever that we provide an objective cess for internally identifying of contract expenditures and found by a contractor for providing profes- regarding commercial terms on several analysis of the contract dollars being vendors that have been found un- The contractor subsequently credited spent by TVA .” satisfactory within TVA . The lack of potential overbillings and waste of up sional engineering and technical sup- or agreed to reimburse TVA $284,000, planned contract awards; (2) litigation such a process could result in TVA to approximately $1 2. million during port services associated with the restart support services to TVA’s Office of the David P. Wheeler not being aware of problems it has including $254,700 of the overbilled Director had with vendors prior to award- this semiannual period . of Browns Ferry Nuclear Plant (BFN) costs and $29,300 related to the exces- General Counsel regarding a claim filed Contract Audits ing contracts to them . Unit 1 . Our audit, which included sive paid time off costs . against TVA by a coal vendor; and (3) We recommended TVA Procure- Medical Benefits Plan $110 million of payments TVA made to litigation support services for the Unit- Administrator ment develop written procedures the contractor from June 2004 through Asbestos Abatement ed States Attorney’s Office regarding an We audited $211 .6 million of costs billed detailing its vendor debarment October 2007, found the contractor Services investigation of unrecorded and lost- Review of to TVA by a contractor from January 1, TVA’s Vendor process . In addition, TVA should had overbilled or not credited TVA an We audited $25 24. million of costs billed time injuries by a TVA contractor . n Debarment improve its process by requiring 2006, through December 31, 2007, for the estimated $276,484 for: (1) home of- to TVA by a contractor for subcontract and Suspension Process more verification of the debarment sta- administration of TVA’s medical benefit fice labor and related costs that should services between September 30, 2002, We reviewed TVA’s process for ensur- tus of contractors and subcontractors program and found TVA had potentially have been covered by the contractor’s and December 31, 2007 . The subcon- ing it does not knowingly contract with as prescribed by the Federal Acquisi- been overbilled an estimated $473,024 . overhead rate; (2) certain miscellaneous tractors provided personnel to perform vendors that have been: (1) debarred or tion Regulations, including certifica- The overbilling included: (1) $327,513 labor costs and markups that were not asbestos abatement and sampling, along suspended by the federal government tions and notifications by contractors in potentially duplicate line item charges; allowable; (3) unspent employee recog- with removal and installation of other and/or (2) found unsatisfactory within regarding debarment and/or civil or (2) $71,518 for unallowable procedures nition costs; (4) home office computer insulation material at TVA nuclear TVA . In summary, we determined: criminal actions . TVA also should de- and services; (3) $4,659 for claims that and facility charges for some employees plants and subsequently in support velop a process for: (1) identifying TVA exceeded plan limits; (4) $61,840 of audit who did not meet the contract eligibility of the BFN Unit 1 Recovery Project . _ TVA does not have formal proce- recoveries that had not been credited to dures for ensuring TVA does not vendors that should be on a “watchlist” requirements; and (5) overbilled provi- In summary, we found that TVA had knowingly contract with vendors based on certain serious offenses com- TVA; and (5) $7,494 of miscalculated sional payroll taxes and insurance . Ad- been overbilled $132,657 as a result of: that have been debarred or sus- mitted by the vendor and (2) reporting claim payments .In addition, we found ditionally, we found that changes TVA (1) craft labor costs that were not pro- pended by the federal government . TVA had been billed an additional $1 However, Procurement requires its any significant misconduct by contrac- made to the contract resulted in TVA vided for or were in excess of TVA’s Proj- Contract Managers/Procurement tors to the federal government . million due to payment provisions the ect Maintenance Agents to review the Excluded Par- contractor had negotiated with some of and Modifica- ties Listing System (EPLS), which In response to our report, TVA Pro- the providers in its preferred provider is the federal government’s data- tion Agreement; t curement stated it is developing online t base of debarred and suspended organization network . These provisions, (2) duplicate v vendors, before awarding contracts documentation of its vendor debar- v referred to as stop loss provisions, effec- billings for some a more than $100,000 . Although ment process and working with TVA’s tively offset discounts TVA would have a we found TVA had not awarded Office of the General Counsel to: materials; and contracts to vendors that were otherwise received when providers’ costs (3) inaccurate 26 included in the EPLS during our (1) determine that the best procedure 27 exceeded specified amounts . insurance cost review period (2005-2008), TVA’s for ensuring the performance history o o process was not always followed of contractors is appropriately commu- TVA management generally agreed adjustments . i and/or documented . i nicated with contracting personnel for with the audit findings and stated it TVA manage- g _ The Federal Acquisition Regula- planned to recover the overbilled costs ment is reviewing g tions include certain requirements consideration in procurement actions; with the exception of about $55,304 in our findings to that, if implemented by TVA, could and (2) assess the appropriate methods improve TVA’s process and further to share information with other federal costs billed for the treatment of eating determine the ap- ensure that TVA does not do busi- disorders and certain claims that ex- propriate action ness with contractors and sub- agencies regarding contractor perfor- ceeded plan limits . Browns Ferry to take . contractors that are debarred or mance .

Semiannual Report | Challenging Times Semiannual Report | Challenging Times “With increased challenges pertaining Review of Contractor Qualifications for Bechtel to the ash spill, Employees Assigned to the Watts Bar Nuclear the economic downturn, potential envi- ronmental regulation, and rate regula- Plant Unit Two Construction Project tion, Inspections works to provide as- We reviewed the qualifications for contractor and subcontractor employees work- surance on TVA operational excellence, ing on the WBN Unit 2 (U2) construction project . Our objective was to assess accountability, and transparency .” the hiring process and determine if the contractor employees being hired met Gregory C. Jaynes the minimal qualifications for Deputy Assistant Inspector General, their designated labor category Inspections (grades) . In summary, we deter- mined: _ TVA’s engineering, procure- ment, and construction contract with the contractor does not include minimum requirements for any of the 20 specified labor categories . The contractor also does not have corporate criteria speci- Watts Bar Nuclear Plant fying minimum requirements for any of the categories to use as criteria for hiring at WBN U2 . To establish the hiring require- ments for positions at WBN U2, the contractor has relied on the job req- uisition process . This has resulted in varying and inconsistent minimum job position requirements . _ Requirements established through the requisitions process sometimes were not met . For example, when we compared employee qualifications to require- ments in the applicable job requisitions, we found that eight of the 56 in- dividuals reviewed, or 14 3. percent, did not meet the requirements outlined in the requisitions . However, when questioned, the contractor provided ex- >> Challenging Times planations and asserted that all individuals are qualified for the work being performed . To address the issues cited in this report, we recommended TVA management: t 1 . Require that job requisitions include minimum requirements for each position v Summary of and that they be reviewed and approved by the contractor’s human resources per- sonnel to ensure consistency among job classifications and eliminate errors . a Representative 2 . Document the rationale for acceptance of any candidates that do not meet the 29 minimum requirements, but are deemed qualified for the position . o Inspections 3 . Evaluate the qualifications of the employees that do not meet the qualifications i listed in their job requisitions and determine if they are qualified to perform their g assigned work . 4 . Take steps to ensure resumes are thoroughly reviewed and identified discrepan- cies are resolved prior to individuals being hired . Management has completed actions which address our recommendations .

Semiannual Report | Challenging Times Contractor Tool Program ing TVA organizations .We TVA Purchasing Card Program for the Watts Bar reviewed 30 claims and found We reviewed TVA’s VISA purchasing card program to: (1) identify and assess the Nuclear Plant Unit Two that TVA’s WC program was operating effectiveness of controls over the program; and (2) determine if they Construction Project generally complying with ap- incorporate identified best practices . The charts below show trends in purchasing The objective of our review was to assess plicable laws and regulations . card use over a 12-year horizon . The scope of the project covered all transactions the procedures and key control activi- However, we did note the fol- from October 1, 2005, through December 31, 2007 . Our review determined the ties used to track and account for tools lowing when reviewing claim following: on the WBN U2 Construction Project . documentation: Our review of the WBN U2 Project tool _ Key internal controls were not functioning as intended with regard to: _ Of the 30 claims re- Watts Bar Nuclear Plant (1) the review of purchasing card transactions and their supporting docu- program found: (1) nothing to indicate  viewed, 12 were disput- mentation and (2) transaction limits . significant discrepancies in the tool ed by TVA, and for two _ Certain purchases were made that were disallowed by TVA policy or question- inventory at this time; (2) data entry of these 12, the dispute letter was able in nature . not submitted within 30 days after errors in the Tool Hound System; (3) _ Addressing the abundance of hear- the notice of injury as required by ing loss claims . _ TVA’s purchasing card program incorporates some best practices, but key best opportunities to improve controls based practices are absent . the Code of Federal Regulations Management generally agreed with the on our review of the contractor’s Small (CFR) . _ TVA employees were not reporting all instances of known or suspected findings and recommendations and has waste, fraud, and abuse or violation of law to the OIG as required by Busi- Tools and Small Capital Equipment _ One claim did not include the su- pervisor’s signature on the form . initiated or plans to initiate corrective ness Practice 2 . Procedure; and (4) some noncompli- action . Management agreed with most findings and recommendations and has initiated ance with the contractor’s Small Tools _ There was one instance where the claim was not submitted to the Of- or plans to initiate corrective action . n and Small Capital Equipment Procedure . fice of Workers’ Compensation Pro- We recommended the contractor: (1) grams (OWCP) within 10 business ensure accuracy of data entry in the Tool days due to a supervisor not for- warding his/her completed portion Hound system; (2) consider modifying of the form within the allotted the contractor’s WBN U2 Project small eight days as required by CFR and tool procedure to include the additional Benefits Practice 9, respectively . control opportunities identified and the The prescribed services for TVA’s WC value criteria for bulk items; (3) ensure department and assigned site personnel compliance with the contractor’s Small go beyond the Federal Employees’ Com- Tools and Small Capital Equipment Pro- pensation Act WC requirements . How- History of Purchasing Card Transactions with TVA VISA Purchasing Card Transaction History t cedure; and (4) enhance controls over ever, when we interviewed selected man- Transaction Amounts Greater than $5,000 t agers, nurses, TVA site WC contacts, and 35 90 180 v inventory contained in unlocked sea/ 3,000 Number of Number of v 00 80 a land containers .Management agreed other staff at seven TVA sites, we were ,0 30 160 a 2,500 ions)

told the WC program support could be er $5 70 with our findings and has initiated or 25 Tr Tr

ansa 140 ansa 30 improved . Areas cited included: 2,000 31

plans to initiate corrective action . (T

ions Ov 60 ct ct 20 housands) ct ions Gr ions Gr

ions) 120 o _ Increasing the expertise in the WC chases($ Mill o  1,500 50 i TVA Worker’s department, including the medical ansa 15 i ea ea knowledge of personnel . ($ Mill 100 Compensation Program ter T 40 ter T 1,000 ue of Pur g ue of Tr 10 g

Improving education and training han $5 han $5 We conducted a review of the TVA work- _  80

l ar Va 30

for personnel responsible for facili- l ar Va ers’ compensation (WC) program to de- 5 500 ,0 ,0 tating the WC process at TVA sites . Doll

Doll 20 60 termine whether TVA’s WC program was: 00 00 Enhancing communications from 0 0 _  95 96 97 98 99 00 01 02 03 04 05 06 07 95 96 97 98 99 00 01 02 03 04 05 06 07 (1) complying with applicable laws and the WC department . Fiscal Year Fiscal Year regulations and (2) adequately support-

Semiannual Report | Challenging Times Semiannual Report | Challenging Times During the past six months, we Civil Settlement for plements a Compliance and Ethics Pro- closed 91 cases. While our emphasis $6.2 million Reached gram applicable to all work or service remains on major fraud investiga- with Contractor provided to TVA and that SWCI fully tions, we have redirected the neces- TVA contractor SWCI agreed to pay complies with TVA’s policies and direc- sary resources to meet the challenges $6 2. million to resolve a contract fraud tives related to its contracts . This is the presented by recent environmental investigation . SWCI, one of TVA’s first Corporate Integrity and Monitor- events. Our cases resulted in 4 in- largest contractors during the period ing Agreement in TVA history between dictments; 3 convictions; more than under review, provides maintenance the OIG and a TVA contractor . $4.8 million in fines and restitution and modification work at TVA’s nuclear orders; and a civil settlement of $6.2 power plants . The United States At- Two Convicted on million. Our administrative cases torney’s Office in Knoxville, Tennes- Economic Development Loan Fraud were referred to management, and see, working with TVA OIG and the Lloyd Aaron Smith and Neal Gordon responses were tracked. We have con- Department of Justice in Washington Wall each pled guilty to bank fraud, tinued our support of and engage- D C. ,. reached a settlement with SWCI mail fraud, and nine counts of money ment in an Environmental Crimes as a result of a lengthy investigation laundering relating to the misuse of Task Force, an Electronic Crime Task into alleged false claims and contract loan proceeds from loans obtained Force, a Health Care Fraud Task Force, fraud against TVA . The settlement from TVA and the Citizens Bank of and two Regional Procurement Fraud agreement addresses the contention by Hickman, Kentucky . The two loans Working Groups. We hired a new Spe- the United States that SWCI presented restricted the use of loan proceeds to cial Agent for our Nashville, Tennes- false or fraudulent claims to TVA for expenditures related to the operation see office, and reallocated onboard reimbursement in violation of the False of a textile plant that Smith and Wall support personnel to our Huntsville, Claims Act for certain performance fee opened in Hickman, Kentucky . De- Alabama office. bonuses SWCI claimed for meeting spite the restrictions, Smith and Wall safety goals at the three TVA nuclear used approximately $134,000 of a $5 Actions in Criminal plants located in Alabama and Tennes- million Citizens Bank loan to pay off >> Challenging Times Investigations - see . The false claims totaled nearly $3 1. a debt owed on an unrelated business Convictions million . SWCI records understated the venture using fraudulent invoices . The “The OIG is uniquely tasked with dis- number and severity of work related tilling complex, interrelated issues and two men also obtained a $500,000 loan t providing objective, unbiased report- injuries during the years 2004 through from TVA in November 2003 for the Summary of ing . In difficult times like these, we 2006 . The settlement provides that v purchase of equipment at the Hick- are reminded of our commitment to SWCI will pay the United States $6 2. a independence .” man Mills plant, but they diverted the million, the equivalent of double Representative funds to pay an overdraft on an un- 33 Paul B. Houston damages . Out of this settlement, Special Agent in related business account . Smith pled Charge TVA will receive reimbursement of o guilty mid-trial in October 2008 and Investigations Investigations the amount paid on the false claims i Wall pled guilty in November 2008 . plus the cost of the investigation . g On February 11, 2009, Wall and Smith In addition to payment of the $6 2. both were sentenced in the U S. . District million, SWCI has entered into a Court in Paducah, Kentucky . Smith comprehensive two-year Corporate received 30 months incarceration, and Integrity and Monitoring Agreement Wall received 27 months incarcera- with the OIG to ensure that SWCI im-

Semiannual Report | Challenging Times tion . They were jointly and severally Heraeus Metal Processing, Administrative feet in the air on structural steel outside nessee . The source com- ordered to pay restitution in the amount Inc., Pleads Guilty Investigations of the Selective Catalytic Reduction puter was assigned to of $420,733 37. directly to TVA and Heraeus Corporation pleaded guilty “TVA is facing the most difficult fi- (SCR) . According to plant personnel, a TVA contractor . Our $4,104,562 51. to the Citizens Bank of in January 2009 to a one-count Infor- nancial and environmental challenges this hangman’s noose had been hang- investigation revealed Hickman or USDA, and assessed $1,100 . mation, charging it with making false I have seen in 25 years . Now, more ing from the SCR since it was built a Cyber Security con- than ever, we must protect TVA’s as- statements in and omitting informa- sets . By continuing to fight fraud and more than four years ago . The noose tractor performed work Criminal Actions tion from a document required to be to prevent waste and abuse, the OIG was removed . There was no indication outside the scope of his in Environmental maintained pursuant to the Clean Air can help TVA maintain the quality of this noose was related to the noose contract in conducting life of the people in the Tennessee Violations Act . The corporation was sentenced Valley .” found in September . As of March 31, the port scan from an to pay a $350,000 fine and serve 18 2009, no information has been devel- external Web site to an Operator of Tennessee Nancy J. Holloway oped to identify the person(s) respon- internal TVA computer . Wastewater Treatment months of probation . Heraeus Corpo- Special Agent in Plant Sentenced in Clean ration, located in Wartburg, Tennes- Charge sible for the hangman nooses . The contractor admit- Investigations ted that he was aware Water Act Violation see, reclaims silver and other precious In a separate matter, an alleged noose In November 2008, an operator at a this was not within his metals through the use of furnaces in a was found at the WCF on the morning Tennessee wastewater treatment plant project role . However, Allen Fossil Plant high-temperature reclamation process . of August 22, 2008, by a TVA employee was sentenced to a term of 18 months this unauthorized di- The resultant emissions are filtered performing a plant walk-down inspec- probation, 40 hours of community agnostic scan identified using wet scrubbers . Environmen- tion of the A side pulverizer basement . we became aware of other related be- service, and a $100 special assessment issues for TVA to remediate . We recom- tal Crimes Joint Task Force, Eastern While performing the inspection, he havior that required action by local after he pled guilty to one felony count Hangman’s Noose mended TVA review the contract to District of Tennessee, initiated this discovered a length of rope, approxi- law enforcement . TVA terminated the under the Clean Water Act . The opera- Investigations at determine the relevance and necessity investigation based on allegations that mately 30 feet in length, suspended from contract with this individual, and a tor was sentenced in the United States Kingston Fossil Plant of contactors having TVA log-on capa- operating logs had been falsified and (KFP) and Widow’s Creek the catwalk, with a knot and loop at the personnel restriction was issued to re- District Court, Eastern District of Ten- bility and their ability to operate inde- discovered that HCF had possibly vio- Fossil Plant (WCF) end of the rope which had the possible quire review of this information before nessee, in Knoxville, Tennessee . TVA lated the Clean Water Act . pendently of direct TVA supervision . n A hangman’s noose was found at appearance of a hangman’s noose . TVA future employment . OIG special agents are members of Additionally, we recommended TVA KFP in September 2008, hanging ap- Police was notified and responded, and the Environmental Crimes Joint Task look further into this matter to deter- proximately 20 feet from a stairway . the rope was removed and confiscated . Force, Eastern District of Tennessee, mine relevant IS security concerns and In conjunction with TVA Police, in- TVA HR reported the incident to the which initiated this investigation after weaknesses of TVA systems . TVA has terviews were conducted of witnesses OIG .A detailed TVA OIG investigation an anonymous complaint was received informed us that they took the neces- t and individuals who might have been determined that the rope was, in fact, t alleging falsification of monthly op- sary corrective actions . v in the area of the location of the noose . a tie-off rope used to suspend vacuum v erating reports . The investigation was a TVA Fossil Power Group management tubing for fly ash removal . worked jointly with EPA CID . The Employment Restriction a issued a memorandum to KFP employ- complaint alleged the operator falsified Placed on Contractor 34 ees stating this behavior would not be Port Scanning Incident for Threatening 35 reports specifically regarding the fecal tolerated . In addition, TVA offered a at Allen Fossil Plant Physical Violence at o coliform and chlorine tests for dis- o $5,000 reward for information leading We received a report from TVA Man- TVA Fossil Plant i charge that flowed into a creek ending i to the confirmed positive identifica- agement regarding an incident of We conducted an investigation into g in the Tennessee River, which is part of g tion of the person(s) responsible for computer port scanning at a TVA facil- the allegation that a mowing contrac- the TVA Watts Bar Watershed area . The the placement of the hangman’s noose . ity . According to TVA’s Information tor at TVA’s John Sevier Fossil Plant operator falsely indicated that the req- During this investigation, another Services, an external port scan was con- had threatened a TVA employee and uisite E . coli bacteria testing had been hangman’s noose was found by KFP ducted on a source computer at Allen plant personnel were concerned for performed when it had not . personnel hanging approximately 30 Fossil Plant, located in Memphis, Ten- their safety . During our investigation,

Semiannual Report | Challenging Times Semiannual Report | Challenging Times The OIG in fulfilling its responsi- H.R. 854 – Over- S.141 – Protecting bilities under the IG Act of 1978, as Classification the Privacy of Social amended, follows and reviews existing Reduction Act Security Numbers Act and proposed legislation and regula- The stated purpose of this legislation The thwarting of fraud, identity theft, tions that relate to the programs and is to increase government-wide infor- and stalking by placing additional con- operations of TVA. Although TVA’s mation sharing and the availability of straints on the access to social security Office of the General Counsel reviews information to the public by applying numbers is the goal of this piece of proposed or enacted legislation that standards and practices to reduce im- legislation . The act prohibits the sale could affect TVA activities, the OIG proper classifications . This act requires or display of social security numbers independently follows and reviews the Inspector General of each federal to the general public without an indi- proposed legislation that affects the agency that employs an individual with vidual’s consent . The bill also requires OIG and/or relates to economy and original or derivative classification government agencies to take steps to efficiency or waste, fraud, and abuse authority to randomly audit classified protect social security numbers from in TVA programs or operations. information from each agency com- being displayed or accessed . n ponent with employees who have clas- Major pieces of legislation being fol- sification authority, in order to assess lowed by the TVA OIG during the past whether applicable classification poli- six months include: cies, procedures, rules, and regulations H.R. 478 – Federal Agency have been followed . Performance Review and Efficiency Act H.R. 493 – Coal Ash This would amend the IG Act by adding Reclamation, Environment and Safety Act of 2009 a requirement to make it the “principal This act imposes uniform federal de- duty and responsibility” of IGs to con- sign, engineering, and performance duct annual performance reviews of standards on new coal ash impound- >> Challenging Times every agency program to identify which ments; and directs the conduct of are inefficient, ineffective, duplicative, an inventory of existing coal ash im- or mismanaged . Under the IG Act, IGs poundments and the risks each poses t already have general, broad authority to to groundwater, human health and the v and recommend policies to promote econ- Legislation environment . It also requires monitor- omy and efficiency and to recommend a ing and inspection regimes for both corrective action concerning “fraud, and Regulations existing and future coal ash impound- 37 other serious problems, abuses, and de- ments . ficiencies relating to the administration o of agency programs and operations ”. i 5 U S. C. .App . 3, § 4(a)(3) and (5) . The g Legislation Committee of the Council of the Inspectors General on Integrity and Efficiency is closely following this legislation and representing the IG com- munity on this matter .

Semiannual Report | Challenging Times Appendix I Index On Reporting Requirements Under The IG Act REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 36-37

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 22-35

Section 5(a)(2) Recommendations with Respect to Significant Problems, Abuses, and Deficiencies 22-35

Section 5(a)(3) Recommendations Described in Previous Semiannual Reports in Which Corrective Appendix V Action Has Not Been Completed Section 5(a)(4) Matters Referred to Prosecutive Authorities and the Prosecutions and Convictions Appendix IV That Have Resulted Section 5(a)(5) and 6(b)(2) Summary of Instances Where Information was Refused None

Section 5(a)(6) Listing of Audit and Inspection Reports Appendix II

Section 5(a)(7) Summary of Particularly Significant Reports 22-35

Section 5(a)(8) Status of Management Decisions for Audit and Inspection Reports Containing Appendix III Questioned Costs Section 5(a)(9) Status of Management Decisions for Audit and Inspection Reports Containing Rec- Appendix III ommendations That Funds Be Put to Better Use Section 5(a)(10) Summary of Audit and Inspection Reports Issued Prior to the Beginning of the None Reporting Period for Which No Management Decision Has Been Made Section 5(a)(11) Significant Revised Management Decisions None >> Challenging Times 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 t Appendices v a

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Semiannual Report | Challenging Times

Appendix II Appendix III Audit and Inspection Reports Issued — Audits Table I: Audits — Total Questioned and Unsupported Costs Report Funds to be Number of Questioned Unsupported Number and Questioned Unsupported Put to Better Audit Reports Reports Costs Costs Date Title Costs Costs Use A . For which no management decision has been made by the commencement of the period 1 $ 110,429 1 $ 0 CONTRACT B . Which were issued during the reporting period 3 1,225,713 421,957 2007-11078 Bechtel Power Corporation $ 620,032 $ 343,548 $ 0 Subtotal (A+B) 4 1,336,142 421,957 11/21/2008 C . For which a management decision was made during the reporting period 42 1,336,142 421,957 2008-11504 Vulcan Insulation (Shook & Fletcher)-Subcontract with Stone & Webster 132,657 16,569 0 11/21/2008 Construction, Inc . 1 . Dollar value of disallowed costs 4 828,697 107,747 2008-11985 TVA Vendor Debarment and Suspension Process 0 0 0 2 . Dollar value of costs not disallowed 3 507,445 314,210 02/19/2009 D . For which no management decision has been made by the end of the reporting period 0 0 0 2008-11674 BlueCross BlueShield of Tennessee 473,024 61,840 0 02/24/2009 E . For which no management decision was made within six months of issuance 0 0 0

FINANCIAL/ OPERATIONAL 1 This amount has been restated from the prior semiannual report . The amount for which no management decision was made by the end of the 2008-12062 Agreed-Upon Procedures for TVA Fiscal Year 2008 Performance Measures $ 0 $ 0 $ 0 reporting period was incorrectly reported in the prior semiannual report in this table as $1,193,194 . 10/24/2008 2 The total number of reports for which a management decision was made during the reporting period differs from the sum of C(1) and C(2) when the same report(s) contain both recommendations agreed to by management and others not agreed to by management . 2008-11942 TVA Telework Initiatives 0 0 0 11/20/2008 2008-12076 Monitoring of PricewaterhouseCoopers’ Audit of the Restatement of TVA’s 0 0 0 12/11/2008 Fiscal Years 2006 and 2007 Financial Statements Table I: Inspections — Total Questioned and Unsupported Costs 2008-11528 Monitoring of Ernst and Young’s Audit of TVA’s Fiscal Year 2008 Financial 0 0 0 Number Of Questioned Unsupported 12/16/2008 Statements Audit Reports Reports Costs Costs 2008-12043 Sarbanes-Oxley 404 Testing – Business Processes 0 0 0 A . For which no management decision has been made by the commencement of the period 0 $ 0 $ 0 01/07/2009 B . Which were issued during the reporting period 0 0 0 INFORMATION TECHNOLOGY Subtotal (A+B) 0 0 0 2008-11984 eFMS Application – SOX 404 Testing $ 0 $ 0 $ 0 C . For which a management decision was made during the reporting period 0 0 0 11/14/2008 1 . Dollar value of disallowed costs 0 0 0 2008-12034 Sarbanes-Oxley 404 Testing – IT General Controls and Application Excep- 0 0 0 01/15/2009 tion Narratives 2 . Dollar value of costs not disallowed 0 0 0 2008-11965 Contractor Workforce Management – Access and General Controls 0 0 0 D . For which no management decision has been made by the end of the reporting period 0 0 0 02/04/2009 E . For which no management decision was made within six months of issuance 0 0 0 2008-11714 Surplus and Disposal of Computer Equipment 0 0 0 02/11/2009 t t 2009-12402 IT Access Request System Pre-Implementation Evaluation 0 0 0 v 03/25/2009 v a TOTAL: 14 $ 1,225,713 $ 421,957 $ 0 a Audit and Inspection Reports Issued — Inspections 40 41 Report Funds To Be Number and Questioned Unsupported Put To Better o Date Title Costs Costs Use o i 2008-11591 Qualifications of Contractor Employees Assigned to Watts Bar Nuclear Plant $ 0 $ 0 $ 0 i 10/01/2008 Unit 2 Construction Project g g 2008-11911 Contractor Tool Program for Watts Bar Nuclear Plant Unit 2 Construction 0 0 0 12/11/2008 Project 2007-11481 TVA Purchasing Card Program 0 0 0 01/20/2009 2007-11474 TVA Worker’s Compensation Program 0 0 0 03/02/2009 TOTAL: 4 $ 0 $ 0 $ 0

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Appendix III (Continued) Appendix V Table II: Audits — Funds to be Put to Better Use Audit And Inspection Reports With Corrective Actions Pending Funds To Be As of the end of the semiannual period, final corrective actions associated with one audit and three inspections were not Number Of Put To Better Audit Reports Reports Use completed within one year of the final report date . The report number and date, along with a brief description of the open A . For which no management decision has been made by the commencement of the period 0 $ 0 recommendation(s) and target completion date for final action where available, are presented below .

B . Which were issued during the reporting period 0 0 Audit Report Subtotal (A+B) 0 0 Number and Date Report Title And Recommendation(s) For Which Final Action Is Not Complete C . For which a management decision was made during the reporting period 0 0 2007-11348-01 1 . Dollar value of recommendations agreed to by management 0 0 03/26/2008 IT Security Organizational Effectiveness 2 . Dollar value of recommendations not agreed to by management 0 0 Recommendations were made for the improvement of strategy, planning and coordination, organization design, staffing and de- D . For which no management decision has been made by the end of the reporting period 0 0 velopment, policies, and performance measurement . TVA management agreed with the OIG findings and has completed actions on the strategy aspect of the recommendations . Management is in the process of implementing program and organizational E . For which no management decision was made within six months of issuance 0 0 improvements, and action plans are scheduled for completion by June 30, 2009 .

Inspection Table II: Inspections — Funds to be Put to Better Use Report Number And Funds To Be Date Report Title And Recommendation(s) For Which Final Action Is Not Complete Number Of Put To Better Audit Reports Reports Use 2005-518I 08/31/2005 Physical and Environmental Controls for the Chattanooga Data Center A . For which no management decision has been made by the commencement of the period 0 $ 0 The voice communication project was delayed by the Information Systems (IS) organization due to other projects of higher B . Which were issued during the reporting period 0 0 priority impacting the organization’s schedule . According to IS, project approval has been obtained and work has started to assess the current infrastructure as it relates to the voice communication system and the appropriate direction for future imple- Subtotal (A+B) 0 0 mentations . This work should be completed in three months . Once the plan is complete, a firm date for final action will be C . For which a management decision was made during the reporting period 0 0 determined . However, the best estimate for completion of final action at this time is December 2010 . 1 . Dollar value of recommendations agreed to by management 0 0 2005-522I 06/13/2006 TVA’s Role as a Regulator 2 . Dollar value of recommendations not agreed to by management 0 0 We recommended the Chief Financial Officer: (1) continue to evaluate TVA’s role as regulator as the issues of deregulation and D . For which no management decision has been made by the end of the reporting period 0 0 customer choice evolve; (2) formalize procedures to ensure consistent review of (a) distributor financial information, including E . For which no management decision was made within six months of issuance 0 0 whether additional guidance should be developed to ensure the public interest of low rates is achieved, and (b) business plans which propose the use of electric system revenues for non-electric system purposes; and (3) ensure that contract modifications are executed for any distributors approved to use electric system revenues for nonelectric system purposes . Management in collaboration with the Board is addressing the findings in the report and developing corrective action . A TVA Regulatory Com- mittee comprised of officers of the company has been established to implement corrective actions . The TVA Board is keenly interested in this topic and has requested and received additional information on TVA regulatory authority and scope . Appendix IV 2006-513I t Investigative Referrals And Prosecutive Results 09/14/2006 TVA’s Succession Planning t v We recommended TVA management ensure complete implementation of the Knowledge Retention Initiative, which supports v Referrals compliance with and the success of the Integrated Staffing Plan Principle and emphasizes the importance of pipeline hiring to a move TVA more towards being a developmentally oriented business . TVA management is currently reviewing this inspection and a Subjects Referred to U .S . Attorneys 18 actions already taken in response to the report to determine what, if any, additional actions are warranted . Management said it Subjects Referred to State/Local Authorities 1 will soon provide additional information regarding this recommendation . 42 43 Results o Subject Indicted 4 o i Subjects Convicted 3 i g Referrals Declined 10 g

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Appendix VI Glossary Abbreviations and Acronyms Mar 31, Sept 30, Mar 31, Sept 30, Mar 31, Disallowed Cost 2009 2008 2008 2007 2007 A questioned cost that management, in a management deci- The following are acronyms and abbreviations widely used Audits sion, has sustained or agreed should not be charged to the in this report . Audits In Progress Carried Forward 28 47 35 36 16 agency . BFN ...... Browns Ferry Nuclear Plant Started 59 53 52 72 42 CAO ...... Chief Administrative Officer Canceled (3) (2) (2) (7) (4) Final Action CFO ...... Chief Financial Officer Completed (14) (70) (38) (66) (18) The completion of all management actions, as described in In Progress At End Of Reporting Period 70 28 47 35 36 CFR ...... Code of Federal Regulations a management decision, with respect to audit findings and COOP ...... Continuity of Operations Plan AUDIT RESULTS (THOUSANDS) recommendations . When management concludes no action CID ...... Criminal Investigation Division Questioned Costs $1,226 $3,609 $774 $4,635 $1,252 is necessary, final action occurs when a management deci- E&Y ...... Ernst & Young, LLP Disallowed By TVA 829 1,802 370 3,324 1,429 sion is made . Recovered By TVA 644 676 3,339 1,274 695 EPA ...... Environmental Protection Agency EVP ...... Executive Vice President Funds To Be Put To Better Use $0 $28,653 $100,990 $19 $8,913 Funds Put To Better Use Agreed To By TVA 0 28,120 53,987 8,529 4,534 Funds, which the OIG has disclosed in an audit report, FY ...... Fiscal Year Realized By TVA 0 26,460 53,987 948 3,603 that could be used more efficiently by reducing outlays, IG ...... Inspector General deobligating program or operational funds, avoiding unnec- IG Act ...... Inspector General Act Amendments of 1988 OTHER AUDIT-RELATED PROJECTS Completed 8 7 6 17 12 essary expenditures, or taking other efficiency measures . IS ...... Information Services Cost Savings Identified/Realized (Thousands) $0 $0 $0 $0 $103 IT ...... Information Technology Management Decision KFP ...... Kingston Fossil Plant INSPECTIONS The evaluation by management of the audit findings and Completed 4 16 8 16 7 OIG ...... Office . of the Inspector General recommendations and the issuance of a final decision by Cost Savings Identified/Realized (Thousands) $0 $0 $0 $15 $15 OWCP ...... Office of Workers’ Compensation Programs Investigations1 management concerning its response to such findings and SCR ...... Selective Catalytic Reduction INVESTIGATION CASELOAD recommendations . Opened 171 161 155 113 73 SEC ...... Securities and Exchange Commission Closed 91 135 121 121 50 Questioned Cost SOX ...... Section 404 of the Sarbanes-Oxley Act of 2002 In Progress At End Of Reporting Period 280 200 174 140 2 148 2 A cost the IG questions because: (1) of an alleged violation SWCI ...... Stone & Webster Construction, Inc . t INVESTIGATIVE RESULTS (Thousands) of a law, regulation, contract, cooperative agreement, or oth- TVA ...... Tennessee Valley Authority t v Recoveries $10,725 .3 $632 .6 $25,262 $27 $332 er document governing the expenditure of funds; (2) such WBN U2 ...... Watts Bar Nuclear Plant Unit 2 v Savings 0 0 4,137 575 88 a cost is not supported by adequate documentation; or (3) the WC ...... Workers’ Compensation a Fines/Penalties 352 .7 1 .6 206 1 10 expenditure of funds for the intended purposes was unnec- WCF ...... Widows Creek Fossil Plant 44 MANAGEMENT ACTIONS essary or unreasonable . 45 Disciplinary Actions Taken (# Of Subjects) 3 15 9 8 4 o o Counseling/Management Techniques Employed (# Of Cases) 1 6 16 3 7 i Unsupported Costs i A cost that is questioned because of the lack of adequate g PROSECUTIVE ACTIVITIES (# Of Subjects) g Referred To U .S . Attorneys 18 7 19 5 6 documentation at the time of the audit . Indicted 4 14 4 6 2 Convicted 3 3 3 2 2

1 These numbers include task force activities and joint investigations with other agencies . 2 Adjusted from previous semiannual report .

Semiannual Report | Challenging Times Semiannual Report | Challenging Times Leadership Philosophy Tennessee Valley Authority The TVA OIG strives to be a high performing organiza- Office Of The Inspector General tion made up of dedicated individuals who are empowered, The OIG is an independent organization charged with con- motivated, competent, and committed to producing high- ducting audits, inspections, and investigations relating to quality work that improves TVA and life in the Valley . TVA programs and operations, while keeping the TVA Board Each of us has important leadership, management, team, and Congress fully and currently informed about problems and technical roles . We value integrity, people, open commu- and deficiencies relating to the administration of such pro- nication, expansion of knowledge and skills, creative prob- grams and operations . lem solving and collaborative decision making . n The OIG focuses on: (1) making TVA’s programs and opera- tions more effective and efficient; (2) preventing, identifying, and eliminating waste, fraud, and abuse and violations of Web Page laws, rules, or regulations; and (3) promoting integrity in We invite you to take a tour of our Web site at www .oig .tva . financial reporting . gov . From this site you can sign up for automatic notifica- If you would like to report to the OIG any concerns about tion when new audits or inspections are posted . You also will fraud, waste, or abuse involving TVA programs or violations find a news release section with the latest OIG information of TVA’s Code of Conduct, you should contact the OIG released to the media . Empowerline system . The Empowerline is administered by Come visit us at www .oig .tva .gov . n a third-party contractor and can be reached 24 hours a day, seven days a week, either by a toll-free phone call (1-877- 866-7840) or over the Web (www .oigempowerline .com) . You may report your concerns anonymously or you may request confidentiality . Report concerns to the OIG Empowerline . n

t v a

46 A confidential connection for reporting fraud, waste or abuse affecting TVA. o www.OIGempowerline.com i 1-877-866-7840 EmPowerline™ is sponsored by the Office of the Inspector General g and operates independently of TVA.

Semiannual Report | Challenging Times Tennessee Valley Authority Office Of The Inspector General 400 West Summit Hill Drive Knoxville, Tennessee 37902