Tennessee Valley Region

Front cover photo: Kingston Plant Table of Contents

Message from the Inspector General. 5

Executive Summary . 6

. 10

OfficeSpecial of Feature the Inspector. General 16

Noteworthy Undertakings. 20

Inspections. 24

Audits. 30

Investigations. 36

Legislation and Regulations. 42

Appendices. 46

Appendix 1 – Index of Reporting Requirements Under the Inspector General Act. 47

Appendix 2 – Audit and Inspection Reports Issued. 48

Appendix 3 – Audit and Inspection Reports Issued With Questioned and Unsupported Costs and Recommendations for Better Use of Funds. 52

Appendix 4 – Audit and Inspection Reports with Corrective Actions Pending. 54

Appendix 5 – Investigative Referrals and Prosecutive Results. 55

Appendix 6 – Highlights. 56

Glossary, Abbreviations, and Acronyms. 57

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3 o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Message from the Inspector General

Semiannual Report | Rebuilding the Foundation. Message From The Inspector General

Change is coming to TVA… and has given itself to righting the wrong. much of it is internally driven. What we are seeing is not for “show” Undoubtedly, the coal ash spill at but a true commitment to change. The culture which in part led to the Kingston the Kingston plant on December ash spill is being thoroughly dissected 22, 2008, set some of those and analyzed by experts brought in with changes in motion, but the TVA Board and TVA management have reacted with a commitment a charge by TVA management to find out what needs to be “fixed.” Just as to make the changes necessary through its institutional risks with a importantly, TVA is aggressively sifting to make TVA better. Yes, Kingston was an environmental focusThis inspiring that inspires story confidence. is not a story easily tragedy, but ultimately the TVA that is emerging is likely to be told by TVA. Its damaged image makes better able to serve the needs managementany positive story appear told to by be TVA committed suspect. of Valley residents. As we have toFortunately, doing the theright TVA thing Board whether and TVA or not pointed out in our reports on they get credit for it. The fact is that Kingston, this was a disaster that did not need to occur. direction. We report on some of that work of the team exposed fraud against That is, however, true of most inTVA the is “Special on the move…and Feature” section in the ofright this semiannual report. failures whether personal or, as Agriculture in regard to loans made to both TVA and the Department of in the case of TVA, institutional. While the Kingston coal ash spill two businessmen in Kentucky. Those And as with most failures, seems to have eclipsed everything else men have now been sentenced to there are new opportunities for during this reporting period, the men incarceration in a federal penitentiary. growth and TVA is seizing those and women of the OIG went about the work of performing other inspections, opportunities. This work typifies the collaborative audits, and investigations that saved the United States. effort of the various IG offices around We are grateful for the support that more than a proverbial “watchdog.” In better. We note those in this report The Office of Inspector General at TVA is we have received this reporting period many ways we chronicle the history of andTVA amongmoney them,and made one investigationits operations the institution. Our inspections, audits, that has been singled out for special particularly in regard to our Kingston and investigations over the years weave recognition. I am particularly pleased reportsfrom both. Congress and the TVA Board, that Senior Special Agent Craig Yates and at times distressing. Our two TVA’s story that is at times inspiring performance award for his role on the to the Kingston coal ash spill tell a tale Hickmanof our office Mills was prosecution given an exceptional team. The inspections that assessed TVA’s reaction that is mostly distressing. A noble award by the Council of the Inspectors institution with a proud heritage forgot Richard W. Moore its roots. Its reputation has been sullied (CIGIE) was for a joint effort by law Inspector General both by the event and its failures in how enforcementGeneral on Integrity including and special Efficiency agents of it reacted to it. t of Inspector General as well as special v the Department of Agriculture’s Office a however, is inspiring. Instead of taking What is now happening within TVA, Criminal Investigation Division. The agents of the Internal Revenue Service’s 5 defensive half-steps, TVA management o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Executive Summary

Semiannual Report | Rebuilding the Foundation. Representative Inspections And Audits

The Tennessee Valley Authority (3) exceptions were arbitrarily granted (TVA) continues to deal with the manner that avoided full transparency in seven of the ten key steps required in cause analysis was handled by TVA in a financial consequences brought and accountability for management a maintain and gain transaction; (4) failure to consistently retain about by the December 2008 records for applications rejected that Kingston ash spill as it cleans practices in order to preserve TVA’s and restores the community to thatlitigation signaled strategy; the need (2) TVAfor safety was aware for the decision impacted the integrity its pre-spill state. This report of “red flags” raised over a long period ofsufficiently the Maintain demonstrated and Gain Program; the rationale describes the Office of Inspector if addressed, could possibly have and (5) the program could undermine modifications to the ash ponds which, General (OIG) initiatives to prevented the spill; (3) factors other apparent goal of restricting residential identify and better understand trigger for the spill may have been of TVA Board’s 2006 Land Policy and its the root causes of the spill than the “slimes” layer identified as the and its assessment of TVA’s development on TVA shorelines. (4) despite internal knowledge of risks > Distributor Audits response to the community’s associatedequal or greater with thesignificance; ash ponds and needs after the event. Following discussions of placing the ponds under a new contract compliance audit pro- is a brief synopsis of the gramDuring related the fiscal to contracts year, the betweenOIG launched subjecting the ponds to more rigorous more significant inspections, TVA’s Dam Safety Program, thereby audits, and investigations that reviews began in the OIG Inspections management program failed to identify TVA and its power distributors. These were performed during this inspections and engineering, TVA’s risk ash management as a risk; and OIG established the Distributor Audits semiannual period. (5) attitudes and conditions that groupgroup; to however, focus solely in January on these 2009, reviews the emanated from a legacy culture resulted and related issues. During this semian- > Inspections in ash being relegated to the status of nual period, the OIG completed four distributor reviews and found: response to the Kingston ash spill as a potential hazard to the public and An initial review by the OIG of TVA’s garbage at a landfill rather than treated - the environment. ing issues; (2) contract compliance implemented the National Incident (1) customer classification and meter Managementfound: (1) TVA System, had not which properly hampered Management Program was designed - communications and delayed certain issues; (3) lack of guidance by TVA to toTVA’s allow Maintain consideration and Gain of Lakeshore proposals serves are excessive; and (4) opportuni- emergency response actions following determine if a distributor’s cash re to obtain lake access rights at the distributors. media and public inquiry resulted in the ties for TVA to improve its oversight of releasethe spill; of (2) inaccurate TVA’s quick and response inconsistent to the access rights already available at other landowner’s property by swapping information, which resulted in criticism properties the landowner possessed. > IT Audits The program required transactions Our audit of general computing controls that would result in no net loss, and respondedof TVA and effectivelycaused reputational to victims harm security weaknesses in logical security, related to a TVA control system found affected,to the company; failure to and timely (3) while communicate TVA shoreline. Our review of the program physical and environmental security, preferably a net gain to TVA, of public and general security controls. In ad- increased settlement expectations employees and others created an found: (1) certain actions by TVA forTVA’s some claims. policy and decisions appearance of preferential treatment allowdition, it we to foundidentify TVA similar lacked issues a process in Our second review of the Kingston criticism and reputational harm; otherfor evaluating systems, audit resulting findings in repeated that would t ash spill focused on a root cause (2)to some no protocol that exposed in the TVAprocess to public existed v to assure a transparent and objective a review of applications submitted by findingsAn evaluation being ofreported the effectiveness by the OIG. of practicesstudy performed. We found: by a (1)firm the contracted root agency-wide controls and processes 7 by TVA and TVA’s ash management those with possible conflicts of interest; o i Semiannual Report | Rebuilding the Foundation. g in place to monitor, identify, classify, results of their internal inquiry. Investi- and respond to cyber security events partial compensation payments since thatback time injury. The in 1984 recipient and whohas since collected strategy; (2) was not adequately lakeshoregations also management played a significant program role per -in been vocationally rehabilitated to such monitoringfound TVA: its(1) information lacked a comprehensive technology formedthe review by Inspectionsof TVA’s maintain. We continued and gain extent that his current reported income (IT) assets for cyber security events; to focus on major fraud investigations far exceeds his expected income as a (3) did not always follow its incident and continued our participation on Task painter. Though the recipient properly response policies and procedures; and Forces with other federal, state, and reported his income to the Department (4) was not effectively using existing local agencies. We conducted numer- of Labor (DOL), our investigation resources capable of increasing IT ous administrative cases that resulted in prompted a DOL review which security monitoring levels and coverage. actions. Following is a brief summary of both savings to TVA and administrative determined he is ineligible for workers’ > Internal Control Investigations during this period. compensationA call to our Empowerline benefits. resulted in Reviews the more significant work completed by an investigation into an allegation that During the second semiannual period In the last semiannual report, we reported the guilty plea of Heraeus Muscle Shoals harbor. The Empowerline Corporation to a one-count Information, callera TVA-owned reported tugboat that the sank sunken in TVA’s vessel in fiscal year 2009, the OIG continued with Section 404 of the Sarbanes-Oxley charging false statements relating discharged 2,500 gallons of diesel fuel its support of TVA initiatives to comply Act of 2002 (SOX). In this period, the to Clean Air Act requirements in an into the harbor, and that the sinking was OIG completed tests of controls for due to possible malfeasance on the part twenty-seven business processes, case brought in the Eastern District of Environmental Crimes Joint Task Force revealed, however, that the tugboat eleven applications. In addition, the $350,000 and sentenced to 18 months submergedof TVA management. only partially, Our theinvestigation amount five IT general control domains, and OIG completed year-end, remediation, probationTennessee.. DuringThe company this reporting was fined period, of bilge fuel discharged was 25 gallons, and nonoccurrence testing for four IT the plant manager also pled guilty to a and despite the measures taken, a general and four application controls. one-count Information, charging him malfunctioning pump was the causal personally with making false statements factor. > Contract Audits in, and omitting information from, This semiannual period we completed documentation required under the ten preaward audits of cost proposals Clean Air Act. The plant manager was submitted by prospective contractors sentenced to one year probation and to provide major equipment and 50 hours of community service. A confidential connection for reporting fraud, waste or abuse affecting TVA. www.OIGempowerline.com $50.5 million of potential savings 1-877-866-7840 services to TVA. These audits identified was indicted in Circuit Court in EmPowerline™ is sponsored by the Office of the Inspector General TennesseeA (now former) for Forgery TVA Program and Passing Manager and operates independently of TVA. opportunitiesWe also completed for TVA seven to negotiate. compliance Forged Instruments based on a audits of contracts with expenditures At the request of plant management, property damage allegedly sustained we investigated a computer use potential overbillings of $6.7 million. duringfalsified a invoicepaid move to a. TVAThe contractorinvoice falsely for practice with security and safety totaling $392 million and identified represented work done to repair the implications. The practice involved the > Representative use of commonly known passwords Investigations management and after receiving notice ofdamage. proposed The termination, OIG issued a the report employee to TVA work group that allowed individuals resigned. inand the identification group to set numbersand release within holds a t - during projects. The practice came to cantDuring environmental this period, TVA impact experienced. Investiga the- v light following a release authorization Kingstontions worked ash spillclosely which with had Audits a signifi and a investigation resulted in projected not made by the individual setting Inspections to determine the root causes A workers’ compensation benefits the hold. The release could have had 8 recipient was a painter who sustained a savings to TVA of $472,007. The o of the event and how TVA reported the i g Semiannual Report | Rebuilding the Foundation. Statistical Highlights serious worker safety implications a noose in one of the April 1, 2009 ~ September 30, 2009 though no event actually occurred. photographs. The noose In addition, plant management was was cut down, and an Audit Reports Issued ...... 66 concerned that statements regarding the investigation ensued. Questioned Costs...... $6,743,618 practice differed among employees. Our During the course of the Disallowed Costs...... investigation led to a report published investigation, a second Funds Recovered...... both to plant management and the noose-related matter was Funds to be Put to Better Use...... $2,798,657 Nuclear Regulatory Commission (NRC). discovered. A Shawnee ...... $908,578 Unit Operator had tied Investigations Opened...... $50,570,129. . . . We also investigated the inaccurate a noose during his shift FundsInvestigations Realized Closed by TVA...... $4,722,979 . . . 223 reporting of the presence of two sometime in February 2008 Fines/Recoveries/Restitution/Savings...... 194 heaters at Browns Ferry Nuclear which was witnessed by Criminal Actions...... 6 Plant (BFN) during freeze protection an African American Unit Administrative Actions (No. of Subjects) ...... $493,065...... 6 program reviews dating back to 2003. Operator. Another employee Inspections Completed...... 21 The heaters are part of capital asset told the Operator tying the protection not associated with direct nuclear operation equipment. We issued doing so, and he immediately a report documenting the history and untiednoose he the could noose be and fired apologized for . The facts were presented to the United States who procured materials used at a fossil which shared the information with The OIG investigated a TVA manager likely causal factors to TVA Management the NRC. personally from his procurement plant and who allegedly benefited whichAttorney’s declined Office, criminal and forwarded prosecution to the. The OIG investigated the sale of items on United States Department of Justice, bought materials from a vendor which purchasedchoices. Specifically, them from the a third-party manager the BFN. The investigation revealed sensitivityThe OIG published training aat report the local to TVA level and company of which the subject manager thateBay the bearing seller, identifiers L&W Surplus, associated L.L.C., buyswith management concurredon the first. case suggesting was half owner. The manager had and sells industrial surplus equipment not been required to submit annual and has had a contractual relationship The OIG investigated an allegation that an employee of a local utility had but the manager did disclose the third revealed that the suspicious nature of ® energy right Program, partyfinancial nexus disclosures when the until submission recently, was thewith items TVA sinceresulted 2007. from Our the investigation inadequate which in part funds conversions required. The manager subsequently inventory and itemization of items defrauded TVA’s from gas to electric water heaters, by retired and prosecution was declined. prior to their sale. A report was approving disbursements to friends and published to plant management family members who did not make the The OIG investigated computer misuse delineating the issues. switch. The investigation substantiated at a fossil plant, and determined that an employee had been accessing porno- The OIG investigated and substantiated the allegation and revealed additional an allegation that an administrative unrelated fraudulent activity. Though prosecution was declined, the employee The employee was suspended for 30 graphic Web sites for at least five years. was forced to resign and his wages days. The OIG continues to work with workingemployee when changed he was her on husband’s leave. The were garnished to offset the fraudulent and implement more effective measures administrativeleave schedule toemployee reflect that retired he was before payments. toTVA lessen Information computer Services misuse to. determine the matter was concluded and her The OIG continued to monitor tempo- rary living expense fraud and substanti- During this review period, we opened ated an allegation that a contractor had husband’s schedule was corrected. obtained more than $6,000 in expenses cases based on information developed concluded in this reporting period at seven criminal workers’ compensation t Two hangman’s noose matters were to which he was not entitled through through our data mining program. the submission of false statements. The These cases involve recipients receiving v a athe supervisor Shawnee reviewingFossil Plant. photographs The first of contractor died prior to being indicted. matter originated in January 2009 when earning income from other sources. scaffolding built for an outage noticed workers’ compensation benefits while 9 o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Office of the Inspector General

Semiannual Report | Rebuilding the Foundation. ORGANIZATIONAL PROFILE > OIG STRATEGIC PLAN Mission The OIG is headquartered in the TVA East Tower in Knoxville, Tennessee, Inspectionsacross from unitthe TVA and headquartersseveral investigators in the West are located Tower. . The There OIG is has also a amajor staffed through the conduct of investigations, satellite office in the Edney Building in Chattanooga, Tennessee, where the audits,Promote inspections, excellence andin TVA’s advisory operations services field office at the Watts Bar Nuclear Plant, Tennessee, to which an auditor and and effectiveness and prevent and detect investigator are assigned. In addition, the Investigations unit has staffed field fraud,designed waste, to promote and abuse economy, efficiency, offices in Nashville, Tennessee; Huntsville, Alabama; and Mayfield, Kentucky. Inspections units are composed of 63 individuals, the Investigations unit is Vision composedAs of September of 30 individuals,30, 2009, the and OIG the had Administrative a total staff of staff 103. is Thecomposed Audit and of To be a highly effective organization that 10 individuals. promotes positive change by identifying opportunities for improvements in the Knoxville–76, Watts Bar Nuclear Plant–2, Chattanooga–16, Nashville–2, performance and efficiency of TVA’s programs The number of personnel located at each staffed office is as follows: and operations

Huntsville–4, and Mayfield, Kentucky–1. Core Values

• Independence • Integrity • Innovation • Initiative • Quality • Results • Leadership • Teamwork GOALS & • Communication OBJECTIVES • Respect for Individual PERFORMANCE

• Focus efforts on areas of highest impact and risk • Ensure processes are efficient and effective • Stay abreast of emerging issues and industry trends • Stayof high abreast quality of stakeholder concerns • Produce work that is timely, relevant, and

WORKFORCE STAKEHOLDER

• Hireallow and for retainrewarding a well team qualified and individual workforce contributors • Improve stakeholder awareness of OIG • Maintain competitive pay and award programs that • toEnsure provide stakeholders input in the are annual kept informed audit planning t each employee • processEnsure stakeholders and each individual have an review, opportunity • Develop leadership, team and technical skills of as appropriate v a • Ensure accountability in individual performance • Promote effective communication 11 o i Semiannual Report | Rebuilding the Foundation. g > OFFICE RESPONSIBILITIES AND AUTHORITY

underCreated the by Inspector the TVA Board General of ActDirectors in 1985, the TVA OIG became statutory

GeneralAmendments (IG) was of 1988 transferred (IG Act). to Thethe Presidentauthority toin appointNovember the 2000 TVA Inspectorby Public Law No. 106-422.

> OIG RESPONSIBILITIES Charles A. Kandt Legal Counsel while preventing and detecting fraud, • waste,Promote and economy abuse. and efficiency

inspections, and investigations relating • Conduct and supervise audits,

to TVA programs and operations. and currently informed concerning Ronald Wise • Keep the TVA Board and Congress fully fraud and other serious problems, Assistant Inspector General, Administration and Government Relations abuses, and deficiencies relating to concerningTVA programs problems, and operations. abuses, and • Recommend corrective actions > made in implementing such actions. deficiencies, and report on the progress auditors complies with Government • AuditingAssure work Standards performed. by nonfederal

Kay T. Myers and the Congress. Manager, Human • Issue semiannual reports to TVA Board Resources > OIG AUTHORITY

investigation the IG deems necessary • Conductor desirable any. audit, inspection, or

material. • Access all TVA records or other

• Issue subpoenas and administer oaths. • Receive complaints and grant confidentiality. • Have direct and prompt access to t servicesthe TVA Board.as necessary. v • Hire employees and contract for a

12 o Phyllis R. Bryan i Director, IT Audits g Semiannual Report | Rebuilding the Foundation. Richard W. Moore Inspector General >

Ben R. Wagner Charles A. Kandt Deputy Inspector Stefanie D. Hoglund Legal Counsel General Publlic Affairs Officer >

Robert E. Martin John E. (Jack) Assistant Inspector Brennan General, Audits and Assistant Inspector Inspections General, Investigations > >

Jill M. Matthews Gregory C. Jaynes Deputy Assistant Deputy Assistant Nancy J. Holloway Inspector General, Inspector General, Special Agent Audits and Support Inspections In Charge

Lisa H. Hammer David P. Wheeler Director, Paul B. Houston Director, Contract Financial and Special Agent Audits Operational Audits In Charge

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13 Louise B. Beck John H. Barrow III o Audit Quality Project Manager Manager Emerging Issues i Semiannual Report | Rebuilding the Foundation. g > ADMINISTRATION potential impact, sensitivity (including The administrative section works public and/or congressional interest), lead responsibility for: (1) oversight • Financial/Operational Audits has closely with the IG, Deputy IG, and As- and likelihood it will result in recom- sistant IGs to address the day-to-day mendations for cost savings or process and related services performed by of TVA’s financial statement audit operations of the OIG and to develop improvements. The result of the OIG policies and procedures. Responsibili- audit and inspections planning process TVA’s external auditor; (2) reviews ties include operations for personnel is a focus on those issues of highest - impact and risk of fraud, waste, abuse, of TVA’s internal controls related to financial reporting, operational ef management, purchasing and contract or in regard to IT, malicious, or other and regulations; and (3) operational ficiency, and compliance with laws services,administration, facilities, budget conferences, and financial and intrusion. reviews to assess the results and government relations. The Audits group, based in Knoxville, programs. conducts and/or supervises compre- economy and efficiency of TVA > A UDITS AND INSPECTIONS The Audits and Inspections group per- for audits relating to the security of forms a wide variety of engagements hensive financial and performance • IT Audits has lead responsibility designed to promote positive change auditsIt consists of TVA of four programs departments—Con and operations.- controls, and general controls asso- - tract Audits, Distributor Audits, Finan- TVA’s IT infrastructure, application holders. Based upon the results of the cial/Operational Audits, and IT Audits. also performs operational reviews and provide assurance to TVA stake engagements, the Audits and Inspec- ofciated the effectivenesswith TVA systems. of IT-related This group - tions group makes recommendations to functions. In addition to its audit bility for contract compliance and mission, IT Audits is responsible for • preawardContract Audits audits has. In leadaddition, responsi this developing and supporting an inde- enhance the effectiveness and efficiency group uses an impact- and risk-based pendent OIG computer network. of TVA’s programs and operations. The contracting processes and provides approach to develop an annual work group performs reviews of TVA claims assistance and litigation The Inspections group, based in Chat- support. strategic plans, major management tanooga, Tennessee, seeks to ensure plan. The group’s plan considers TVA’s that program objectives and operational challenges, enterprise risk management - functions are achieved effectively and process and results, and other input sibility for contract compliance • Distributor Audits has lead respon - hensive reviews and more limited scope model also evaluates each potential group assesses compliance with the from TVA management. The planning policyefficiently. and programIt performs reviews both .compre In accor- engagement from the standpoint of ma- termsreviews of ofthe TVA’s power distributors. contracts be This- teriality (i.e., costs or value of assets), dance with the Quality Standards for

tween TVA and its distributors. TYPES OF AUDIT AND INSPECTION ISSUES

Information Operational Audits Contract Audits Technology Audits Not Achieving Intended Results Inadequate Controls • Operational Inefficiency • Inflated Proposals • Unauthorized Access • • Contract Overpayments • • InferiorNoncompliance Performance • Inferior Performance • Lack of Data Integrity • Legal/Regulatory • Fraud t • Fraud • Fraud v a Financial Audits Distributor Audits Inspections

14 o • Internal Control Deficiencies • Contract Noncompliance • Internal Control Deficiencies • Material Misstatements • Misstatement of Power • Operational Inefficiency i • Legal Noncompliance Sales to TVA • Policy Noncompliance Semiannual Report | Rebuilding the Foundation. g • Fraud • Fraud • Fraud Inspections, the objectives of the Inspections group include pro- viding a source of factual and analytical information, monitoring EXAMPLES OF CRIMES THE OIG effectiveness of operations, and conducting inquiries into allega- SEEKS TO UNCOVER compliance, measuring performance, assessing the efficiency and tions of fraud, waste, abuse, and mismanagement. • Contract Fraud • Economic Development Grant Fraud • Bid Rigging/Collusion Audit and inspection findings vary depending on the objectives depending on the type of engagement performed. The graphic • False Claims (e.g., billing for services not onof the page project. 14 shows Issues some can representative be generalized examples into specific of audit categories and rendered or costs not incurred) inspection issues commonly reported. • False Statements • Defective Pricing > INVESTIGATIONS • Computer Crimes The Investigations group performs investigative activity related • Product Substitution and Counterfeit Parts conducts its work in accordance with the Quality Standards for Investigationsto fraud, waste,. The and investigators abuse in TVA maintain programs liaison and operations. with federal It • Conflicts of Interest • Bribery/Kickbacks • Environmental Crimes aand violation state prosecutors of federal criminal and file lawa report. Our withinvestigators the Department work with of • Mail and Wire Fraud otherJustice investigative whenever the agencies OIG has and reason organizations to believe onthere special has beenprojects and assignments, including interagency law enforcement task • Theft of Government Property forces on terrorism, the environment, and health care. Our inves- • Employee Criminal Misconduct tigative workload includes the following major categories: (e.g., purchase card misuse)

Contract Fraud goods and services. – Defrauding TVA through its procurement of Theft of Government Property and Services ACTUAL FRAUD SCHEMES property and “schemes to defraud . . . designed to deprive indi- INVESTIGATED BY THE OIG viduals, the people, or the government of intangible – Theft rights, of TVA such • Falsification of information in Economic Development grant application and bid asEnvironmental the right to have Crime public – Any officials act which perform violates their an duties environmen honestly.”- proposals tal protection statute. • Unallowable or unauthorized purchases (e.g., use of TVA funds for personal Health Care Fraud – The intentional misrepresentation of health luxury items) care services, expenses, billings, needs, or coverage that results in • Misallocation of costs among projects • Mischarging for expenses not incurred unauthorizedIllegal Hacking payments into TVA or Computer other benefits. Systems – Accessing a or work not performed (i.e., phantom charges) computer without authorization or exceeding authorized access. • Misrepresentation of project status Workers’ Compensation Fraud – Includes employee fraud, and progress in order to continue medical fraud, premium fraud, and employer fraud, most often a receiving funds • Falsification of test results or other data • Disposal of hazardous waste in violation falseEmployee claim Misconductof disability to receive benefits. of Federal regulations t furnished equipment, travel voucher fraud, and a multitude v • Influencing an award to a family of miscellaneous matters –. Generally includes misuse of TVA member or friend a

15 o i Semiannual Report | Rebuilding the Foundation. g Special Feature: Recovery Following The Kingston Ash Spill— Restoring An Agency And A Community In Crisis

Semiannual Report | Rebuilding the Foundation. As discussed in the previous semiannual report to Congress, TVA has been portrayed by many as an agency in crisis. Because of nationally-publicized challenges such as decreasing revenues, multiple lawsuits against TVA and an unprecedented environmental spill publicly compared to the Exxon Valdez, TVA’s stability and long-term health has been called into question. “TVA is undeniably being challenged on a number of fronts,” says TVA Inspector General Richard Moore.

The Kingston Fossil Plant coal ash spill of December 22, 2008, in which 5.4 mil- raised over a long period of time lion cubic yards of ash poured onto ad- was aware of “red flags” that were - jacent land and into the Emory River, is one of the largest environmental disas- signaling the need for safety modifica tions to TVA ash ponds. layer as a trigger for the Kingston spill. ters in American history. The TVA OIG • MarshallAECOM overemphasized Miller concluded the that “slimes” factors released two reports—one in June 2009- other than the “slimes” layer may have critiquing TVA’s response to the ash spill and another in July 2009 evaluat ing TVA’s root cause analysis of the spill. been of equal or greater significance. - The second report assessing TVA’s root • formalDespite Enterprise internal knowledge Risk Management of risks associated with ash ponds, TVA’s andcause found analysis that alsomanaging evaluated ash TVAstorage man agement’s role regarding ash storage (ERM) process, which began in 1999, Marshall Miller & Associates (Marshall as a risk. While over the years there had not identified ash management Miller),was a low a nationally-recognized priority. The TVA OIG engihired- was internal discussion about placing

Program, which would have required the ash ponds under TVA’s Dam Safety hiredneering AECOM consulting Technology firm, to Corporation assist with more rigorous inspections and engi- (AECOM)the technical to complete aspects of the the initial review. root TVA cause analysis. The objectives of the not to do this. neering of the ash ponds, TVA chose

fuel plants that emanate from a legacy TVA OIG review were to (1) provide an • Attitudes and conditions at TVA’s fossil independent peer review of AECOM’s ash management for weaknesses. coal ash. Ash was relegated to the root cause analysis and (2) review TVA’s culture impacted the way TVA handled found that: than treating it as a potential hazard In summary, the TVA OIG peer review tostatus the publicof garbage and environmentat a landfill rather.

cause analysis in a manner that avoid- • edTVA transparency management and handled accountability the root in - TVA management generally agreed with favor of preserving a litigation strate- sequently hired McKinsey & Company, a the findings of the report and has sub t management practices that may have issues brought to light as a result of consulting firm, to address the cultural v contributedgy. TVA elected to the not Kingston to publicly spill disclose. an engineering company, to rigorously a inspect,the ash spill. evaluate, TVA andalso make hired recommen Stantec, - the Kingston spill if it had taken rec- dations on ash storage facilities at all its 17 • TVA could have possibly prevented fossil plants. o i ommended corrective actions. TVA Semiannual Report | Rebuilding the Foundation. g Kingston Fossil Plant

The East Tennessee resident, who phase of a multi-billion-dollar program authored the editorial, implores &Additionally, Aldridge, LLP, on Januarya national 9, 2009,expert TVA in completed by next spring, is the first independentretained the firm investigations, of McKenna to Long conduct ash disposal. to “redress the issues at hand” and to an independent factual investigation of designed to make TVA a leader in coal remedy“Kingstonians” any economic to give harmTVA a. chance“There are the Kingston spill and its implications few citizens in Roane County who have relating to systems, controls and culture. this year to clean up the Kingston ash not been helped by the huge presence TVA has spent nearly $230 million

a resolution proposed by Director Tom Executive Anda Ray who was also their doorstep,” she writes. She goes on spill, according to TVA Environmental Gilliland,On July 21, chairman 2009, the of Board the Audit, approved Ethics quoted in the September 23rd article. of the Tennessee Valley Authority at and Governance Committee, to address steam plant with creating jobs for to clean up the Kingston spill and up residentsto credit the. opening of TVA’s Kingston TVA anticipates spending $1.2 billion report. At the same board meeting, to $2 billion over the next eight years the failures identified in the McKenna “The South was not known for well- to develop an extensive remediation plants to dry ash storage systems. to convert five other wet ash storage planthe Board in response directed to TVAthe independentmanagement paying jobs in the 1950s,” she writes, investigation of the Kingston ash spill, families. Kingston became an enclave of that they want the area impacted by the comfortable“but TVA changed middle-class that for familiesmany with TVA executives have stated repeatedly spill to be “better” than it was before good schools enriched by funding that the incident. As part of this initiative, managementvarious reports. by the TVA Inspector General and recommendations by TVA employee. Besides the jobs created by in economic development funds for came with each child of a TVA or federal TVA set aside approximately $40 million been very receptive,” IG Moore said “The TVA Board and management have County and its communities. notTVA, situated the recreational on a lake benefitssuitable havefor bass been locally-identified projects to help Roane understand what the issues are and tremendous. Before TVA, Kingston was of the TVA OIG report findings. “They Roane County and its communities rainsfishing,. Homes jet skiing did notor boating. dot the Itshoreline, was on a announcedTVA and the in elected September leaders that of they TVA is doing what we think needs to asriver they that do flooded now, because at the whimthey would of heavy be done to address the findings.” are establishing the Roane County one-third of the coal ash dumped into Economic Development Foundation theTVA Emory recently River completed from its removing Kingston to administer the funds provided by likely have been washed away…” Fossil Plant. of public scrutiny and criticism since representatives are serving as the theThough Kingston TVA hasash receivedspill, there an areonslaught a TVA. The elected leaders and TVA number of Kingston residents who President (CEO) Tom Kilgore was for considering requests for funding TVA Chief Executive Officer and foundation’s board and have set criteria quoted as saying in a September 23 projects. The foundation has already their work in trying to restore their Chattanooga Times Free Press article granted requests to provide $6.7 million have expressed gratitude to TVA for that work crews had excavated for revitalization of the Harriman Anda Ray has repeatedly stated that the 1 million cubic yards of ash that downtown area and to improve the ultimatelives. TVA’s goal Environmental is not just to restoreExecutive the spilled last December into the river Kingston wastewater treatment system. area affected by the spill, but to make it beside the Kingston coal plant. Some better. She has encouraged residents to 580,000 cubic yards of the ash has envision what that would entail and to to compensate Kingston residents t affectedTVA has byalso the been ash working spill. A recent diligently Perry County, Alabama. working on the restoration. v been shipped to a lined landfill in editorial to a local newspaper perhaps provide their insight to TVA employees a “Since we had the biggest accident with coal ash in the industry, I want to have and metaphorically changed the - says it best that TVA both literally 18 the best cleanup program of any utility,” waterscape of Kingston long before the suranceAs of this claims writing, and TVA have has provided purchased help Kilgore said. The cleanup, slated to be unprecedented ash spill. 138 properties. They’ve settled 95 in o to more than 750 residents through i g Semiannual Report | Rebuilding the Foundation. say hello, to inquire if we had any - questions, needs and/or concerns, residual risks. Kingston Fossil Plant tractedthe TVA with Outreach a mental Center health established provider were graciously welcomed too. We also • Assessing both inherent and toin downtownprovide residents Kingston. a professional TVA also con with must recognize the 24/7 efforts of the whom to discuss their feelings and how water and road crews, and the amazing tolerance with respect to various risks • Articulating the company’s risk the ash spill affected them. progress that has been made in such a short time. that have been identified. set up a hotline phone number to which “Our family has owned this home for documenting risk policies and • Enhancing governance by formally moreAfter thethan initial 600 residentsonset of the have crisis, called TVA over 40 years, and neither of us want procedures. or plan to leave. We have great hopes since December 22, placed 23 families in that not only will the area be returned hotel rooms, and provided cell phones with respect to the ERM program to residents whose phone service was • andEnhancing results board. communication to ‘like it was’ status, but that status will cardstemporarily for purchase disconnected. of meals TVA and also other become ‘better than it was.’” ERM program and from recent reviews operational outreach center and mental sundriesprovided toVISA those debit displaced and restaurant from their relatedThe findings to the from Kingston our reviews Fossil Plant of the healthTVA’s efforts services, continue a well-water with an testing homes and gift cards for Christmas to ash spill solidify our conclusion that one family. process for residents, air testing, a toll- free number regarding insurance claims, into the organization to increase the interim housing including furnishings futureTVA needs likelihood to drive that ERM known further risks down will to provide protection from potential and amenities and a medical outreach TVA was also responsive in attempting environmental hazards caused by the our reports and the recent Kingston spill by delivering bottled water and and its medical center and Oak Ridge be identified and addressed. Based on Associatedeffort driven Universities by Vanderbilt to assess University the - health of Roane County residents who catastrophic event, TVA has made ERM- several hundred air filters to residents believe they have been affected by the proachstaffing and and now process conducts changes. business Specifi unit in“We the wanted first two to ensureweeks. residents were spill, and to educate area physicians workshopscally, TVA has. This initiated process a bottom-up has allowed ap “then we focused on restoring the infrastructuresafe first and foremost,” to the area Ray by said,supporting about fly ash and the medical protocols may not have surfaced using a top- TVA to address many more risks that local utilities with restoration of electric, Vanderbilt physicians will follow. down approach. gas and water lines and by repairing and has made to restore the community and Besides the impactful efforts that TVA Risk assessment efforts, driven by repaving two primary roads in the area.” 15 Risk Coordinators, are now intensely to bolster its ERM program occurring at multiple levels throughout designedresidents toof identifyKingston, potential TVA has risk worked areas the organization and these efforts span the spill indicate the gratitude some have and prevent a possible operational multiple enterprise risk categories Letters to TVA from residents affected by failure, such as the ash spill. In 2008, the helping them restore their lives. such as employee fraud, pandemic, toward TVA for their quick response in terrorist attack, and deteriorating “We are two (Swan Pond area) residents TVA OIG conducted a follow-up review who want to let you know how much of TVA’s ERM since its initial 2003 commitment to ERM has been a IT infrastructure. Management’s we appreciate everything you have done review. While the OIG found that TVA during these past two weeks,” one letter made significant progress in enterprise success and will be critical to further recommendations included: key factor in driving the program’s read. “Christmas night we welcomed Mr. risk identification and assessment, Ron Hall into our home. The numerous value going forward. additional staff who have telephoned management culture into and extracting the program’s strategic and knocked on our front door to just • acrossContinuing the organization to drive the .risk t v Kingston Fossil Plant a

approximately 14,000 tons of coal limit emissions of sulfur dioxide (SO2). 19 • Construction begins in 1951. • Nine coal-fired units, consumes • Burns a low-sulfur blend of coal to per day at maximum operating o • Commenced operations in 1954 and capacity—an amount of coal that power plant at the time. hours a year—enough electricity to i was the world’s largest coal-burning • supplyGenerates 700,000 about homes 10 billion. kilowatt- Semiannual Report | Rebuilding the Foundation. g would fill 140 railroad cars. NOTEWORTHY UNDERTAKINGS

> THE TVA OIG LAUNCHES PUBLIC SERVICE ANNOUNCEMENTS ON LOCAL TV STATIONS

A series of three thirty-second public service announcements (PSAs) were

release which addresses the thought, “Ifcreated only itfrom were the easy TVA to OIG’s spot latestfraud .”video The PSAs are expected to run on

local TV stations throughout the TennesseeThe four-minute Valley. video, from which the PSAs were created, showcases what it might look like if it were easy to spot

from the Inspector General highlights fraud, but because it’s not, a message can do if they suspect fraud. what TVA employees and ratepayers

andOur theoffice public initiated to report this effort possible to instancesencourage of TVA fraud, employees, waste, abuse, contractors, and

the Empowerline, which allows users tomismanagement report anonymously to the ifoffice’s they choose hotline,.

To view the video, visit www.oig.tva.gov, and click on the video link.

HOW TO REPORT Suspected or alleged fraud, waste, or abuse can be reported to the TVA OIG in t person at a local office, or via the TVA v OIG Empowerline. Empowerline options a TVA Inspector General Richard Moore interviews with include: phone (1 877 866 7840) and TV Anchor Gene Patterson for Tennessee This Week, which 20 aired Sunday, Aug. 2 on Knoxville’s Channel 6. Web www.OIGempowerline.com. o i g Semiannual Report | Rebuilding the Foundation. > TVA OIG SENIOR SPECIAL AGENT RECOGNIZED BY CIGIE FOR WORK ON CASE LEADING TO THE PROSECUTION OF TWO TENNESSEE BUSINESSMEN

proceeds of which were to be used “The prosecution of this case was solely for the purpose of purchasing ten important in maintaining the integrity InspectorsThe TVA OIG General was named on Integrity as an award and recipient by the 2009 Council of the operating Hickman Mills, Inc., a textile its work in a complex loan fraud companyspecific items in Hickman, of equipment Kentucky, for use which in of TVA’s Economic Development thatEfficiency resulted (CIGIE) in the Awards conviction Panel of for Smith and Wall owned and operated theprogram,” Inspector TVA General OIG Inspector will continue General two Tennessee businessmen, Lloyd during that time. toRichard scrutinize Moore these said. types “The of Office loans of to Aaron Smith and Neal Gordon Wall, for bank fraud, mail fraud, and money The defendants caused fraudulent laundering. The awards ceremony took determine if TVA is being defrauded.” in support of their $500,000 loan documents to be submitted to TVA at the Andrew Mellon Auditorium in application. One of the documents Washington,place on Tuesday, D.C. October 20, 2009, indicated that Smith and Wall owned the ten items of equipment to be acquired with the loan proceeds Yates received the award on behalf through a purchase transaction in April ofTVA the OIG prosecution Senior Special team Agent. Other Craig team 2002. Another document showed that members included: G. Lynn Bracey, Smith and Wall entered into a contract

R. Lesousky, AUSA Western District of of equipment to Hickman Mills for Kentucky;Senior Special William Agent, K. Miller,USDA-OIG; Special James $500,000in July 2003. The to sellindictment the same charges ten pieces that Senior Special Agent Yates and Agent, Internal Revenue Service; and Smith and Wall, in fact, never owned the IG Moore with Award ten items of equipment. Internal Revenue Service. James H. Rafferty, Retired Special Agent, Instead of using the proceeds of the According to the nomination, these individuals were honored for their exceptional performance in the and$500,000 Wall deposited loan from theTVA monies to purchase into an the joint investigation and prosecution accountten items established of specified with equipment, a Tennessee Smith of a complex fraud case where the bank in the name of Dyer Fabrics, Inc., two Tennessee businessmen were another business owned and operated sentenced and ordered to pay $4.5 by the two. million in restitution for bank fraud, mail fraud, and money laundering. This Smith and Wall pled guilty to bank Hickman Mills TVA Investigative Team investigation was conducted jointly fraud, mail fraud, and nine counts of money laundering. On February 11, with the Tennessee Valley Authority’s the U.S. District Court in Paducah, 2009, both men were sentenced by ofOffice Inspector of Inspector General General, – Investigations the U.S. Kentucky. Smith received 30 months (USDA-OIG),Department ofthe Agriculture’s U.S. Internal Office Revenue incarceration, and Wall received 27 months incarceration. They were jointly and severally ordered t forService’s the Western Criminal District Investigation of Kentucky . to pay restitution in the amount of Division, and the U.S. Attorney’s Office v Smith and Wall applied for and received $4,104,562.51 to the Citizens Bank of a Hickman$420,733.37 or USDA, directly and to assessed TVA and $1,100. Economic Development program, the 21 a $500,000 loan from the TVA’s o i Semiannual Report | Rebuilding the Foundation. g > SOCIAL NETWORKING TURNED PROFESSIONAL AT THE TVA OIG

Social networking mediums such as Facebook, MySpace, and Twitter have is based on the same format that appeared to reach a peak in popularity FacebookThe TVA OIG uses Professional and allows Networkemployees among students, adults, and even those to post information about themselves

social networking provides in allowing peoplebeyond to retirement be instantly age. connected The efficiency to Itto istheir a secure own profilesway for thatemployees are only to friends and family members has made communicateaccessible to other with TVAeach OIG other employees. and learn the medium attractive to private businesses and now government areas of expertise that they might notabout otherwise common have interests an opportunity and specific to learn about. Work projects requiring agencies,In a teleworking such as environment the TVA OIG. where face-to-face contact is limited, a professional network is ideal for information-sharinginteroffice collaboration tool can. be done information sharing and employee even more efficiently because of this collaboration. Social networking is being used professionally by government agencies such as the Centers for Disease Control and the

now it has been seemingly well received Office of Management and Budget and

by our office. employees throughout multiple states includingThe network Kentucky, allows Alabama,all TVA OIG and

professional endeavors and to share Tennessee to learn about each other’s and expertise. It also allows employees toknowledge blog and oncreate specific group areas discussions of interest or forums on relevant topics.

According to www.usa.gov, “Social networking sites with government partners can help achieve a

social networking sites can establish connectionsgovernment’s across mission. traditionally Internal stovepiped and geographically dispersed organizations. Employees could form groups on social networking t sites to overcome stovepipes within v organizations.” a

22 o i g Semiannual Report | Rebuilding the Foundation. TVA INSPECTOR GENERAL TESTIFIES BEFORE CONGRESS Richard Moore testified before the House Subcommittee on Water Resources and Environment on June 28, 2009. The testimony was in regard to the TVA OIG’s second report on the Kingston Fossil Plant ash spill: Review of the Kingston Fossil Plant Ash Spill Root Cause Study and Observations about Ash Management. A copy of his testimony can be found on our Web site at www.oig.tva.gov.

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23 o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Summary of Representative Inspections

Semiannual Report | Rebuilding the Foundation. to determine if operation was in certain emergency response actions Summary of accordance with program intent and following the spill. Representative operating controls were functioning. Results of the distributor reviews are Inspections discussed below under Distributor to media and public inquiry resulted in • TVA’s actions for responding quickly Audits. This once again shows releases of inaccurate and inconsistent information and subsequent public criticism which caused reputational Inspections’ ability to impact the effectiveness and efficiency of Gregory C. Jaynes programs across TVA. harm to TVA. > Kingston Fossil victims in the affected area; however, Deputy Assistant • TVA has responded effectively to Inspector General, Plant Ash Slide failure to communicate the claims Inspections Interim Report policy and decisions in a timely manner The spill of wet coal ash at the Kingston increased settlement expectations for During this semiannual period, we Fossil Plant is the largest such spill to some. occur in our country. More than one bil- a smorgasbord of operational areas, lion gallons (i.e., 5.4 million cubic yards) - incompleted addition 19to theinspections two distributor covering of coal ash poured onto adjacent land ings and is taking actions to address the TVA management agreed with our find reviews completed under Inspections. and into the Emory River. Coal ash is - a byproduct produced when fossil fuel ment plans to: (1) fully implement recommendations. Specifically, manage inspections which addressed aspects plants burn coal to generate electricity. NIMS, ensure required NIMS training ofSpecifically, the Kingston we completed:ash spill, including (1) two the is completed, and evaluate the imple- emergency response, including imple- mentationOur report andfocused utilization on: (1) of TVA’s the National initial by the Roane County Emergency mentation of best practices as identified mediaroot cause, response, TVA’ management and reparations culture, to Incident Management System (NIMS); Management Director; (2) document TVA’s emergency response, TVA’s (3) reparations to the victims and resto- for the release of media statements and the protocol and verification process (3)victims; a review (2) an which assessment resulted of in TVA’s the (2)ration TVA’s of theresponses affected to Roane the media; County and com - - terminationfinancial performance of the Maintain and challenges; and Gain munity. In summary, we found: ate processes were followed; and maintain verification that the appropri Lakeshore Management Program; (3) continue to work with the communi- ties and local residents to improve the suppliers to assess contract compliance accordance with Homeland Security • TVA had not implemented NIMS in with(4) four weighing inspections and sampling of TVA coal provisions; Presidential Directive 5 which ham- efforts with property acquisition communications related to TVA’s and (5) eleven campground inspections pered communications and delayed and claims process.

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25 Kingston Fossil Plant Area Pre-Dike Failure Kingston Fossil Plant Area Post-Dike Failure Kingston Fossil Plant as of August 2009 o i Semiannual Report | Rebuilding the Foundation. g > Review of the Kingston Fossil layer as a trigger for the Kingston Plant Ash Spill Root • FossilAECOM Plant overemphasized spill. Marshall the Miller “slimes” The OIG recommended TVA’s CEO, in Cause Study and concluded that factors other than the consultation with the TVA Board: “slimes” layer may have been of equal professionals skilled in change Observations about • Commission a dedicated cadre of Ash Management management focused solely on driving

or greater significance. measuring positive changes in the On December 22, 2008, a major dike culturecompliance that throughoutaffect ash management TVA and failure occurred on the north slopes of • formalDespite ERM internal program, knowledge which of began risks associated with ash ponds, TVA’s Plant. This failure resulted in the re- management as a risk. While over the and other TVA programs. leasethe ash of pondapproximately at the TVA 5 Kingston.4 million Fossil cubic yearsin 1999, there had was not internal identified discussion ash Power Group to determine what yards (more than 1 billion gallons) of • Assess the culture of the Fossil about placing the ash ponds under changes need to be made, if any, wet coal ash spilling onto adjacent land to ensure the support for sound policies and procedures related TVA’s Dam Safety Program, ultimately, to ash management. and into the Emory River. TVA’s CEO its Dam Safety Program. Treating theTVA ash did ponds not place like the dams ash would ponds have under adirected root cause the analysisTVA Office of ofthe the spill, General and required more rigorous inspections AECOMCounsel wasto contract commissioned with a firm with to the do and engineering. • whetherAssess the those management practices practicescontributed of were to: (1) provide an independent toTVA the for failure ash management of the dike at to the determine task. The objectives of the OIG’s review fuel plants that emanate from a legacy Kingston Fossil Plant. - • Attitudes and conditions at TVA’s fossil peer review of AECOM’s root cause agement for weaknesses. To assist with coal ash. Ash was relegated to the analysis and (2) review TVA’s ash man storage facilities and determine which technical aspects of this review, the OIG culture impacted the way TVA handled • Complete the assessments of TVA ash hired Marshall Miller to independently ones are at risk of failure. The deter- than treating it as a potential hazard mination should be, as suggested by tostatus the publicof garbage and environmentat a landfill rather. and provide other observations about Marshall Miller, based on whether any peer review TVA’s root cause analysis In addition, this OIG report was of the four conditions contributing to summary, we found: the failure at the Kingston Fossil Plant ash management practices at TVA. In presented to the TVA Board on July 14, risk of failure. The determination cause analysis in a manner that avoid- 2009. After the OIG briefed the TVA shouldexist sufficiently not be limited to pose to justa significant looking • edTVA transparency management and handled accountability the root Board on its findings, a specially called for the existence of the combination of in favor of preserving a litigation LongTVA Board and Aldridge meeting and was commissioned held on July 21, all four contributing conditions found by2009. the Audit,A report Governance, prepared by and McKenna Ethics at the Kingston Fossil Plant. disclose management practices that maystrategy. have TVAcontributed elected not to the to publiclyKingston the storing, handling, and maintaining Fossil Plant spill. managementCommittee of acknowledgedthe TVA Board atin the • Develop policies and procedures for February of 2009 was released. TVA of ash and ash disposal facilities. management failures that we identify the Kingston Fossil Plant spill if it had inJuly this 21, report 2009,. meeting These admissions many of the • takenTVA could recommended have possibly corrective prevented ac- ERM program further down into the • organizationContinue the toefforts increase to drive the futurethe likelihood that known risks will be that were raised over a long period reflect the type of transparency tions. TVA was aware of “red flags” OIG has pressed for some time. We t of time signaling the need for safety and accountability for TVA that the v identified and addressed. applaud the TVA Board’s leadership draft to this report. The CEO generally a modifications to TVA ash ponds. TVA’s CEO provided comments on a Kingstonin this matter Fossil and Plant TVA spill management’s. agreed with our recommendations 26 acknowledgement of TVA’s role in the and, in addition to identifying actions o i g Semiannual Report | Rebuilding the Foundation. already taken, stated that actions in- implementing (a) more detailed and process or planned include: rigorous policies and procedures for (1) implementing a cultural— storing, handling, and maintaining ash focusing initiative across the agency, and managing ash disposal facilities, incorporating lessons learned from the and (b) a comprehensive program Kingston Fossil Plant spill; (2) using for future coal combustion product the detailed, technical explanation of remediation and conversion; and what and how the Kingston Fossil Plant (4) implementing ERM improvements dike failure occurred to ensure that to better achieve the goals of the it never happens again and to safely program. close the failed cell; (3) developing and Kingston Fossil Plant Cleanup

> Review of TVA’s Financial Performance

This review was the second in a series the implementation of a fuel cost- reduce nonfuel O&M costs but has performance in key areas and answer • TVA’s ability to set its own rates and (O&M) costs. TVA is seeking to of reviews that will benchmark TVA’s to help maintain adequate revenues has also focused on reducing interest adjustment clause provides flexibility costsmade aslimited a percentage progress of to revenues date. TVA Inthe conducting question, “How this review, is TVA we:doing in operates in a service area that is and has made progress in doing so in (1)regard assessed to financial key performance performance?” measures largelyto cover free costs. from Additionally, competition TVA and has recent years. and their alignment with the key a large, diverse customer base. Recent events have negatively affected results relative to targets and available benchmarkstrategic objectives; information; (2) evaluated and TVA’s decisions in the past that did not pay • TVA has made certain investment (2)TVA a financially downturn including:in the economy (1) a causingwet coal fly ash spill at the Kingston Fossil Plant; challenges that could affect how capital investment decisions and the declining power sales; (3) a court (3) identified key management off. TVA is seeking to improve its ruling on a lawsuit brought by the state successful TVA is in achieving its thesefinancial large performance investments of pertaining its capital to: losses on accounts established to financial strategic objectives. (1)assets. new However, generation TVA’s and ability transmission to make fundof North pensions Carolina; and andasset (4) retirements significant. performance for this assessment period assets; (2) environmental require- Our report includes discussions of wasIn our adequate; judgment, however, TVA’s overall the agency financial ments; and (3) existing assets that the necessity to manage commodity are aging and need regular upgrades price, investment price, interest rate, challenges, some of which have recently to keep running, will be a challenge, credit, and capital requirement risks. emergedfaces several. This significant conclusion financial is based on legislative debt ceiling. is based primarily more on its federal three areas: (1) maintaining adequate given TVA’s financing structure and In addition, while TVA’s bond rating revenues;our analysis (2) of making TVA’s financial sound capital health in investments; and (3) containing costs. theties AAAthan bond its financial rating as position, a risk factor TVA in its • TVA is attempting to reduce certain In summary: management has identified maintaining costs to improve its financial position. other electric utilities with respect to Exchange Commission on Form 10-K. nonfuelTVA fairs operation poorly when and comparedmaintenance to 2008 filing with the U.S. Securities and t v a

27 o i Semiannual Report | Rebuilding the Foundation. g > Review of Maintain and Gain Lakeshore Management Program

This review was conducted to

anyone preferential treatment in the reviewdetermine and whether: approval of(1) Maintain TVA gave and Gain transactions, and (2) the policies and procedures related to the design and execution of the Maintain and Gain process were adequate. The Maintain applications were rejected damages and Gain program was designed to the integrity of the Maintain and Gain interest broad enough to capture allow consideration of proposals program. - theA definition majority of of inherent cases that conflicts involve of to obtain lake access rights at the

access rights already available at other conflicted parties soliciting something • The Maintain and Gain program propertieslandowner’s the property landowner by swapping may possess . of value from TVA. may undermine the TVA Board of The policy, as written, required that apparent goal of restricting residential to enable them to recognize and report Director’s 2006 Land Policy and its - A training program for TVA employees transactions would result in no net loss, or preferably, a net gain of public development on TVA shorelines. - conflicts.A process to refer these cases to the shoreline. We reviewed all Maintain and Gain transactions that had been consider:We recommended TVA management, approved since inception of the in consultation with the TVA Board, toEthics the OIGand toCompliance track, review, Officer, and thereport program up to the date of our report onDesignated whether Agencyor not any Ethics preferential Officer and and found: program and only consider changes treatment occurred. • toEliminating water access the rightsMaintain during and theGain periodic update of the Shoreline by others created the appearance of Management Policy. • preferentialCertain actions treatment by TVA andemployees thereby and - advisingA notice provisionthem that totheir any request conflicted or applicationparty applying will for be athe TVA subject benefit of a harm. formal review and public report. increased TVA’s risk of reputational • Alternatively, if the Maintain and Gain withprogram the Landis retained, Policy TVAregarding should: The CEO generally agreed with our Maintain and Gain process to ensure a residential(a) evaluate development; the extent it may (b) conflict • transparentTVA did not haveand independent a protocol in review the strengthen procedural guidelines to reduce the inconsistency in managementfindings and recommendations. eliminated the Maintain Based of interest. on our review, the TVA Board and of applicants having known conflicts how matters are resolved; and (c) implement procedures to interest protocol was developed and and Gain program and a conflict of been administered in an arbitrary ensure adequate documentation is implemented that incorporates the • mannerThe Maintain and requires and Gain substantial program has maintained of rejected and withdrawn elements recommended by the OIG. improvement if it is to be retained applications.

were granted in seven of the ten key by TVA. We noted that exceptions protocol which creates a procedure t steps required in a Maintain and Gain • Establishing a clearly defined v transaction. a for identifying inherent conflicts of theinterest protocol by those include applying the following for any TVA 28 • TVA’s failure to retain records of who elements:benefit. We also recommended that o filed applications and why those i g Semiannual Report | Rebuilding the Foundation. > TVA Coal Supplier for ten randomly selected shipments Contracts agreed with the information provided We conducted four inspections to deter- mine whether selected coal suppliers supplier was also found to be in gen- to TVA regarding tons shipped. Each were in compliance with weighing and eral compliance with the weighing and sampling requirements of each respec- sampling requirements in the contract. tive contract. We performed tests to However, we did identify a few issues verify that shipment weight documenta- - tion maintained at each mine supported requiring TVA management action re the amounts used to support invoices lated to bias testing. TVA management - recommendations and plans to take generally agreed with our findings and mary, our reviews found documentation corrective action. maintainedto TVA for tonnage at each shipped.respective In mine sum Coal Barge

> Review of TVA Managed Campgrounds

campground guidelines were generally President of Environment and being complied with. However, we did campground differed somewhat with Research,At the request we initiated of the Senior reviews Vice of the note: • regardThe resident to duties manager and responsibilities contract for one when compared to the other three determine: (1) if the campgrounds resident manager contracts. were11 TVA-managed being operated campgrounds in accordance to inconsistencies. • Some minor overall program guideline operating controls were functioning a resident manager, the resident • One resident manager contract had aswith intended the program’s. We found intent that and the (2) if the responsibilities. • managerFor the four contracts campgrounds did not withinclude not been updated to reflect revised campgrounds were operating within the public areas for recreation. In addition, some specific responsibilities TVA management generally agreed with program’s intent, which is to provide Manager Manual. has taken or plans to take corrective we found the operating controls identified in the TVA Resident actionsour findings. and recommendations and were functioning as intended and

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Foster Falls Campground Douglas Dam Tailwater Campground 29 o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Summary of Representative Audits

Semiannual Report | Rebuilding the Foundation. had adequate information to estimate, Summary of was not material; however, there were Representative some instances where we did not have enough information to estimate the

Audits Jill M. Matthews impact. Generally, the distributors are Our four audit departments issued taking action to correct these issues. Deputy Assistant Inspector General, during this semiannual period. The Audits & Support newly66 reports established to TVA managementdistributor audit > Contract department completed four reviews Compliance Distributor Audits We found distributors were not comply- ing with certain contract requirements. computingof TVA power controls, distributors. security The monitoring IT a new contract compliance audit pro- programAudits group and assessedbackup and TVA’s recovery general gramDuring related this fiscal to the year, revenue the OIG contracts launched not in place with all customers whose Specifically, we noted: (1) contracts controls. This group also performed a - demand was greater than 50 kW; pre-implementation review of controls tors. These reviews began in the In- (2) accounting practices not in compli- for a new asset management system. between TVA and its power distribu ance with Federal Energy Regulatory This work was in addition to tests of - Commission requirements; (3) co- general computer and application torspections Audits group;group tohowever, focus solely in January on these mingling of electric department funds reviews2009, the and OIG related established issues the. The Distribu objec- with those of other city departments; efforts to comply with SOX. To further tive of these reviews is to assess compli- (4) adjustments to customer bills not controls completed in support of TVA’s ance with the key power contract provi- made as required in the contract; and and Operational Audits completed sions including: (1) the proper report- (5) proper documentation not kept to assist TVA in SOX compliance, Financial ing of power sales by customer class to verify compliance with the small manu- for 27 business processes. Financial facilitate proper revenue recognition facturing company credit. The distribu- andtests Operational of financial Auditsreporting also controls applied - tors generally agreed to take actions to agreed-upon procedures this period tion in providing electricity to members address these issues with the exception ofand the billing same by rate TVA; class; (2) andnondiscrimina (3) the use of pricing accreditation. Contract Audits power revenues. also agreed no action was necessary. In of the co-mingling of funds issue. TVA succeededrelated to TVA’s in identifying 2008 green $50 power.5 million - of potential savings opportunities, During this semiannual period, the OIG addition, TVA is reevaluating the thresh primarily related to overstated cost - contracts with their customers. tors. Two reports were issued under old for requiring distributor’s to obtain completed four reviews of TVA distribu Inspections and two were issued by the > Use of Electric Additionally,recovery rates Contract and misclassified Audits completed newly formed Distributor Audits group. Revenues Below are issues noted in one or more sevenlabor categories,compliance for audits TVA ofto contractsnegotiate. We noted the distributors had more of these reviews. than enough cash on hand to fund planned capital expenditures and pro- $6with.7 millionexpenditures. Following totaling are $392 additional million > Classification and detailsand identified for the engagementspotential overbillings completed of Metering established guidelines to determine if a this semiannual period by the four We noted some instances where: distributorvide a cash reserve.has adequate While cash TVA reserves has departments. - erly; (2) similar customers were not not established guidelines to determine (1) customers were not classified prop (cash ratio of 5 to 8 percent), TVA has- not accurately measuring consump- cessive. Two of the four distributors classified the same; (3) meters were tion; (4) customers were not metered reviewedif a distributor’s had cash cash ratios reserves exceeding are ex the t for demand; and (5) customers were minimum guidelines of 5 to 8 percent. v not metered, which resulted in esti- a mates being used for billing purposes. The impact of these issues, where we reservesTVA has agreedare excessive to define. We criteria did not for determining when a distributor’s cash 31 o i Semiannual Report | Rebuilding the Foundation. g identify any issues relating to the use of regarding application access controls, revenues for approved purposes in any system security, system testing, data of the four reviews. determineWe also noted if similar TVA does issues not could have exista conversion, and general controls process to evaluate audit findings to

> Opportunities in other TVA systems. As a result, the included in our audit scope. TVA for TVA Oversight and has taken or is in the process of reportsfindings for identified control insystem this report reviews are. takingmanagement corrective agreed action with to our remediate findings Improvements similar to findings in previous OIG

processTVA management of taking corrective agreed with action our to the identified issues. calculationWe found TVA: of the (1) cash did rationot include for rate > Backup and Recovery remediatefindings and issues has takennoted or in isthese in the audits . reviewcash used purposes; to prepay (2) TVA had power not provided in the Controls Determined Effective what constituted prudent expenditures; > Improvements We assessed the controls in place for definitive guidance for distributors on Needed for Security the backup and recovery of control often meters should be tested by the Monitoring Program distributors;(3) had not adequately (4) had not defined performed how a We evaluated the effectiveness of Operations business unit. We found joint cost study in more than 20 years; agency-wide controls and processes in Riversystem Operations configurations has effective for the River controls place to monitor, identify, classify, and and processes in place related to the demand meter is required for certain respond to cyber security events. We backup and recovery of control system commercial(5) had not defined rate class at customers;what point aand (6) had not provided guidance on what strategy; (2) was not adequately found TVA: (1) lacked a comprehensive configurations. types of appurtenances were allowed monitoring its IT assets for cyber > FY 2009 IT SOX or at what point in time the use must security events; (3) did not always Testing Identified follow its incident response policies and Opportunities for procedures; and (4) was not effectively Improvement issuesbe predominately except for the residential. issue related TVA to using existing resources capable of During this semiannual period, we appurtenancesagreed to take action. on all identified increasing IT security monitoring levels and coverage. IT general control domains and eleven completed (1) control testing for five - applications, and (2) year-end, remedia- ing toward an agency-level IT security tion and nonoccurrence testing for four monitoringDuring this audit,framework TVA began and initiated work IT general controls and four application several projects to improve monitoring, controls. Overall, we noted opportuni- - ties to improve the operating effective- Phyllis R. Bryan ness of controls and SOX documenta- identification, and classification of se Director, IT Audits & Support thecurity process events. of takingTVA management corrective action agreed with our findings and has taken or is in processtion. TVA of management taking corrective agreed action with to remediateour findings issues and hasnoted taken in these or is inaudits the . to remediate the identified issues. IT Audits > Pre-implementation Review Concluded > Improvements Controls Were Needed in General Adequate Computing Controls We performed a pre-implementation We reviewed general computer controls review of the initial phase of the t enterprise asset management system. v found security weaknesses existed in We determined plans and processes in related to a TVA control system. We a each of the areas we reviewed—logical place were adequate after actions were security, physical and environmental completed to address our concerns 32 security, and general security controls. o i g Semiannual Report | Rebuilding the Foundation. > SOX Testing > TVA’s Compliance Identifies Needed with the Green Improvements Pricing Accreditation We completed testing of 106 control Program

Lisa H. Hammer produces or acquires electric power Director, Fianacial and activities within 27 TVA key business TVA’s Green Power Switch Program Operational Audits Compliance and Regulatory Controls generated from renewable resources Groupprocesses as requiring designated testing by TVA’s for SOX Financial such as solar, wind, and methane gas, compliance. We found that of the 106 controls tested, 83 were operating mix. Both solar and wind power are Financial and effectively, ten were not operating and adds such sources to TVA’s power Operational Audits qualify for accreditation by the Center During this semiannual period, we documentation to demonstrate the forproduced Resource in sufficient Solutions quantities (CRS). We to - as intended, four lacked sufficient completed agreed-upon procedures ing controls for twenty-seven business not designed effectively, and four completed testing of financial report controlscontrol operated operated effectively, differently five than were compliance with the annual reporting to comply with SOX. In addition, we what was described in the process to assist the CRS in determining TVA’s processes to assist with TVA’s initiative performed agreed-upon procedures documentation. In addition, OIG Accreditation Program, Green-e Energy - forrequirements utility pricing of CRS’ programs, Green Pricingfor the ing accreditation. Highlights of these documentation could be improved. year ended December 31, 2008. These related to TVA’s 2008 green power pric projects follow. identified 39 instances where process procedures included steps to verify that the renewable energy supply

met the Green-e criteria and stated productwas sufficient content, to meetand marketing sales, products and product information was accurate and communicated to customers. The

onresults electricity of the proceduresgenerated or verified acquired that fromTVA’s eligible Green Power renewable sales sources were based and otherwise met the above aspects. CRS was provided with the results of our work.

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33 o i Semiannual Report | Rebuilding the Foundation. g - The contract provided for all work, with the exception of a baseline project at Allen Fossil • of-wayWe audited clearing $9.98 and million land restorationin costs Plant, to be performed on a cost servicesbilled to forTVA transmission by a contractor line for projects right-. reimbursable basis. However, In summary, we found the contractor David P. Wheeler we found the contractor had Director, Contract Audits on four additional fossil plant rentaloverbilled costs, TVA and $34,678, (2) $5,753 including due projectsoverbilled that TVA had at beenleast performed$2,025,739 to(1) miscellaneous $28,925 in unallowable invoice errors . Additionally, we could not determine Contract Audits prices instead of using the cost if price changes had been accurately reimbursablebecause it had terms billed required fixed accounted for under the contract > Preaward Contract by the contract. The actual Reviews overbilling may be higher because related to price changes were unclear. - our calculation of the overbilling because the contract’s provisions ating procurement actions, we complet- used a maximum fee rate the decided to recover $6,380 of the To support TVA management in negoti ed ten preaward audits of cost propos- contractor would have been overbilledTVA management costs and subsequently revise the als submitted by companies proposing eligible to receive. contract price change provisions. to provide: (1) major equipment and - The contractor overbilled - structionservices for services; TVA’s power and (3) plants; other techni- services because incorrect billing cal(2) andmaintenance, security services modification,. Our audits and con rates$207,041 had beenfor field used technician. - Although the contractor agreed it had Theidentified savings $50.5 opportunities million of potentialwere primar sav- ilyings related opportunities to overstated for TVA cost to recovery negotiate. managementoverbilled TVA, plans it disagreed to recover with the the TVA transmission right-of-way overbillingamount that and had is been working overbilled. with the TVA rates and misclassified labor categories. contractor to determine the amount to > Contract Compliance Reviews contractor for performing preheat and • We audited the cost billed to TVA by a During this semiannual period, we also be repaid to TVA. post-weld heat treatment services and completed seven compliance audits of found the contractor (1) had billed contracts with expenditures totaling • providingWe audited turbine $57.4 milliongenerator in payments outage TVA had made to the contractor for of using the time and material billing certain tasks at fixed prices instead overbillings of $6.7 million. In addition, found the contractor had overbilled or rates provided for by the contract, and we$392 provided million (1)and assistance identified onpotential various services at TVA nuclear plants and (2) overbilled or could not provide contractor-related investigations, and an estimated $281,023, including: support for $1,350 that had been (2) advice to management regarding (1)not $171,150provided servicesfor labor to and TVA per totaling diem billed as time and material. various planned contracts. Highlights costs that were either unsupported or Although the contractor was of our completed compliance audits subsequently able to document that follow. engineeringunallowable; services (2) $6,729 that for had overbilled not been fixed price labor; and (3) $103,144 for not overstate its actual costs, we provided as required by the contract. the fixed prices billed to TVA did t • design,We audited engineering, $23.2 million and delivery of costs ensure: (1) the contract explicitly billed to TVA by a contractor for the statesrecommended how procurement TVA management agents will v whatTVA management actions to take is .reviewing the determine whether to use time and a audit findings in detail to determine beenof air overbilledpreheater atequipment least $2,232,780 for TVA as follows:fossil plants. Our audit found TVA had task assignments, and (2) procurement 34 materials pricing or fixed prices for o i g Semiannual Report | Rebuilding the Foundation. agents retain documentation of how (3) recover all unspent funds and institute procedures for ensuring the price for any work performed the timely collections of all future TVA assessed the reasonableness of reviewing our recommendations to at the fixed price. Additionally, we determineoverpayments. what TVA actions management to take. is managementrecommended is TVA planning recover to recoverthe $1,350 the $1,350of overbilled/unsupported overbilled and is reviewing cost. TVA our recommendations regarding the use of • We audited the costs billed to TVA by a contractor for providing fixed-price tasks. plants(1) modification (operating and unit supplemental work), and (2)maintenance construction services services at TVA for thenuclear • relatedWe audited to the $3.5 restart million of BFN in costs Unit 1. restart of BFN U1. The scope of our billed to TVA by a contractor for work review included $272.2 million of overbilled $1,075,020 including: noncraft costs billed by the contractor In summary, we found TVA had been through December 31, 2007, including ineligible labor and per diem costs; (2)(1) $621,428$174,912 of unsupported and supplemental maintenance services, ineligible equipment costs; and(1) $89.6 (2) $182 million.6 million for modification for the BFN and U1 services.

overstated(3) $199,180 task of costsunsupported. Although the contractormaterial costs; only and agreed (4) $79,500it could not of overpaid the contractor (1) from In summary, we found TVA had provide support for $224,836 of the performance fees due to an overstated $876,519 to $1,579,575 for BFN U1 management is planning to recover items questioned by the audit, TVA (2) $268,538 due to ineligible and fee base and inflated fee rates; by the audit. unsupported billings for labor costs; the total overbilled amount identified (3) $54,633 due to overbillings for temporary living and relocation costs; and (4) $6,650 due to miscellaneous • providingWe audited research $25 million and developmentof costs billed to TVA by a contractor for invoice payments in advance of whatoverbilled amounts costs. to TVArecover management from the is theactivities work beingand found: performed, (1) TVA thus made contractorreviewing .our findings to determine losing an estimated $1,125,000 in foregone interest over the period; (2) project status reports submitted

by the contractor were incomplete

delinquent in recovering $84,371 in overfundedand inaccurate; project and amounts(3) TVA was.

(1) discontinue the use of advanced paymentsWe recommended unless the TVA contractor management t is required to pay interest on the v advanced amounts; (2) require the a report for all projects worked; and 35 contractor to provide a final status o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Summary of Representative Investigations

Semiannual Report | Rebuilding the Foundation. > Indictment of Summary of Former TVA Nuclear Representative Assurance Program Manager, WBN Investigations Paul B. Houston A former Program Manager at the

During the semiannual period, we Special Agent Watts Bar Nuclear Plant was indicted in Charge, in Circuit Court in Tennessee on completed 223 investigations of Investigations criminal and administrative matters. one count of Forgery and one count These investigations covered a wide Passing Forged Instruments. Our range of topics including environmental ACTIONS IN investigation determined that during a CRIMINAL move of personal household belongings computer security issues, and contract crimes, falsification of invoices, INVESTIGATIONS employment, the manager submitted – CONVICTIONS required by the manager’s TVA criminal investigations resulted in threefraud indictmentsto name a few. with Specifically, one involving the > Heraeus Metal a forged and falsified invoice to a environmental crimes, one involving Processing, Inc. aTVA $600 contractor invoice claiming for property that damage.a theft of government property, and Heraeus Corporation, a company constructionSpecifically, the company manager had submitted repaired located in Wartburg, Tennessee, the damage. A management review reclaims silver and other precious another involving forged and falsified of the invoice determined some of the three convictions were obtained during metals through the use of furnaces invoices by a TVA manager. In addition, personal information on the invoice this period. Two of the convictions in a high temperature reclamation related to environmental crimes and process. The resultant airborne one involved theft of government The other employee had no knowledge ofbelonged the invoice to another nor did TVA he consent employee. to the which uses wet scrubbers. In our use of his name. During an interview administrative investigations resulted lastemissions Semiannual are filtered Report through we recounted a process property by a TVA employee. Our with the OIG, the manager admitted that Heraeus Corporation pled guilty improvements and corrective actions falsifying and forging the invoice in in savings to TVA, numerous process an attempt to collect $600. The OIG Information, charging the company suspension and termination. In withon January making 21, false 2009, statements to a one-count in and addition,taken by TVAwe continued management our includingdata omitting information from a document issued a report to TVA Management mining efforts to identify potential proposed termination, the manager required to be maintained pursuant in May 2009. After receiving notice of to the Clean Air Act. The Corporation areas for investigation. One Workers’ resigned his TVA employment. through data mining resulted in a to 18 months of probation. On April Compensation investigation identified was fined $350,000 and sentenced These investigations demonstrated that manager for Heraeus Metal Processing, savings to TVA of almost $500,000. the OIG continues to have a positive Inc15, .,2009, pled guiltyBrent toAnderson, a one-count the plantcriminal Information, charging him with making false statements in and omitting impact on TVA and the Valley. information from a document required to be maintained pursuant to the Clean Air Act. Anderson was sentenced to one year probation and 50 hours of community service. This case was initiated by the Environmental Crimes t Watts Bar Nuclear Plant v Tennessee, based on allegations that Joint Task Force, Eastern District of a

operating logs had been falsified. 37 o i Semiannual Report | Rebuilding the Foundation. g > Workers’ > Sinking of the Joe Compensation Swank Tugboat Benefits Terminated: Investigated Saves TVA $472,007 An Empowerline caller reported on Nancy J. Holloway We completed an investigation of

Special Agent the sinking of the Joe Swank tugboat in Charge, Investigations a former TVA employee who was awarein TVA’s that Muscle the tug Shoals was harbor.listing; several The receiving workers’ compensation hourscaller saidlater, a the TVA supervisor supervisor instructed was made receivingbenefits. Thepartial former compensation painter suffered laborers to pump the vessel out with OTHER paymentsa back injury since in 1984that time and. had At the been time an electric pump that was allowed to INVESTIGATIONS of the injury, he was making $501.60 run overnight. By the following day, a week. A painter currently working the vessel had sunk, allegedly dumping > Data Mining 2,500 gallons of diesel fuel. The caller ($766.83 weekly). Our investigation claimed that the environmental event determinedfor TVA makes that $39,875 the former annually painter should have been prevented. Our The TVA OIG continuously monitors investigation determined, however, data related to workers’ compensation spends more than $68 million annually that only 25 gallons of diesel fuel recipients and payments since TVA in this area. Data reviews focus on healthcurrently corporation earns about and $79,000 has been annually in that were discharged, and that the partial identifying enrollees who are positionas a financial since officer 2005. at Although a regional he had sinking was the result of a number of (1) receiving wages and salaries from properly reported his earnings to the malfunctions in pumps despite the other sources, indicating their ability Department of Labor, he continued to to work; (2) currently incarcerated and Alabama Department of Environmental receiving payments; or (3) over the age Managementbest efforts of and TVA the personnel. United States The of 80 and may possibly be deceased determinedreceive workers’ that sincecompensation he is vocationally benefits but still receiving payments. Recent rehabilitatedfrom TVA of about and his $21,000 wage-earning annually. We response to the event. reviews resulted in the investigation capacity is greater than the current Coast Guard were pleased with TVA’s pay of the job he held when injured, he is no longer eligible for compensation of five enrollees who were identified as receiving significant annual compensation payments. Three the Department of Labor reviewed ofearnings these individuals while receiving received workers’ over benefit payments. At the OIG’s request, $70,000 each in wages from other determined he is no longer eligible to sources. Similar investigations in the former painter’s earnings and the past resulted in enrollees being isreceive $472,007, workers’ based compensation on an estimated benefits. life expectancyAs a result, theof 22 projected years. savings to TVA permanently removed from the Office thousandsof Workers’ of Compensation dollars. Cases Program may also berolls, criminally thus saving prosecuted TVA hundreds if fraudulent of documents are submitted in order

payments. to obtain workers’ compensation

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38 o i g Semiannual Report | Rebuilding the Foundation. > Computer Security > Suspicious > energy right® Issue with Safety Appearance of Items Program Implications from BFN on eBay Addressed at BFN Investigated At the request of plant management, we We conducted an investigation based investigated a computer security and related safety issue at BFN. The facts who were searching for obsolete parts demonstrated that a foreman logged- on eBaya report located that TVAseveral nuclear items colleagues which The OIG received a report that an in to a maintenance software program employee of TN Electric Utility had energy right® Program partappeared purchased to have for come BFN fromUnit 1TVA.. Another withoutusing a second his permission foreman’s or computer knowledge Stickers on one item identified it as a defraudedlocal utilities TVA’s to distribute to customers andidentification “signed-off” number on a security and password hold who(ERP). convert TVA ERP from provides gas water funding heaters to Surplus,item had L a.L sticker.C., Decatur, which Alabama, identified it to electric water heaters, etc. The wells) that had been placed by the aas corporation a TVA part. which The seller buys was and L&W sells employee served as an approving second(which preventsforeman. the BFN flow management of water into industrial surplus equipment, materials, requested the OIG examine the matter and supplies. L&W Surplus has a The complaint alleged in pertinent partofficial that for the the employee distribution completed of ERP funds.ERP and passwords were readily available to since 2007, has purchased more than forms and subsequently obtained funds aand number noted ofthat users identification and in this numbers instance $200,000contractual in relationship surplus equipment with TVA from and, which were then distributed to friends were used in such a way as to present and family members though they did a potential safety hazard to others Ferry, Bellefonte, and Widows Creek. not upgrade or replace their water working in the affected area. Plant TheTVA OIGsites, investigation including Hartsville, determined Browns that heaters. The investigation also revealed management also expressed concern items sold at the plant level and on eBay over disparate explanations of the had not been adequately inventoried fraud committed by the employee events leading to the discovery of the or itemized prior to sale. A Report of againstinformation the city bearing including on non-TVA using city related problem. The OIG investigated the Administrative Inquiry was published funds to purchase gift cards that were allegation and published a detailed to BFN, and management responded supposed to be used in charity auctions report to BFN management which positively to the recommended but were instead used for personal gain. remedial actions. Criminal prosecution was declined due number and password use in the to the comparatively low dollar loss. affectedincluded area the .history The report of identification was also made available to the NRC. Plant to resign, and the city garnished the management responded positively to wagesHowever, of this the employeecity official. Awas report forced to the recommendations in the report. recommendation approved. TVA management was provided and a

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39 o i Semiannual Report | Rebuilding the Foundation. g > Inaccurate > Shawnee Noose Case > Shawnee Noose Case Reporting in Freeze (1 of 2) (2 of 2) Protection Program During the investigation of a separate Investigated at BFN Services Supervisor took photographs noose-related complaint (outlined At the request of plant management, ofOn scaffolding February 15, constructed 2009, a Fossil at the Field Unit previously) another unrelated 1 H.P. turbine at the Shawnee Fossil noose incident was uncovered. An problematic in the Freeze Protection Plant during an outage. When the investigation determined that a Programwe investigated at BFN .issues As documented identified as in supervisor reviewed the photographs Shawnee Unit Operator had tied a a Problem Evaluation Report, two later on his computer he noticed a noose tied to the back of the scaffolding. the control room sometime during Februaryhangman’s 2008 noose (exact during date his unknown) shift in . missingheaters identifiedin 2003 were in the documented Condensate A co-worker informed the Operator Pipe Tunnel, previously identified as andThe employeesrope was cut were down interviewed and TVA Police and deniedwas notified. knowledge Several concerning TVA contractors who downs”by TVA technicians from 2001 toas 2008being. inThese place immediatelythat he could apologized get fired for and making untied heatersduring BFN’s are “non-nuclear winter readiness.” They “walk- are thea hangman’s noose. An noose. African The American Operator Unit not direct pieces of nuclear operation tied and placed the hangman’s noose. Operator witnessed the incident. equipment, but are used as preventive nooseThree individualsand who had were allegedly identified made who The matter was referred to the United care equipment for the prevention of racistmight commentsbe capable inof thetying past a hangman’s. However, frost and cold damage to other capital there were no witnesses to the event Rights Division after consultation assets within the tunnel (pipes, etc). An and no evidence to clearly connect any States Department of Justice, Civil NRC report in 2008 noted two missing individual to the tying of the noose. heaters. The OIG investigated the with the local United States Attorney’s inaccurate reporting and documented Recommendations were provided Office. On September 21, 2009, the the history and likely causal factors to fossil management concerning declinedU.S. Attorney’s criminal office, prosecution based on. the in a Report of Administrative Inquiry sensitivity awareness training advice of the Department of Justice, published to BFN management. Plant in smaller group settings. The managers responded positively to the recommended training included recommendations made in the report. procedures to follow in the event a

future. Fossil management responded tohangman’s the OIG recommendations noose is discovered by in the implementing smaller setting sensitivity awareness training for all Shawnee employees, contractors, and all Power Service Shop employees.

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40 o i g Semiannual Report | Rebuilding the Foundation. > Kingston Fossil > TVA Contractor > Computer Misuse Plant Administrative Investigated Investigation Results Employee Changed for Fraudulent in 30-day Suspension Husband’s Leave to Temporary Living An investigation was predicated on a Paid Time Worked Expense Submissions referral alleging that a unit operator at it appeared a Kingston Fossil Plant Nuclear Plant received temporary TVA Enterprise IT Security Division AdministrativeTVA Management employee informed was us changing that livingA TVA allowancescontractor attotaling the Watts more Bar than pornographic Web sites during his $17,000 by submitting two different assigneda TVA fossil shift plant. Proxy had logsbeen obtained accessing by system to paid time. Each time he enteredher husband’s leave into leave the in system the payroll and after that purpose. The contractor had a references tending to substantiate the it was subsequently approved by his temporary“permanent address addresses” in Chattanooga, to TVA for allegationTVA Enterprise. A more IT Security thorough contained forensic supervisor, she entered the system Tennessee, and a permanent address computer investigation followed leading and changed the leave to straight time, in Alabama. He also owned a home to an interview of the subject, during allowing her husband to be paid as if he in Atlanta. The contractor submitted which he confessed to downloading were at work, when he was actually on two different permanent addresses to extremely graphic pornography from the Kingston Fossil Plant Administrative living allowance. Neither address was leave. Our investigation verified that hisTVA permanent in order to address qualify .for The a temporary contract the Internet onto TVA computers for leave on two instances. However, the employee died prior to being indicted. theOIG pastissued five a years.report to management Kingstonemployee Fossil cancelled Plant her Administrative husband’s employee had announced her investigation both from a personnel detailing the findings of the to the completion of our investigation. management suspended the employee retirement from TVA and retired prior and technical standpoint. TVA

The husband’s leave was corrected. for 30 days. TVA IS assessed the tofindings better and address is in suchthe process misuse of. implementing Valley-wide processes

> TVA Manager with Procurement Authority Found Self-Dealing due in 2007 or 2008, despite repeated plant personnel after purchase requests are submitted by plant staff. An investigation followed confidential procurereporting wheat alleging straw that from a TVA a side manager busi- notifications. In 2008, the manager was The manager was listed as the approval used his management position at TVA to instructed to disclose his finances for authority on nine occasions from 2004 manager had procurement authority for JanuaryOur investigation 1 through determined December 31, that 2007. the through 2007 for Widows Creek Fossil anythingness for personal related to financial fossil outage gain. workThe former manager is part owner of a Plant wheat straw purchase requests which included the purchase of wheat wheat straw business, along with an- that were ultimately purchased from straw. Although the individual became the pertinent vendor. a manager in 2003, he was not required other TVA employee, which sells straw t moreto several than customers $38,000 in including straw from a TVA formally recommended a number of v vendor. The TVA fossil plant purchased remedialBased on actionsinvestigative designed findings, to identify the OIG 2007by TVA’s. The General manager Counsel’s did not office provide to the vendor from 2002 through 2008. a provide a financial disclosure until Wheat straw is ordered by the fossil and scrutinize both employees and contracts at risk for self-dealing. 41 the required financial disclosure form o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Legislation and Regulations

Semiannual Report | Rebuilding the Foundation. Legislation and Regulations amended, the OIG follows and reviews existing and proposed legislationIn fulfilling and its responsibilities regulations that under relate the to theIG Act mandate, of 1978, as the General Counsel reviews proposed or enacted legislation operations and programs of TVA. Although TVA’s Office of and reviews proposed legislation that affects the OIG and/or that could affect TVA activities, the OIG independently follows relates to economy and efficiency or waste, fraud, and abuse of TVA programs or operations. during the past six months include: Major pieces of legislation being followed by the TVA OIG

> H.R. 2454 – American Clean Energy and Security Act of 2009 This comprehensive piece of legislation are the source of the overwhelming standards for lighting products, proportion of greenhouse gas from commercialbill sets new furnaces, set new energy-efficiency and appliances. electric power producers, would have legislationsignificantly covers impacts many large items, producers a few of The bill also requires federal agencies to to capture 65 percent of their carbon whichof electric are aspower, follows including. The bill TVA. amends The get 20 percent of their electricity from emissions for plants built after 2020. the Public Utility Regulatory Policies renewable sources by 2020 and allows The bill also encourages deployment of Act to establish a combined national the federal government to enter into long-term power purchase agreements and to reduce utility peak loads. It resource standard, mandating those for renewable energy. The bill also directsa smart the grid establishment to increase grid of aefficiency federal suppliersrenewable of energy electricity and energymarketing efficiency contains provisions directed toward the policy on electric grid planning, more than 4 million megawatt-hours control of greenhouse gas emissions. including facilitating transmission to annually to obtain 20 percent of their carry renewably-generated electricity, supply from renewable energy credits plants must reduce their emissions by and it provides for the Federal Energy atFor least example, 65 percent new coal-fired if they receive power air Regulatory Commission to have savings by 2021 (starting at 6 percent permits after 2020. Plants permitted jurisdiction of interstate transmission inand 2012 demonstrated and increasing energy the efficiency annual projects in the Western Interconnection. renewable combined renewable target emissions by at least 50 percent within The bill also establishes a cap-and-trade until it reaches 20 percent by 2021). No fourbetween years 2009 after and a threshold 2015 have amount to cut of program to limit total emissions of more than one-quarter of this amount carbon capture and storage equipped carbon dioxide and other heat-trapping capacity is operating. Coal plants, which pollutants from major sources. may be met by efficiency savings. The

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43 o i Semiannual Report | Rebuilding the Foundation. g > S. 1462 – American Clean Energy and Leadership Act of 2009 Similar to the legislation in the other 2021). No more than 26.67 percent of chamber, this is a comprehensive this amount can be met with energy energy bill. The legislation covers electricone on the generation efficiencies facilities and the. The annual bill many items a few of which are pointed mandate effectively about 10 percent by alsoCO₂ andprovides other for emissions the Federal output Energy from out herein. This bill also establishes 2021efficiency,. However, making unlike the renewable the House energy bill, Regulatory Commission to have a combined national renewable the Senate bill contains no provisions jurisdiction over high-priority electric for the control of greenhouse gas, i.e., transmission facilities when states standard, requiring those suppliers have been unable to resolve the matter ofenergy electricity and energy marketing efficiency more resourcethan 4 that the use of nuclear energy should and the bill also contains a number of million megawatt-hours annually to becap expanded and trade. and The creates Senate a billNational affirms provisions in regard to improving the obtain 15 percent of their supply from Commission on Nuclear Waste to electricity transmission grid. renewable energy credits or energy carry out six studies related to the management and disposal of nuclear 3 percent in 2011 and increasing the waste for both civilian and defense annualefficiency renewable credits by combined 2021 (starting renewable at activities. A number of other studies target until it reaches 15 percent by are also called for by this bill including

> H.R. 1507 – Whistleblower Protection Enhancement Act of 2009

This bill amends federal personnel law have the matter decided by a jury. As relating to whistleblower protections to cases decided by the Merit Systems the IG in accordance with the Privacy for federal employees by expanding Protection Board, the whistleblower Actto the. And complete the investigation investigation of thefile IGof the concept of protected disclosure shall be deemed closed for purposes to include lawful disclosures without bill provides for a choice of appellate restriction to time, place, form, motive, forumscan file another appeal than within the Federal 90 days. The an appeal to an agency head or a court context, forum, or prior disclosures, Circuit Court of Appeals. Prevailing of disclosure when an employee files including a disclosure in the ordinary whistleblowers can be awarded back also be required to issue annual reports pay and compensatory damages. of competent jurisdiction. IG’s would also expands the protections to cover enacted statute. course of an employee’s duties. It of their agencies’ compliance with the if a federal employee or contractor applicable to whistleblower disclosures. The bill defines evidentiary standards employeecontractor experiences employees. retaliationSignificantly, The bill requires an agency IG to either and the administrative process fails make a determination that a complaint to provide relief within 180 days the alleging reprisal is either frivolous or submit a report within 180 days after case with a federal district court and receiving the complaint. The person bill would allow the employee to file a alleging the reprisal shall have access

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44 o i g Semiannual Report | Rebuilding the Foundation. > S. 372 – Whistleblower Protection Act of 2009 This proposed legislation also expands lowers the agencies burden of proof workability), and includes a provision from “clear and convincing evidence” whereby a federal employee may ask “protected disclosure,” and unlike the to the “preponderance of the evidence” the MSPB to certify their case for federal Housethe definition bill it creates as to what a Whistleblower constitutes a caps compensatory damages, and court prior to the full MSPB hearing. creates a sixty-day statute of limitations The review before the court is not de advocate for federal whistleblowers. TheOmbudsman bill is also in different every IG from office the to provides a different methodology is examined by the appellate court using proposal in the House in a number of offor protection filing claim to of those retaliation. employed It also by thenovo standard and MSPB’s of “arbitrary, denial of capriciouscertification national security agencies through or an abuse of discretion.” It limits jury protected disclosures violations of law the establishment of an adjudicatory whichsignificant are minor aspects. or inadvertent,It exempts from negates system within the defendant agency. provision for that provision granting a claim of reprisal when a supervisor The proposed legislation provides the employeestrials, and contains the right a of five-year appeal tosunset the shows that the personnel action in Merit System Protection Board with a federal circuit court of appeals where question would have been taken in summary judgment procedure (with they reside. the absence of any protected activity,

a five-year sunset provision to test its

> H.R. 493 – Coal Ash Reclamation, Environment, and Safety Act of 2009

This bill orders the Secretary of the poses to groundwater, human health, Interior to prescribe federal design, and the environment. It also requires engineering, and performance standards monitoring and inspection regimes on new coal ash impoundments; and for both existing and future coal ash orders an inventory of existing coal impoundments. ash impoundments and the risks each

> S. 942 – The Government Charge Abuse Card Abuse Prevention Act of 2009

This proposed legislation requires agency IG to conduct periodic card or convenience check programs assessments of their agencies’ purchase- mendations to agency heads and the and to report their findings and recom t v Office of Management and Budget. a

45 o i Semiannual Report | Rebuilding the Foundation. g Rebuilding the Foundation. Appendices

Semiannual Report | Rebuilding the Foundation. Appendix 1

Index On Reporting Requirements Under The IG Act REPORTING REQUIREMENT PAGE

Section 4(a)(2) Review of Legislation and Regulations 42-45

Section 5(a)(1) Significant Problems, Abuses, and Deficiencies 24-41

Section 5(a)(2) Recommendations With Respect to Significant Problems, Abuses, 24-41 and Deficiencies Section 5(a)(3) Recommendations Described in Previous Semiannual Reports in Appendix 4 Which Corrective Action Has Not Been Completed Section 5(a)(4) Matters Referred to Prosecutive Authorities and the Prosecutions Appendix 5 and Convictions 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 2

Section 5(a)(7) Summary of Particularly Significant Reports 24-41

Section 5(a)(8) Status of Management Decisions for Audit and Inspection Reports Appendix 3 Containing Questioned Costs Section 5(a)(9) Status of Management Decisions for Audit and Inspection Reports Appendix 3 Containing Recommendations That Funds Be Put to Better Use Section 5(a)(10) Summary of Audit and Inspection Reports Issued Prior to the Beginning of None the Reporting Period for Which No Management Decision Has Been Made Section 5(a)(11) Significant Revised Management Decisions None

Section 5(a)(12) Significant Management Decisions With Which the Inspector General Disagreed None

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

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47 o i Semiannual Report | Rebuilding the Foundation. g Appendix 2

OIG AUDIT REPORTS ISSUED DURING THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2009 Report Number and Questioned Unsupported Funds to be Put Date Title Costs Costs to Better Use CONTRACT AUDITS 2008-12159 Preaward Review - Proposal for Steam Generator Replacement $ 0 $ 0 $3,498,100 04/30/2009 at Sequoyah Nuclear Plant

2009-12496 Preaward Review - Proposed Billing Rates for Security Services 0 0 889,000 05/20/2009

2008-11721 ALSTOM Power Inc., Air Preheater Company – Air Preheater 2,232,780 2,025,739 0 05/28/2009 Equipment for TVA Fossil Plants

2008-11506 Siemens Westinghouse Power Corporation – Turbine Generator 281,023 274,294 0 06/10/2009 Outage and Other Support Services

2009-12359 Preaward Review – Proposal to Provide Combustion Turbine Generators 0 0 0 06/17/2009 2009-12473 Preaward Review – Proposal for Nuclear Steam Supply Side Alliance 0 0 0 06/26/2009 Agreement 2009-12582 Preaward Review – Proposal to Provide Modification, Outage, 0 0 9,900,000 07/14/2009 and Supplemental Maintenance Services 2008-11828 Page Clearing, Inc. – Right-of-Way Clearing Services 34,678 5,753 0 07/16/2009 2009-12587 Preaward Review – Proposal to Provide Modification, Outage, 0 0 14,300,000 08/13/2009 and Supplemental Maintenance Services 2007-001C-02 Analytic Stress Relieving, Inc. – Technician Services 1,350 1,350 0 08/14/2009 2007-001C-01 Shaw Group, Inc. – Subcontracted Technician Services 1,075,020 580,346 0 09/01/2009 2009-12584 Preaward Review – Proposal to Provide Modification, Outage, 0 0 14,819,000 09/01/2009 and Supplemental Services 2009-12726 Preaward Review – Proposal to Provide Maintenance and 0 0 495,029 09/03/2009 Modification Services at Watts Bar Nuclear Plant, Unit 2 2009-12756 Preaward Review – Proposal for Watts Bar Nuclear Plant Unit 2 0 0 330,000 09/03/2009 Maintenance and Modification Project 2009-12380 Preaward Review – Proposal for Nuclear Steam Supply Side 0 0 6,339,000 09/14/2009 Alliance Agreement 2008-11999 Electric Power Research Institute – Research and Development 1,209,371 84,371 0 09/23/2009 Services 2008-11510 Stone & Webster Construction, Inc. – Nuclear Modification and 1,909,396 0 0 09/25/2009 Construction Services DISTRIBUTOR AUDITS t 2008-12036 City of Oxford Electric Department $ 0 $ 0 $ 0 08/31/2009 v 2008-12039 Hickman-Fulton Counties Rural Electric Cooperative Corporation 0 0 0 a 09/29/2009

48 o i g Semiannual Report | Rebuilding the Foundation. FINANCIAL AND OPERATIONAL AUDITS 2009-12432 Maintain Fossil Fuel Master File – Sarbanes-Oxley 404 Testing $ 0 $ 0 $ 0 05/04/2009 2009-12440 Pensions, Employee Benefits & OPEBs Process – Sarbanes-Oxley 404 0 0 0 05/06/2009 Testing 2009-12430 Depreciating Fixed Assets – Sarbanes-Oxley 404 Testing 0 0 0 05/07/2009 2009-12445 Asset Retirement Fund Administration – Sarbanes-Oxley 404 Testing 0 0 0 05/12/2009 2009-12444 Alternative Procurement Methods-Miscellaneous Vouchers – Sarbanes- 0 0 0 05/20/2009 Oxley 404 Testing 2009-12442 Alternative Procurement Methods-Purchasing Card – Sarbanes-Oxley 0 0 0 05/21/2009 404 Testing 2009-12424 Energy Trading – Sarbanes-Oxley 404 Testing 0 0 0 05/22/2009 2009-12437 Perform Transaction Processing (Feeder Files) – Sarbanes-Oxley 404 0 0 0 05/22/2009 Testing 2009-12590 2008 Green Power Accreditation 0 0 0 06/01/2009 2009-12436 Receiving Fossil Fuel Inventory – Sarbanes-Oxley 404 Testing 0 0 0 06/04/2009 2009-12449 Disbursing Payroll – Sarbanes-Oxley 404 Testing 0 0 0 06/08/2009 2009-12434 Fossil Fuel Burn – Sarbanes-Oxley 404 Testing 0 0 0 06/16/2009 2009-12447 End-Use Billing – Sarbanes-Oxley 404 Testing 0 0 0 06/17/2009 2009-12448 Pay Employees – Sarbanes-Oxley 404 Testing 0 0 0 06/17/2009 2009-12435 Costing Fossil Fuel Inventory – Sarbanes-Oxley 404 Testing 0 0 0 06/18/2009 2009-12422 Account Set-up and Monitoring – Sarbanes-Oxley 404 Testing 0 0 0 06/19/2009 2009-12438 Perform Transaction Processing (Including JEs) – Sarbanes-Oxley 0 0 0 06/19/2009 404 Testing 2009-12441 Processing Accounts Payable – Sarbanes-Oxley 404 Testing 0 0 0 06/19/2009 2009-12431 06/23/2009 Lease Transactions – Sarbanes-Oxley 404 Testing 0 0 0 2009-12443 Alternative Procurement Methods-Gold Cards – Sarbanes-Oxley 06/23/2009 404 Testing 0 0 0 2009-12429 Acquire/Develop/Dispose of Fixed Assets – Sarbanes-Oxley 06/25/2009 404 Testing 0 0 0 2009-12450 06/26/2009 Maintaining Payroll Master Files – Sarbanes-Oxley 404 Testing 0 0 0 2009-12451 06/26/2009 Recording Time – Sarbanes-Oxley 404 Testing 0 0 0 2009-12433 06/30/2009 Manage Fossil Fuel Inventory – Sarbanes-Oxley 404 Testing 0 0 0 t 2009-12425 v 07/02/2009 Gas: Physical – Sarbanes-Oxley 404 Testing 0 0 0 a

49 o i Semiannual Report | Rebuilding the Foundation. g Appendix 2 (Continued)

2009-12446 07/02/2009 Manage Contracting – Sarbanes-Oxley 404 Testing 0 0 0 2009-12428 07/07/2009 Approval Capital and Expense Projects – Sarbanes-Oxley 404 Testing 0 0 0 2009-12423 Alternative Procurement Methods-Convenience Checks – 07/27/2009 Sarbanes-Oxley 404 Testing 0 0 0 INFORMATION TECHNOLOGY AUDITS 2009-12470 Manage Changes/Install and Accredit Solutions and Changes – 05/29/2009 Sarbanes-Oxley 404 Testing $ 0 $ 0 $ 0 2009-12471 05/29/2009 Manage Operations – Sarbanes-Oxley 404 Testing 0 0 0 2008-12046 06/04/2009 Effectiveness of Security Monitoring 0 0 0 2009-12588 06/15/2009 Fuelworx Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12472 06/17/2009 Passport Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12581 06/17/2009 CWMi Application and Interfaces – Sarbanes-Oxley 404 Testing 0 0 0 2009-12575 06/18/2009 eRemittance Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12580 06/24/2009 WebTrader Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12631-01 eFMS Business Process Automated Controls – Sarbanes-Oxley 06/24/2009 404 Testing 0 0 0 2009-12631-02 eFMS Business Process Automated Controls – Sarbanes-Oxley 06/25/2009 404 Testing 0 0 0 2009-12631-03 eFMS Business Process Automated Controls – Sarbanes-Oxley 06/26/2009 404 Testing 0 0 0 2009-12583 06/29/2009 PowerBilling Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12576 06/30/2009 eCash Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12589 06/30/2009 MV90 Application – Sarbanes-Oxley 404 Testing 0 0 0 2009-12468 07/10/2009 DS5 Ensure Systems Security – Sarbanes-Oxley 404 Testing 0 0 0 2009-12338-01 07/13/2009 DS11 Manage Data – Sarbanes-Oxley 404 Testing 0 0 0 2008-12127 09/24/2009 Control System: General, Physical, and Security Controls Review 0 0 0 2009-12338-03 09/24/2009 Enterprise Backup and Recovery-River Operations 0 0 0 2008-11792 09/29/2009 Pre-implementation Review of Enterprise Asset Management System 0 0 0 t TOTAL v AUDITS (66) $6,743,618 $2,971,853 $50,570,129 a

50 o i g Semiannual Report | Rebuilding the Foundation. OIG INSPECTION REPORTS ISSUED DURING THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2009

Report Number Questioned Unsupported Funds to be Put and Date Title Costs Costs to Better Use 2008-12007 Monroe County Electric Power Administration – Distributor Review $ 0 $ 0 $ 0 05/13/2009 2008-12040 0 0 0 05/13/2009 Lewisburg Electric System – Distributor Review 2008-12003 0 0 0 05/15/2009 Maintain and Gain Transactions Review 2008-12283-01 0 0 0 06/12/2009 Kingston Fossil Plant Ash Slide – Interim Report 2007-11399 0 0 0 06/23/2009 Review of TVA’s Financial Performance Results 2008-12283-02 Kingston Fossil Plant Ash Spill – Root Cause Study and Observations 0 0 0 07/28/2009 about Ash Management 2009-12695-01 0 0 0 09/29/2009 Cherokee Dam Campground Review 2009-12695-02 0 0 0 09/29/2009 Douglas Dam Headwater Campground Review 2009-12695-03 0 0 0 09/29/2009 Douglas Dam Tailwater Campground Review 2009-12695-04 0 0 0 09/29/2009 Foster Falls Campground Review 2009-12695-05 0 0 0 09/29/2009 Melton Hill Dam Campground Review 2009-12695-06 0 0 0 09/29/2009 Barton Springs Campground Review 2009-12695-07 0 0 0 09/29/2009 Loyston Point Campground Review 2009-12695-08 0 0 0 09/29/2009 Pickwick Dam Tailwater Campground Review 2009-12695-09 0 0 0 09/29/2009 Watauga Dam Tailwater Campground Review 2009-12695-10 0 0 0 09/29/2009 Mallard Creek Campground Review 2009-12695-11 0 0 0 09/29/2009 Wilson Dam Lower Rockpile Campground Review 2009-12702 0 0 0 09/30/2009 Coal Contracts Review – Rio Tinto Energy America-Antelope Mine 2009-12703 Coal Contracts Review – Rio Tinto Energy America-Jacobs 0 0 0 09/30/2009 Ranch Mine 2009-12704 Coal Contracts Review – Powder River Coal-North Antelope 0 0 0 09/30/2009 Rochelle Mine 2009-12705 Coal Contracts Review – Thunder Basin Coal Company-Black 0 0 0 09/30/2009 Thunder Mine t TOTAL 0 0 0 INSPECTIONS (21) v a

Note: A summary of or link to the full report may be found on the OIG’s website at http://www.tvaoig.gov. 51 o i Semiannual Report | Rebuilding the Foundation. g Appendix 3

TABLE I: TOTAL QUESTIONED AND UNSUPPORTED COSTS AUDITS Number of Questioned Unsupported Audit Reports Reports Costs Costs A. For which no management decision has been made by the commencement of the period 0 $0 $0 B. Which were issued during the reporting period 7 $6,743,618 $2,971,853 Subtotal (A+B) 71 $6,743,618 $2,971,853

C. For which a management decision was made during the 2 $2,833,678 $2,315,795 reporting period 5 1. Dollar value of disallowed costs 5 $2,798,657 $2,312,148 2. Dollar value of costs not disallowed 2 $35,021 $3,647 D. For which no management decision has been made by the end of the reporting period 4 $3,909,940 $656,058 E. For which no management decision was made within six months of issuance 0 $0 $0

TABLE I: TOTAL QUESTIONED AND UNSUPPORTED COSTS INSPECTIONS Number of Questioned Unsupported Audit Reports Reports Costs Costs A. For which no management decision has been made by the commencement of the period 0 $0 $0 B. Which were issued during the reporting period 0 0 0 Subtotal (A+B) 0 0 0 C. For which a management decision was made during the reporting period 0 0 0 1. Dollar value of disallowed costs 0 0 0 2. Dollar value of costs not disallowed 0 0 0 D. For which no management decision has been made by the end of the reporting period 0 0 0 E. For which no management decision was made within six months of issuance 0 0 0

t v 1 The subtotal of reports (A+B) differs from the sum of C and D when the same report(s) contain recommendations for which a management decision was made a and others for which a management decision was not made by the end of the semiannual period.

52 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. o i g Semiannual Report | Rebuilding the Foundation. TABLE II: FUNDS TO BE PUT TO BETTER USE AUDITS

Audit Reports Number of Reports Funds to be Put to Better Use A. For which no management decision has been made by the commencement of the period 0 $0 B. Which were issued during the reporting period 8 $50,570,129 Subtotal (A+B) 83 $50,570,129

C. For which a management decision was made during the 4 $10,682,129 reporting period 4 1. Dollar value of recommendations agreed to by management 3 $6,593,129 2. Dollar value of recommendations not agreed to by management 3 $5,959,150 D. For which no management decision has been made by the end of the reporting period 5 $39,888,000 E. For which no management decision was made within six months of issuance 0 $0

TABLE II: FUNDS TO BE PUT TO BETTER USE INSPECTIONS

Audit Reports Number of Reports Funds to be Put to Better Use A. For which no management decision has been made by the commencement of the period 0 $0 B. Which were issued during the reporting period 0 0 Subtotal (A+B) 0 0 C. For which a management decision was made during the reporting period 0 0 1. Dollar value of recommendations agreed to by management 0 0 2. Dollar value of recommendations not agreed to by management 0 0 D. For which no management decision has been made by the end of the reporting period 0 0 E. For which no management decision was made within six months of issuance 0 0

t v 3The subtotal of reports (A+B) differs from the sum of C and D when the same report(s) contain recommendations for which a management decision was made and others for which a management decision was not made by the end of the semiannual period. a

4The 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 53 report(s) contain both recommendations agreed to by management and others not agreed to by management. o i Semiannual Report | Rebuilding the Foundation. g Appendix 4

AUDIT AND INSPECTION REPORTS WITH CORRECTIVE ACTIONS PENDING

As of the end of the semiannual period, final corrective actions associated with six audits and five inspections were not completed within one year of the final report date. Presented below for each audit and inspection are the report number and date and a brief description of the open recommendation(s) and the date management expects to complete final action, if available. Audit Report Report Title and Recommendation(s) for Which Final Action is Not Complete Number and Date

2007-11348-01 03/26/2008 IT Security Organizational Effectiveness

TVA management agreed with our recommendations and has completed actions on three of the six recommendations. TVA is in the process of implementing program and organizational improvements. Action plans are scheduled for completion by March 30, 2010. 2007-11216 06/02/2008 Actions to Protect Social Security Numbers and Eliminate Unnecessary Use TVA management has completed final action for one recommendation. According to Information Services, it is on track to meet the action deadlines for the remaining two recommendations (June 2010). 2008-11754 06/13/2008 Computer Operations-Manage Facilities – SOX 404 Testing Management has completed actions to address three of the five recommendations. Corrective action for the remaining two recommendations is on track for completion in September 2010. 2007-11388 08/21/2008 Sequoyah Nuclear Plant – Cyber Security Assessment TVA management from Nuclear Power Group and Information Services provided corrective action plans to address the recommendations and indicated all corrective actions would be completed by October 2010. 2008-11809 08/21/2008 Manage Site Material and Record Inventory Movement – SOX 404 Testing According to TVA management, as of September 30, 2009, TVA had implemented additional inventory controls to address the two outstanding findings and recommendations. TVA is preparing related documentation and testing the associated controls. Final action is expected to be completed by October 15, 2009. 2008-11964 09/25/2008 Federal Information Security Management Act Evaluation Management agreed with our findings and recommendations and plans to complete final action by November 30, 2009.

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54 o i g Semiannual Report | Rebuilding the Foundation. Inspection Report Report Title and Recommendation(s) for Which Final Action is Not Complete Number and Date 2005-518I 08/31/2005 Physical and Environmental Controls for the Chattanooga Data Center Information Services has developed a Unified Communications Strategy and Project Plan that includes replacing the telephone system by the end of 2012. 2005-522I 06/13/2006 TVA’s Role as a Regulator The original findings of the OIG report have been addressed, but full implementation will take time. Recommendations for all of the OIG findings from the report have been developed. The TVA Regulatory Work Group comprised of officers of the company has been established to implement the recommendations. The TVA Board is keenly interested in this topic and has requested additional information on TVA regulatory authority and scope which has been provided. The OIG has provided recommendations on these issues. Recommendations on TVA's role as regulator were provided to the Audit, Governance, and Ethics Committee of the Board in August 2009. TVA will be presenting recommendations to the TVA Board in November 2009. An estimated completion date for final action will be established once the Board has reviewed TVA management recommendations and provided guidance. 2007-11428-08 08/07/2008 Normandy Cedar Point Public Use Area lease Agreement Environmental Stewardship Relations has sent the lessee a letter outlining areas of compliance that must be addressed. If documentation is not submitted for corrective action, required investment and performance bond, Environmental Steward- ship Relations will proceed with terminating the lease and take possession of the TVA properties. 2008-11874 09/12/2008 Contractor’s Accounting for the Watts Bar Nuclear Plant Unit 2 Construction Project The remaining enhancements require programmer development and have not been completed as originally forecasted. The programmer that originally developed the billing program has been contacted and has submitted a proposal to improve the billing process and control points. A request was recently approved by TVA to fund the program enhancement activities identified in the programmer's proposal. The improvements are scheduled to be completed by November 30, 2009. 2007-11443 09/30/2008 Contractor Background Checks Applicable to the Watts Bar Nuclear Plant Unit 2 Construction Project Nuclear Power Group and Human Resources are currently working to determine what changes are necessary to the background checks for Watts Bar Nuclear Plant Unit 2 contractor employees and if any changes are required to TVA Business Practice 29.

Appendix 5

INVESTIGATIVE REFERRALS AND PROSECUTIVE RESULTS1

Referrals Subjects Referred to U.S. Attorneys 45 Subjects Referred to State/Local Authorities 6

Results Subject Indicted 3 Subjects Convicted 3

Referrals Declined 34 t v a

55 o 1These numbers include task force activities and joint investigations with other agencies. i Semiannual Report | Rebuilding the Foundation. g Appendix 6 HIGHLIGHTS - STATISTICS SEPT 30, MAR 31, SEPT 30, MAR 31, SEPT 30, 2009 2009 2008 2008 2007 AUDITS AUDIT STATISTICS Carried Forward 70 28 47 35 36 Started 46 59 53 52 72 Canceled (6) (3) (2) (2) (7) Completed (66) (14) (70) (38) (66) In Progress at End of Reporting Period 44 70 28 47 35 AUDIT RESULTS (Thousands) Questioned Costs $6,744 $1,226 $3,609 $774 $4,635 Disallowed by TVA 2,799 829 1,802 370 3,324 Recovered by TVA 909 644 676 3,339 1,274

Funds to Be Put to Better Use $50,570 $0 $28,653 $100,990 $19 Agreed to by TVA 4,723 0 28,120 53,987 8,529 Realized by TVA 4,395 0 26,460 53,987 948

OTHER AUDIT-RELATED PROJECTS Completed 16 8 7 6 17 Cost Savings Identified/Realized (Thousands) $0 $0 $0 $0 $0

INSPECTIONS Completed 21 4 16 8 16 Cost Savings Identified/Realized (Thousands) $0 $0 $0 $0 $15

INVESTIGATIONS1 INVESTIGATION CASELOAD Opened 194 171 161 155 113 Closed 223 91 135 121 121 In Progress at End of Reporting Period 251 280 200 174 140

INVESTIGATION RESULTS Recoveries $20.6 $10,725.3 $632.6 $25,262 $27 Projected Savings 472.1 0 0 4,137 575 Fines/Penalties .4 352.7 1.6 206 1

Disciplinary Actions Taken (# of Subjects) 6 3 15 9 8 Counseling/Management Techniques Employed (# of Cases) 10 1 6 16 3 t v Referred to U.S. Attorneys 45 18 7 19 5 2 a Referred to State/Local Authorities 6 ------Indicted 3 4 14 4 6 56 Convicted 3 3 3 3 2 o i 1These numbers include task force activities and joint investigations with other Semiannual Report | Rebuilding the Foundation. agencies. g 2 Category added in semiannual period ended September 30, 2009. GLOSSARY ABBREVIATIONS AND ACRONYMS

Disallowed Cost – A questioned cost The following are acronyms and abbreviations widely used in this report: that management, in a management AECOM...... AECOM Technology Corporation decision, has sustained or agreed should not be charged to the agency. BFN...... Browns Ferry Nuclear Plant

Final Action – The completion of all CIGIE...... Council of the Inspectors General on management actions, as described in a management decision, with respect to CEO...... Integrity and Efficiency When management concludes no action audit findings and recommendations. CRS ...... ChiefCenter Executive for Resource Officer Solutions management decision is made. DOL...... Department of Labor is necessary, final action occurs when a Funds Put To Better Use – Funds, ERM...... Enterprise Risk Management which the OIG has disclosed in an audit report, that could be used ERP...... energy right® Program deobligating program or operational IG...... Inspector General funds,more efficiently avoiding unnecessary by reducing outlays, IG Act...... Inspector General Act, as amended expenditures, or taking other MSPB ...... Merit System Protection Board efficiencyManagement measures. Decision – The IT...... Information Technology evaluation by management of the Marshall Miller...... Marshall Miller & Associates

NIMS...... National Incident Management System managementaudit findings concerning and recommendations its response and the issuance of a final decision by NRC...... Nuclear Regulatory Commission toQuestioned such findings Cost and – A recommendations. cost the IG O&M...... Operation and Maintenance questions because (1) of an alleged violation of a law, regulation, contract, OIG...... cooperative agreement, or other PSAs...... OfficePublic ofService the Inspector Announcements General document governing the expenditure of funds; (2) such cost is not supported SOX ...... Section 404 of the Sarbanes-Oxley Act of 2002 by adequate documentation; or (3) the expenditure of funds for the intended TVA ...... purposes was unnecessary or unreasonable. Tennessee Valley Authority

Unsupported Costs – A cost that is questioned because of the lack of adequate documentation at the time of the audit. t v a

57 o i Semiannual Report | Rebuilding the Foundation. g WHAT IS TVA?

> Power Generation A federal government corporation, created on

• ComposedMay 18, 1933, of: serving a seven-state region • Nation’s largest public power system • - 1 pumped-storage plant - 329 nuclear hydroelectric sites plants

- 11combustion turbine plants - 211 diesel coal-fired generator power sites plants - 1 wind energy site - 1 digester gas site

- 15 solar energy sites - 1 biomass co-firing site 158 billion kW hours generated (FY 2008) • $1033,925.4 billion megawatts in annual capacity revenue (FY 2008) • • • 12,219 employees > Transmission

80,000 square-mile service area • 15,85699.999 milespercent of reliabilitytransmission for nineline years in a row • • > Customers 158 power distributors (municipalities and cooperatives) • 62 directly served customers 11 power exchange arrangements • • • 9 million people served > Stewardship

• Nation’s800 miles fifth-largest of commercially river systemnavigable water • 293,000transporting acres more of public than land50 million tons of cargo t • v a • 49 dams and reservoirs

58 o i g Semiannual Report | Rebuilding the Foundation. The OIG is an independent organization charged with conducting audits, inspections, and investigations relating to TVA programs toand the operations, administration while ofkeeping such programs the TVA Board and operations and Congress. fully and currently informed about problems and deficiencies relating eliminatingThe OIG focuses waste, on fraud, (1) making and abuse TVA’s and programs violations and of operations laws, rules, more effective and efficient; (2) preventing, identifying, and orIf you regulations; would like and to (3)report promoting to the OIG integrity any concerns in financial about reporting. fraud,

Code of Conduct, you should contact the OIG Empowerline systemwaste, or. The abuse Empowerline involving TVA is administered programs or violationsby a third-party of TVA’s 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 anonymouslyReport Concerns or you to maythe OIGrequest Empowerline. confidentiality.

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

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59 o i Semiannual Report | Rebuilding the Foundation. g Tennessee Valley Authority Office Of The Inspector General 400 West Summit Hill Drive Knoxville, Tennessee 37902

Semiannual Report | Rebuilding the Foundation.