Reporting Requirements Under the Inspector General Act

Tennessee Valley Region Front cover photo: Kingston Plant Table of Contents Message from the Inspector General 5 Executive Summary 6 10 SpecialOffice 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 t v a 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

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