Operational & Financial Audits
George Godding
Director DMC
Office of Market Oversight and Investigations
Federal Energy Regulatory Commission
USEA/USAID Energy Partnership Program
Brasilia, Brazil
August 10, 2005
Introduction
• The Division of Operational Audits, (DOA) & Division of
Financial Audits (DFA), OMOI, ensure the
competitiveness of energy markets by conducting audits
of jurisdictional entities for compliance with
Commission’s rules, regulations, statutes, and orders.
• Support the Commission’s Strategic Goals.
• Participate in investigations with Enforcement attorneys.
• Share Hotline responsibility: addressing complaints
informally & alternative dispute resolution services.
• Employees include accountants, auditors, engineers,
economists, and energy industry analysts.
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Office of Market Oversight and Investigations
Division of
Management &
Communication
Director
Deputy Director
Market
Oversight & Assessment
Division of
Energy Market
Oversight
Division of
Financial
Market
Assessment
Division of
Integrated
Market
Assessment
Deputy Director
Investigations
& Enforcement
Division of
Information
Development
Division of
Enforcement
Division of
Operational
Audits
Division of
Financial
Audits
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Financial Audits Group Recently Added
• Traditional efforts:
– Sampling financial statements and data submissions
– Requested company sorted data for analysis
– Tariff compliance
• New activities:
– Broader scope & integrated
– Capabilities from information technology
• utility & independent web sites to confirm utility statements
• use gross data to form basis for analysis
• expanding E-mail and Voice-mail search capability
– Forensic auditing capability being developed
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Audits Aid Market Oversight
• Proactive Approach –
– Conduct random and targeted audits to:
• establish a market presence
• police energy markets to identify and remedy anticompetitive behaviors and rules violations
• Reactive Approach –
– Respond to:
• complaints
• hotline calls
• emerging areas of concern
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Approach to Audits
Annual audit plan - a formal plan of action to accomplish
audit goals and objectives for a specific year.
Individual audit assignments - implement the annual audit
plan and address late-breaking issues, such as, hotline calls
or referrals from other FERC offices.
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Process Overview
Select Auditee
Determine Scope
Create Audit Plan
Prepare Survey
Complete Risk Analysis
Conduct Audit
Complete
Audit
Report
Brief FERC & Auditee
Finalize Audit Report
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Create Project Audit Plan
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Purpose
Objective
Scope/Resources
Criteria for Evaluation
Methods
Benefits
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Audit Survey – High Level Review
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Broad Verification of compliance in relevant areas
-Non-discriminatory practices,
-Tariff authorized rates and services,
-Proper program delivery, and
-Compliance with Commission statutes, orders, policies,
rules and regulations.
• Provide information for planning the audit verification work:
–Areas that do and do not warrant in-depth review.
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Audit Survey – Steps
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Gather and review data
Review work performed by others
Conduct high-level testing
Prepare audit survey
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Risk Analysis
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Summarizes areas of risk detected during the survey
phase of the audit
Provides the basis for planning and conducting further
detailed testing
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Conduct Audit
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Data requests
On-site reviews
Transaction testing and analysis, and
Interviews
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Illustrative Operational Audit Topics
• Electric Industry
• Natural Gas Industry
– Market Rules/Practices
– Pipeline Operations
– Generator Outages
– Stand./Codes of Conduct
– Stand./Codes of Conduct
– Capacity Release
– Dispatch Practices
– Contracting Practices
– Transmission Access
– Filing Requirements
– Electric Quarterly
– Tariff Compliance
Reporting (EQR)
– Behavioral Rules
– Open Access Same-Time
Information System
– Behavioral Rules
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Illustrative Financial Audit Topics
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Formula rate accounting
Inventory accounting procedures
Nuclear decommissioning trust funds
Accounting for purchased power – fuel adjustment clause
Pipeline assessment costs
Cash management
EQR data
Interlocking Directorates
Internal controls
Governance
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Audit Report
• OMOI, other FERC offices, and the auditee are briefed
• The auditee receives a draft audit report detailing audit
findings
• The auditee submits a response
• If no issues remain, OMOI issues a letter order with a
final audit report and a final response attached
• If issues remain, the Commission decides further action
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Operational Audit: Example 1
• Improper access to control center
• Improper posting of TTC and ATC
• Not posting information on tx request denials and
curtailments and interruptions
• Not up-to-date organizational charts and affiliate
transactions
• Not keeping records of affiliate discussions
• Poor training on Standards of Conduct
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Operational Audit: Example 2
• Failure to arrange tx service for off-system sales
• Treated a system as a single node to serve off-system
sales
• Not posting all tx outages or curtailments on OASIS
• Not filing of emergency deviations with FERC
• Improper coding of tx service and posting denials
• Not identifying affiliate tx requests
• Not providing all ancillary services on OASIS
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Financial Audit Examples
• Used incorrect investment base in computing rate base for
post 1996 plant investment
• Customers improperly charged for failed development of
Regional Transmission Organization
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Questions?