Financial Statement Audit: DOE-OIG-24-24

July 25, 2024

The Southwestern Federal Power System’s Fiscal Year 2023 Financial Statements Audit

The attached report presents the results of the independent certified public accountants’ audit of the Southwestern Federal Power System’s (SWFPS) balance sheets as of September 30, 2023, and 2022, and the related consolidated statements of net costs, changes in net position, custodial activity, combined statements of budgetary resources for the years then ended, and the related notes to the consolidated financial statements.

To fulfill the Office of Inspector General’s audit responsibilities, we contracted with the independent public accounting firm of KPMG LLP (KPMG) to conduct the audit, subject to our review.  KPMG is responsible for expressing an opinion on the SWFPS’s financial statements and reporting on applicable internal controls and compliance with laws and regulations.  The Office of Inspector General monitored audit progress and reviewed the audit report and related documentation.  This review disclosed no instances where KPMG did not comply, in all material respects, with generally accepted government auditing standards.  The Office of Inspector General did not express an independent opinion on the SWFPS’s financial statements.

KPMG concluded that the financial statements present fairly, in all material respects, the financial position of the SWFPS as of September 30, 2023, and 2022, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.  The results of the auditors’ review disclosed no instances of noncompliance or other matters required to be reported under Government Auditing Standards.

As part of this review, auditors also considered the SWFPS’s internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the combined financial statements.  The audit identified a deficiency in internal control that we consider to be a significant deficiency:

• KPMG identified a significant deficiency with internal controls over property, plant, and equipment.  KPMG identified that the SWFPS inappropriately depreciated land balances in the combined financial statements.  In addition, KPMG found that the SWFPS had inappropriately recorded losses on the disposal of retired plant and equipment to accumulated depreciation.  Lastly, the SWFPS and Army Corps of Engineers had not ensured substantially completed construction projects were transferred to property, plant, and equipment and depreciated at period end.

SWFPS management concurred with the findings and recommendations and agreed to take action to address each of our recommendations.  Management’s proposed corrective actions are consistent with our recommendations; therefore, a management decision is not required.  However, the recommendations remain open and should be tracked in the Departmental Audit Report Tracking System until corrective actions are completed.