Financial Statement Audit Report: DOE-OIG-23-26

July 13, 2023

The Southwestern Federal Power System’s Fiscal Year 2022 Combined Financial Statements Audit

The attached report presents the results of the independent certified public accountants’ audit on the Southwestern Federal Power System’s (SWFPS) combined balance sheets as of September 30, 2022, and 2021, and the related combined statements of revenues and expenses, changes in capitalization, and cash flows for the years then ended.

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 combined financial statements present fairly, in all material respects, the respective financial position of the SWFPS as of September 30, 2022, and 2021, and the results of its operations and cash flows for the years then ended in accordance with United States generally accepted accounting principles.

As part of this review, auditors also considered the SWFPS’s internal controls over financial reporting and tested for compliance with certain provisions of laws, regulations, contracts, and grant agreements that could have a direct and material effect on the determination of financial statement amounts.  The audit did not identify any deficiency in internal control over financial reporting that is considered a material weakness.  However, the audit identified the following significant deficiencies in internal control over general property, plant, and equipment and hydroelectric power legal claims:

• Controls over General Property, Plant, and Equipment: Controls were not operating effectively to ensure substantially completed construction work in-progress projects are transferred to property, plant, and equipment and depreciated at period end.
• Controls over Hydroelectric Power Legal Claims: Controls were not operating effectively to ensure that all legal claims, including those that occur as a subsequent event, are identified, and appropriately recorded or disclosed in the SWFPS’s combined financial statements.

The results of the auditors’ review of the SWFPS’s compliance with provisions of laws and regulations disclosed no instances of noncompliance or other matters required to be reported under Government Auditing Standards.