METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

• Annual review of FERC software access – Internal Auditing recommendedthat annually, in conjunction with the FERC Form No. 1 filing, the access tothe FERC software on the network be reviewed to confirm who has read/writeaccess and who has read only access, and access to the SAP FERC modulebe reviewed to ensure appropriate access.• Identification of new cost centers – New general ledger accounts and costcenters are configured in the SAP FERC module each month prior tomapping the accounts for the FERC monthly processing. Internal Auditingidentified a more efficient way to identify new cost centers by using analternate SAP transaction, which will save time in the monthly FERCprocessing.Subsequently, all five recommendations from the internal audit wereimplemented by June 30, 2009. FirstEnergy provided evidence to supportimplementation of each recommendation. For example, FirstEnergy provided evidenceof review of access to FERC software. Management determined that no subsequentaudits were required. The Audit Staff reviewed the quarterly O&M flux analysisconducted for the first quarter of 2010, which compared the balance of each account asof March 31, 2010 with the balance in the same account as of March 31, 2009. The fluxanalysis showed just seven FERC A&G accounts for Met-Ed, seven for Penelec, andfour for Penn Power were subject to variance reviews on the basis of havingfluctuations of $500,000 or larger and 20% or more. More importantly, explanations forall of these variances were prepared and the supervisor/team lead reviewed andapproved each explanation.Staff’s Follow-up Recommendation – None.Prior Recommendation – Provide a copy of the IAD Third Quarter Assessment ofInternal Controls Over Financial Reporting, as well as the PricewaterhouseCoopers,LLP (PwC) management letter for the 2006 financial audit, to PUC Audit Staff whenavailable.Prior Situation – BWG found that FirstEnergy had appropriately installed internalcontrols and corrected issues related to charging time and materials to expense ratherthan capital accounts that occurred following the implementation of SAP in 2003. InJune 2003, FirstEnergy had implemented SAP corporate wide to support its informationneeds, including shared services, customer care, and work management throughout theCompany’s regulated and unregulated operations. After implementation of SAP, theEnergy Delivery & Customer Service (ED&CS) group in FirstEnergy identified asignificant increase in charges to Operations and Maintenance (O&M) expenses whichshould have been capitalized as work-in-progress or plant-in-service. In November2003, ED&CS performed a study to identify and quantify all issues relating to potentialcost misclassification. The study identified $36.6 million of costs originally charged toexpense that was reclassified to capital asset accounts in 2003. In February 2004,FirstEnergy’s external auditor issued a Management Letter to the FirstEnergy Audit- 31 -