The Federal Energy Regulatory Commission released an audit Friday questioning spending by the organization that oversees the U.S. electric grid.

The audit faulted the North American Electric Reliability Corp. (NERC) for a lack of transparency and said the organization "significantly deviated from its budgeted activities" without approval from FERC commissioners or its own board of trustees.

In one instance, the audit says, NERC spent more than $74,000 and $109,000 for holiday parties in 2010 and 2011, respectively, and failed to accurately record those expenditures.

"NERC is a non-profit corporation subject to a cost recovery funding mechanism, and to protect ratepayers it is imperative that NERC not incur costs that have not been explicitly approved," FERC auditors wrote.

NERC expressed displeasure with the audit, which covers Aug. 23, 2006, to March 14, 2012. The organization complained about FERC refusing to address its concerns through talks with the organization.

"Although we understand that all FERC commissioners will ultimately review any contested issues, we regret that a litigation process was chosen rather than our invitation to work out the differences through the standard method of negotiation," David Cook, NERC's general counsel, said in a statement. "We are not aware of another case where FERC staff declined an invitation to meet to discuss the company's response to a draft audit report."

NERC said the audit is a "relatively one-sided appraisal of the issues and is dismissive of NERC's positions, or the findings and recommendations of independent consultants, in often harsh tones."

The audit is also flawed because FERC staff members didn't focus on NERC's compliance with commission rules, but instead applied their own judgment to how the agency should be run, the grid overseer said.

FERC commissioners Cheryl LaFleur (D) and Philip Moeller (R) were quick to acknowledge the extensive experience of FERC's audit staff but noted that this is the commission's first financial performance audit of the grid monitor. Moeller added that NERC now has 30 days to ask for the commission to review the audit.

LaFleur went a step further and said the audit shouldn't have been issued without a vote by the five-member panel. "I believe the issuance of this audit without a commission vote was inconsistent with [the agency's] regulations," she said in a statement.

FERC acknowledged that the grid monitor has taken steps to improve its operations. Norman Bay, director of FERC's Office of Enforcement, also acknowledged in a letter attached to the report that NERC objects to the majority of the audit findings and the commission's 42 recommendations for improvement.

NERC now has up to two months to either explain how it will comply with the recommendations or review items that the organization is objecting to, Bay said.