Utility Accounting and Auditing

MRWA 34th Annual ConferenceDecember 11, 2014

Nick Henry, CPAHorton, McFarland & Veysey, LLC

Ellsworth, ME 04605207-667-5529

nick@hmvcpas.com

Presentation OutlinePUC AccountingPUC Chart of AccountsRevenuesExpensesBudgetingDo I Need An Audit?Audit PreparationUnderstanding Financial StatementsReserves

Presentation Outline - Continued

DepreciationCashAccounts ReceivableFrustrationsAccounting SystemGovernmental Auditing StandardsTrustee InformationInternal ControlFraudRate Case Process

PUC AccountingNot Cash BasisNot GAAPNot Rate Case BasisSetup Accounts in Accordance with

PUCRely on Auditors or Consultants to

Convert to Other BasisKeep it Simple

PUC Chart of AccountsPUC Report:◦Assets Page F-1◦ Liabilities Page F-2◦Equity Page F-2◦Revenues Pages F-4 & W-3◦Expenses Pages F-4 & W-2

Benefits of Properly Setup Chart of Accounts:◦Audit◦PUC Annual Report◦PUC Financial Issues / Requests◦Rate Case Filings

RevenuesUnmetered SalesMetered Sales◦ Residential◦ Commercial◦ Industrial◦ Public Authority

Fire Protection Charges◦ Public Fire Protection◦ Private Fire Protection

Other◦ Sales For Resale◦ Jobbing◦ Interest

Expenses601 Salaries and Wages604 Benefits615 Purchased Power618 Chemicals620 Materials and Supplies63X Contractual Services650 Transportation657 Insurance – General675 Miscellaneous403 Depreciation427 Interest Expense

Budgeting

Helps with Planning◦Short-Term◦ Long-Term

Cash BasisIncome StatementOperating BudgetCapital Budget◦ Funding

Board Involvement

RevenuesOperating ExpensesDebt Service

PaymentsReserve Account

AllocationsCapital Asset

PurchasesSurplus Funds

Do I Need An Audit?Statute 35-A Section 505◦Revenues Under $50,000

Test Year for Rates Only

◦Revenues Between $50,000 - $250,000 Annual Review Required Test Year for Rates At Least Once Every Five Years

Required By MMBB and USDA Agreements

Insurance Providers May Require

Audit PreparationReconcile Bank AccountsInventory CountReview Balance Sheet Account

Ending BalancesCompare Ending Balances to Prior

Year BalancesCompare Ending Balances to

Budgeted Amounts

Understanding Financial StatementsBalance Sheet (Statement of Net Position)◦Cash◦ Accounts Receivable

Income Statement (Statement of Revenues, Expenses and Changes in Fund Net Position)◦Revenues◦ Expenses◦Net Income

Statement of Cash Flows◦Net Increase (Decrease) in Cash

Ratios

ReservesTypes:◦Contingency◦Standpipe◦Capital Asset

Must Setup with PUC when Filing Rate Case

Separate Bank Accounts

DepreciationNon-Cash ExpenseAllowed Expense for RatesSignificant / Infrequent RepairsEquipment PurchasesCapital Asset ReplacementsNeed to Fund

CashKeyTarget Cash ReserveRestricted CashDesignated CashUnrestricted CashSeparate Bank Accounts

Accounts ReceivableWhat Customers Owe Liens & Shut OffsNeeds to be CollectedIf AR is Increasing, Cash is

Decreasing

FrustrationsPUC◦Revenues◦Relying on Auditors Too Much

Auditors◦Not Making Adjusting Entries◦Cash Accounts Not Reconciling◦ Inconsistent Postings◦Posting Everything to Miscellaneous Expense◦Lack of Checks and Balances ◦Not Understanding Internal Controls

Accounting SystemComputerized vs. Manual Need More Than Check RegisterMany Options For SoftwareBilling SystemAccounting SystemCan Be Separate SystemsProperly Setup Accounting System

Affects Everyone

Governmental Auditing Standards

More Strict Cannot Rely Entirely on Auditors for

EverythingIndependence IssuesUnderstand Financial StatementsMake Decisions with Financial

StatementsUnderstand Adjusting EntriesAsk Auditor Questions

Trustee InformationMonthly Financial Reports◦Balance Sheet◦Income Statement

Budget to Actual ComparisonsMonthly Bills Paid (Warrants)Cash Account ReportsAccounts Receivable Reports

Internal ControlSegregation of DutiesTrustees Review Financial ReportsTrustee or Superintendent Sign

ChecksDual Signatures on Checks WarrantsInvoices Approved Before PaymentAccounting ManualReview Time Cards

FraudLack of Internal Controls = OpportunityTrusting Employees Too Much Audit NOT Designed to Detect FraudAudit Utilizes SamplesAssociation of Certified Fraud

Examiners (ACFE) StatisticsCredit Cards / Gas Cards

Rate Case ProcessAnnually Assess Need for Rate

Increase35-A Section 61043 Month Process At LeastAvoid Petition = Avoid Public AdvocateEducate CustomersEstablish ReservesUtilize Depreciation Expense

THANK YOU

GOD BLESS

QUESTIONS?