1. Utility Accounting and Auditing MRWA 34 th Annual Conference December 11, 2014

2. Nick Henry, CPA Horton, McFarland & Veysey, LLC Ellsworth, ME 04605 207-667-5529nick@hmvcpas.com

3. Presentation Outline PUC Accounting PUC Chart of Accounts Revenues Expenses Budgeting Do I Need An Audit? Audit Preparation Understanding Financial Statements Reserves

4. Presentation Outline - Continued Depreciation Cash Accounts Receivable Frustrations Accounting System Governmental Auditing Standards Trustee Information Internal Control Fraud Rate Case Process

5. PUC Accounting Not Cash Basis Not GAAP Not Rate Case Basis Setup Accounts in Accordance with PUC Rely on Auditors or Consultants to Convert to Other Basis Keep it Simple

6. PUC Chart of Accounts PUC Report: ◦ AssetsPage F-1 ◦ LiabilitiesPage F-2 ◦ EquityPage F-2 ◦ RevenuesPages F-4 & W-3 ◦ ExpensesPages F-4 & W-2 Benefits of Properly Setup Chart of Accounts: ◦ Audit ◦ PUC Annual Report ◦ PUC Financial Issues / Requests ◦ Rate Case Filings

7. Revenues Unmetered Sales Metered Sales ◦ Residential ◦ Commercial ◦ Industrial ◦ Public Authority Fire Protection Charges ◦ Public Fire Protection ◦ Private Fire Protection Other ◦ Sales For Resale ◦ Jobbing ◦ Interest

8. Expenses 601Salaries and Wages 604 Benefits 615 Purchased Power 618 Chemicals 620 Materials and Supplies 63X Contractual Services 650Transportation 657Insurance – General 675Miscellaneous 403Depreciation 427Interest Expense

9. Budgeting Helps with Planning ◦ Short-Term ◦ Long-Term Cash Basis Income Statement Operating Budget Capital Budget ◦ Funding Board Involvement Revenues Operating Expenses Debt Service Payments Reserve Account Allocations Capital Asset Purchases Surplus Funds

10. 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

11. Audit Preparation Reconcile Bank Accounts Inventory Count Review Balance Sheet Account Ending Balances Compare Ending Balances to Prior Year Balances Compare Ending Balances to Budgeted Amounts

12. Understanding Financial Statements Balance 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

13. Reserves Types: ◦ Contingency ◦ Standpipe ◦ Capital Asset Must Setup with PUC when Filing Rate Case Separate Bank Accounts

14. Depreciation Non-Cash Expense Allowed Expense for Rates Significant / Infrequent Repairs Equipment Purchases Capital Asset Replacements Need to Fund

15. Cash Key Target Cash Reserve Restricted Cash Designated Cash Unrestricted Cash Separate Bank Accounts

16. Accounts Receivable What Customers Owe Liens & Shut Offs Needs to be Collected If AR is Increasing, Cash is Decreasing

17. Frustrations PUC ◦ 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

18. Accounting System Computerized vs. Manual Need More Than Check Register Many Options For Software Billing System Accounting System Can Be Separate Systems Properly Setup Accounting System Affects Everyone

19. Governmental Auditing Standards More Strict Cannot Rely Entirely on Auditors for Everything Independence Issues Understand Financial Statements Make Decisions with Financial Statements Understand Adjusting Entries Ask Auditor Questions

20. Trustee Information Monthly Financial Reports ◦ Balance Sheet ◦ Income Statement Budget to Actual Comparisons Monthly Bills Paid (Warrants) Cash Account Reports Accounts Receivable Reports

21. Internal Control Segregation of Duties Trustees Review Financial Reports Trustee or Superintendent Sign Checks Dual Signatures on Checks Warrants Invoices Approved Before Payment Accounting Manual Review Time Cards

22. Fraud Lack of Internal Controls = Opportunity Trusting Employees Too Much Audit NOT Designed to Detect Fraud Audit Utilizes Samples Association of Certified Fraud Examiners (ACFE) Statistics Credit Cards / Gas Cards

23. Rate Case Process Annually Assess Need for Rate Increase 35-A Section 6104 3 Month Process At Least Avoid Petition = Avoid Public Advocate Educate Customers Establish Reserves Utilize Depreciation Expense

24. THANK YOU GOD BLESS QUESTIONS?