Auditors: Co-op not out any money
Two auditing firms that examined Socorro Electric Cooperative financial records didn’t turn up any missing money, but recommended the co-op shore up its accounting practices and policies.
At its regular meeting on Monday, the co-op’s board of trustees heard reports from Bolinger, Segars, Gilbert and Moss LLC CPA, which has conducted the annual audit for Socorro Electric for the past 11 years, and BKD LLC., an independent auditing firm specializing in forensic audits that was hired to investigate financial irregularities.
Addressing representatives from each firm, trustee Donald Wolberg made a point of emphasizing their report that the co-op hadn’t lost any money.
When Jack Moss of the Lubbock, Texas, accounting firm of Bolinger, Segars, Gilbert and Moss finished telling trustees that loan payments made to co-op personnel had been paid off, Wolberg asked, “So, there were no losses to the co-op?”
“That is correct,” Moss said. “There were no unauthorized transactions that have not been cleared up.”
Later in the meeting, Jeff Roberts of BKD reported that his firm didn’t turn up evidence of missing money.
“We ultimately did not find that the co-op suffered a financial loss,” he said. “In the end, you guys collected all of the money.”
“So members did not take a loss?” Wolberg asked again.
“That is correct,” Roberts answered.
Policy Problems
But Roberts said BKD’s audit found irregularities with some of the co-op’s policies, starting with the policy that permitted employees and trustees to take loans.
Roberts said the policy didn’t appear anywhere in the co-op’s policy manual. BKD’s investigation led to the discovery of a document that seems to be the written policy, but Roberts said its origin is unknown. He said the copy of the policy appeared to have been typed on a typewriter and could possibly date back as far as the 1970s.
Roberts said the BKD audit, which examined records dating back to Jan. 1 2008, revealed there were some instances where people took loans that went beyond what the policy allowed.
“If the policy was acknowledged, it was not followed. In some cases it exceeded the limits of the policy,” he said.
In total, Roberts said within the past two years 28 people took advantage of the policy, which allowed them to take out loans drawn from their 401K plans. The loans generally ranged between $1,000 and $7,000, he said.
“These loans were not hidden from the board,” he added. “They were on the ledger.”
The loans were called into question in the wake of an internal investigation into financial irregularities that resulted in the firing of two co-op managers in August. General Manager Polo Pineda Jr. and Accounting Manager Kathy Torres were dismissed after alleged abuses of the policy were discovered.
Roberts said BKD looked at other types of loans, including payroll advances, weatherization, and so-called “red book” loans. He said some of the red book loans, which are supposed to be short-term advances, still hadn’t been reconciled.
BKD’s representative said his company’s audit also examined credit card use and conducted data mining of co-op computers and nothing that would raise a red flag was discovered. But, he said, he couldn’t guarantee that there might have been some abuse because there were “a lot” of missing receipts.
“You spent a lot at Walmart,” Roberts said. “My recommendation is make sure you require receipts.”
Roberts also noted BKD didn’t conduct a complete audit; its scope was limited to what records they were asked to review.
Other Irregularities
Receipts came up again when Roberts discussed the co-op’s policy concerning the per diem it pays to employees and trustees.
Roberts said the $120 the co-op pays trustees for out-of-state travel, and $80 for in-state travel, was more than executives typically receive.
“From my experience, it’s pretty high,” he said.
Roberts said it’s typical for companies to follow published federal per diem rates. Using himself as an example, Roberts said his Springfield, Mo., company pays him $43 for in-state travel to St. Louis.
Roberts also noted that co-op officials are paid a flat rate for per diem. He said it’s typical for companies to pay reimbursements only on actual expenses.
“Most common is (reimbursements are paid for) what is actually incurred,” he said.
At that point, co-op President Paul Bustamante said that the co-op’s rate was set at those rates to compensate trustees for their time spent conducting co-op business.
“That’s why it’s so high,” he said.
After some discussion, Roberts said the co-op should look into using the published federal rates for per diem and consider paying reimbursements for costs actually incurred.
“Per diems don’t become an issue if you pay from receipts,” he said.
When Wolberg asked who at the co-op approved per diem payments, Bustamante said that was a matter that should be discussed in executive session.
Reimbursements Delayed
Approval of the co-op’s annual audit for the fiscal year ending March 31 was delayed several months until after BKD completed its work in September. Another factor was adjustments needed to be made after it was discovered in August that the co-op had been overcharging its customers.
Moss said the total amount overcharged over the course of the past five years was about $1.6 million. He said the overcharges would be treated as patronage capital and paid back to customers in the form of a check. Overpayments made by customers in 2010 would be treated as credit only.
Moss said customers shouldn’t expect a big reimbursement check. Based on a 100 kilowatt bill, he said the reimbursement would translate to less than a dollar per month.
Later in the meeting, Catt Cobb, a rate analyst who serves as a consultant to the co-op, said reimbursement checks probably wouldn’t be sent out to customers until early next year. That’s later than she had hoped, she said, but her work was set back because she needed to use data from the 2009-10 audit.
Now she has the numbers she needs, as the board unanimously approved the Bolinger, Segars, Gilbert and Moss audit.
The annual audit, conducted in May, had turned up numerous material weaknesses and unreconciled accounts.
Moss said the biggest change between the final audit and the draft audit was the adjustments made due to the overcharges, which affected the margins.
“That, in a nutshell, is the main difference on the audit report. The comments are the same on the manager’s letter,” he said.
Duty Calls
Trustee Charlie Wagner, who is involved in a proposed class action lawsuit alleging negligence, breach of fiduciary duty and fraud against his fellow trustees and five former co-op officials, was critical of the co-op’s management practices. Many of his remarks seemed aimed at Pineda, the former general manger.
Wagner noted that audits dating back to 2005-06 had always mentioned that there were general ledger accounts that hadn’t been reconciled. He said the chief financial officer, which was Pineda during that period, should have seen to it that those material weaknesses were corrected.
Regarding the loans Pineda took out with the co-op, Wagner said it appeared they not only exceeded the limit but were in violation of the co-op’s code of conduct.
Wagner also suggested that the missing policy regarding the loans might have been purposely removed.
The District 5 trustee from Magdalena said the board should also take blame for its lack of oversight.
“We have a duty to do something about it,” he said.
Wagner took some criticism himself from Wolberg, who repeatedly brought up Wagner’s involvement in the lawsuit against co-op officials.
“How much of the co-op’s money have you allocated to pay your Texas attorneys?” Wolberg asked Wagner at one point.
Wagner noted that the court filing was part of a counterclaim to a lawsuit the co-op brought against its approximately 13,000 member-owners in an effort to block three new bylaws aimed at increasing transparency.
The bylaws call for the co-op to follow the Open Meetings Act and Inspection of Public Reports Act and allow members and the press to attend meetings.
On a related note, the board voted to deny an El Defensor Chieftain reporter’s request to review some of the co-op’s financial records. Wagner was the only trustee to vote in favor of the inspection.
After being asked to leave the executive session while trustees discussed the lawsuit, Wagner said the board’s denial was contrary to the wishes of member-owners, who passed bylaws addressing transparency by overwhelming margins at the annual meeting in April.
“That’s another example of them breaching their fiduciary duty to the members,” he said.
Contact T.S. Last