Co-op board to write off Redbook
Socorro Electric Cooperative is closing the book on the so-called “Redbook” — a somewhat mysterious accounting ledger that became part of last year’s investigation into financial irregularities at the co-op.
At its meeting on Aug. 22, the co-op’s board of trustees voted unanimously to write off more than $29,000 in loans the co-op has been unable to collect from non-employees.
Co-op General Manager Joseph Herrera said he had exhausted all efforts to collect money from the accounts. Complicating matters, Herrera said the co-op’s records only go back six years and it appeared some of the accounts have existed for more than a decade.
“It’s an administrative nightmare,” he told the board.
Herrera, who recommended the loans be written off, said he was no longer making efficient use of his time trying to collect. Payments were being made on a few accounts, he said, but many of them were being disputed. Asked by trustee Donald Wolberg what kind of explanations he was getting from people disputing the charges, Herrera, who has only been on the job seven months, said he was being told the accounts had, or should have, been resolved by previous managers.
Those managers, General Manager Polo Pineda Jr. and Accounting Manager Kathy Torres, were fired in August 2010 following an internal investigation into financial irregularities. The reason given for their dismissal was that they had violated policy regarding loans made through 401K plans.
In a subsequent interview, Herrera said almost all of the Redbook accounts were for former employees who took advantage of insurance services offered through the co-op. In some cases, the premiums on those policies increased but the individuals say they were not notified of any change. While they continued to pay at the old rate, the difference between the new rate and the old rate was applied to the ledger as money owed.
What’s a Redbook?
The Redbook tracked purchases the co-op made on behalf of both employees and non-employees. These payments are different from the advances they could receive through their 401K plans and Section 5 loans, which allowed them to purchase certain appliances.
BDK, a Missouri-based accounting firm, referred to the Redbook in its general report for a forensic audit it conducted last year:
“The Cooperative also tracked employee purchases paid by the Cooperative, which are known as ‘Redbook’ loans. For example, the Cooperative sometimes purchased plane tickets for spouses to accompany employees on business trips. The Cooperative’s accounting department entered the cost of a spouse’s plane ticket in the Redbook to track the amount due from the employee.”
Herrera said he was not aware of instances where plane tickets were purchased. With few exceptions, the Redbook tracked insurance coverages, such as dental, vision, Cobra and short- and long-term disability.
Though BDK reported it did not find the co-op was out any money on the employee side of the ledger, it was critical of some of its policies and accounting practices and recommended the co-op stop advancing money to employees.
“Restricting or eliminating advances to employees is prudent and reduces the opportunities for abuse or financial loss,” the report reads.
The board of trustees rescinded the policy that applied to employees a year ago, but the Redbook has remained active for non-employee accounts.
Raising Questions
At the Aug. 22 meeting, Herrera said the balance on the remaining accounts totaled $29,352.67, and that all of them were for non-employees — most of them former employees or co-op officials.
Trustee Prescilla Maudlin wanted to know what would happen if the amount was written off, and Herrera said for accounting purposes it would go down as an administrative loss.
Trustee Charlie Wagner asked if some of the former employees who had outstanding accounts were receiving a pension through the co-op. When told yes, Wagner said that might be a way to collect some of the money.
“Those people who are still collecting money through the co-op through their pension plans should have the ability to pay,” he said.
Herrera said the problem was that the co-op didn’t have any documentation regarding transactions made prior to 2005 when the co-op switched accounting software.
“So you’re saying if we tried to take them to court, we’d lose,” Wagner asked.
“Yes,” Herrera answered.
Not only is it impossible to trace when each individual account originated or exactly what was purchased, mystery surrounds the origin of the policy. Herrera said in a recent interview that there appears to be no written policy regarding the Redbook.
“There was no policy, no contract — it was all verbal,” he said.
What it Shows
Co-op officials were tight-lipped about the Redbook at the time of the investigation and refused to release information pertaining to it when El Defensor Chieftain made an Inspection of Public Records request last October.
Backed by a district court judge’s ruling earlier this year that affirmed members are entitled access to financial records of the member-owned non-profit corporation, El Defensor Chieftain recently obtained a copy of the Redbook charges for non-employees as of Aug. 12 of this year.
Lacking documentation that would shed light on the circumstances surrounding each individual account, the Chieftain is withholding names of individuals and two businesses with account balances at this time.
Some names on the list are known to be former co-op employees or trustees, while the nature of the relationship between the co-op and two of the names on the list could not be immediately verified.
In all, 32 names appeared on the list and 18 of those still showed a balance due. One of them has been identified as a spouse of a former employee.
The remaining 14 accounts, including those of seven current trustees and four former trustees, showed they no longer owed the co-op any money.
In addition, three former managers were listed and two of them still showed balances, both of which were less than $1,500.
Additional charges were reflected on six accounts in July, one of which was credited in the same amount. Payments were posted on three of the accounts.
Most of the accounts with a balance due were for relatively small amounts — eight of them for less than $250 — but six of them had balances of more than $2,500.
The highest, at $7,020.23, was for a woman whose account was still active. The ledger showed that she had an additional charge of $120.25 in July and that she had made a payment of $66.63.
The next highest amount due, $5,709.12, was for a man whose account was also active, with charges increased by $158.50.
Another man had a balance of $4,513.39 and three women had balances of about $2,600. Those four accounts showed no activity in July.
Two local businesses showed up on the ledger with small balances — one for $260.00 and the other for $108.42.
No Policy Found
BDK’s forensic audit report, dated Oct. 20, 2010, questioned the co-op’s practice of writing off delinquent accounts and internal accounting prior to that date. The statements don’t specifically pertain to Redbook accounts, but for other types of loans Socorro Electric offered.
The report states that it detected some delays, ranging from a few weeks to a few months, between advances to employees and repayment to the co-op. BDK interviewed some Socorro Electric employees regarding advances made to employees and said it received “conflicting and varied” stories about a policy that allowed employees to borrow from their 401K plans.
“Ultimately, we could not determine the reason, or potentially multiple reasons, for the delays. However, most of the problems appeared to be internal Cooperative processes,” the report reads.
While a copy of a policy that allowed advances up to $5,000 was discovered, BDK found that no policy regarding the loans could be found in the co-op’s current policy manual. Some employees BDK interviewed said they thought the policy allowing advances had been rescinded several years ago.
“If the policy is somehow still valid, the Cooperative’s management was not following it,” the report states.
It goes on to say that several loans, which were paid out of the co-op’s general fund and not through the 401K program, exceeded the $5,000 amount, the largest being a $35,000 advance to Pineda, the former general manager, in August 2009.
In addition, the accounting firm wrote in its report that it found no evidence indicating employees were required to sign a form pledging the amount to be paid back through their 401Ks.
The report concludes that it did not find that the co-op suffered a financial loss. “However, several receipts were missing so we could not rule out the possibility that some purchases could have been personal.”
Writing Off Losses
The audit also reviewed accounting records having to do with money that the co-op wrote off as bad debt and discovered delays occurred there too.
“There appears to be some delays writing off accounts receivable. For example, the Board approved a write-off of cable TV receivables for $90,949.27 on May 21, 2009. However, the Cooperative only wrote off $1,566.69 the following month,” the report states.
While delaying write-offs is primarily an accounting record “cleanup” issue, the actual write off to remove the uncollecible accounts from the books may not have occurred for a year or more, according to the report. The write-offs did not affect the co-op’s profit or financial position, the report states, but the expense associated with the uncollected accounts was reflected in the co-op’s financial statements in the months leading up to the actual write off.
In all, the co-op’s board of trustees approved writing off $726,542.48 as bad debt in a less than two-year period. The bulk of it, $452.342.22, was for delinquent electric bills that were written off in April 2010. A total of $270,454.09 was written off for electric in 2008 and 2009. The remaining $3,746.17 was for satellite TV and the weatherization program, written off in 2009.
As for the Redbook accounts, Herrera said efforts to collect began last spring with a letter sent out to all those who still owed.
“A few came in and there are some who are paying, or said they’d pay off their accounts,” he said. “For a lot of them, we received no response at all.”
Certified letters were then sent to those who failed to respond, he said, and the policies were canceled for those who still didn’t respond.
While the money will be written off as an administrative expense, Herrera said the co-op hasn’t abandon efforts to collect the money due.
“The board gave permission to write them off, but we’ll make efforts to collect because these are services that have already been paid for,” he said. “We’ll continue to send letters and do what we can to try to collect.”
Contact T.S. Last