Auditors recommend training for co-op staff
While last year’s audit of Socorro Electric Cooperative’s books turned up numerous material weaknesses, this year’s audit listed just one.
The accounting firm of Bolinger, Segars, Gilbert & Moss of Lubbock, Texas, which has conducted the audit on the Socorro Electric’s books for the past 12 years, found that the co-op continues to have accounts that are not reconciled on a monthly basis. It recommends that the co-op seek advice from outside accounting consultants and get training for staff, some of whom have been on the job less than a year.
Randy Robbins of BSG&M reminded the co-op’s board of trustees at the outset of last week’s meeting that the audit was for the fiscal year that ended March 31, 2011. He noted that as of that date, co-op General Manager Joseph Herrera had only been on the job two months and Claudia Campbell, who Herrera hired as senior accountant, had just completed her first week.
Robbins said he was confident that the co-op could clear up the problems that have existed with un-reconciled accounts.
“I think they can,” he said, adding that accounting personnel would benefit from training.
In a letter accompanying the audit report, addressed to the board of trustees, BSG&M noted the un-reconciled accounts as a material weakness, a defined fault in accounting procedures. Though the amounts aren’t significant enough to throw the accounts out of balance, the problem cropped up in several places.
“It appears that the reason for these errors is that the accounting personnel charged with these responsibilities need additional training to help understand how to accurately reconcile accounts,” the letter reads.
The letter goes on to recommend that the co-op “strongly consider engaging outside accounting consultants to work with the staff in the training process.”
Robbins told the board the accounts he was most concerned about were the power cost adjustment and debt cost adjustment. He said it was important that those who oversee the accounts understand their formulas inside and out.
It was a debt cost adjustment error that last year caused the co-op to inadvertently overcharge its customers by $1.78 million over a five-year period. The money was later returned to customers in the form of capital credits.
Earlier this year, Jack Moss of BSG&M told the board several people — inside and outside of the co-op — probably should have noticed the error before it was discovered late last year.
In making the motion to accept the audit, Trustee Donald Wolberg added that the co-op take the necessary steps to get co-op personnel the proper training. The motion passed unanimously.
A Little Advice
While BSG&M’s letter states the auditors do not express an opinion about the effectiveness of the co-op’s internal controls, the firm also recommended that the co-op make sure information is properly reported on employee’s W-2 forms. It noted that W-2s it reviewed did not include reporting of 401K employee contributions. In addition, employees who use company vehicles and participate in cafeteria plans should also have that information reported on their W-2s.
“We believe that the implementation of these recommendations will provide Socorro Electric Cooperative, Inc. with a stronger system of internal control while also making its operation more efficient,” the letter states.
Numbers of Note
During his presentation to the co-op board, Robbins touched on some of the most significant parts of the audit.
On the balance sheet, he noted the plant cost was $51,582,325, including depreciation. That figure was more than $5 million larger than it was on the 2010 audit.
Other property, including investments, was $5,440,530, up more than $1 million from the previous year.
Total assets were listed at $67,364,869, slightly less than in 2010.
Robbins pointed out a liability of more than $1 million for debt service cost listed that wasn’t there last year. That was due to the co-op’s failure to turn a profit last year, he said.
He noted, though, that the statement of patronage capital showed more than $1 million increase, listed at $18,962,256. Net operating margins were up slightly to $1,377,108.
Additions to utility plants, primarily work on the Quemado substation, cost the co-op $7,167,983 during the fiscal year. Cash decreased by a similar amount, Robbins said, and there were no advances made on long term debt.
Robbins pointed out the schedule for mortgage notes due to the USDA’s Rural Utility Service and reminded the board that the data doesn’t reflect the rate increase that went into effect after the fiscal year ended.
Outside Services
The trustees had little to say about the audit, other than Charlie Wagner commenting that directors’ fees decreased from $461,182 in 2010 to $103,033 on the latest audit.
“That’s a savings of more than $300,000,” said Wagner, a leader of a reform movement that swept the 2010 annual meeting and put limits on expenses incurred by trustees. “But if you look at the third column, a lot of that got eaten up.”
Wagner was referring to an increase of $129,280 for outside services, much of which went to attorney fees spent on the co-op’s lawsuit against its member-owners. The lawsuit challenged three bylaws passed by members in 2010 that called for the co-op to make changes to increase transparency.
While that lawsuit was settled, with a judge ruling the bylaws were valid, a countersuit which names Wagner as representative of the class of member-owners in a proposed class action suit is still pending.
The co-op’s proposed budget for 2012 calls for a $177,711 increase for outside services, bringing the total to more than $400,000. That’s more than four times what was spent on outside services during fiscal year ending 2010.
That doesn’t mean the co-op will spend that much on legal fees this fiscal year. How much is spent depends on whether the countersuit goes forward, and the co-op utilizes other outside services, as well. For example, hiring a consultant to assist with accounting operations and payments for training in that area would come out of that same fund.
Contact T.S. Last