Nov. 20, 2007 — An independent audit of the Lassen Municipal Utility District by Virchow, Krause and Company found the utility to be in solid financial shape, despite some practices the utility was urged to correct. The audit, conducted from June until October, detailed and assessed LMUD’s business and financial practices for the previous fiscal year ending June 30. The auditors also provided an analysis of the companies fiscal years from 2006 and 2007.

CPA with the company Tom Unke said the utility had a number of positives to report, as well as a few things that needed to be improved before the next auditing process.

The LMUD board approved the audit after a full examination of all the utility’s business practices at a special meeting held in October.

A report provided by LMUD on the auditing procedure explained much of the utility’s revenue and expenses for the 2007 fiscal year.

LMUD’s total revenue for the 2007 fiscal year was $20,212,520, while its total expenses were $17,671,224. Customer sales increased from 2006 by about $2,079,670, while the increase to purchased power and operating costs was $1,993,988.

The audit also detailed LMUD’s assets and liabilities for fiscal year 2007. Assets are any items owned by LMUD convertible into cash, such as power lines, trucks, land and other resources, while its liabilities would be anything the company owes as far as debts, costs and expenses.

LMUD’s assets exceeded its liabilities by $28,106,383 for the 2007 fiscal year. The utility’s total assets were reported at $40,346,120, while its total liabilities were $12,239,737.

According to the report, gross income from sales and other sources was $19,456,441. This was a 12 percent increase from the 2006 fiscal year. The report said the majority of the increase was due to the addition of 84 new meters and what was listed as a cost-of-service revenue adjustment.

According to the financial analysis done by the auditors, 57 percent of the LMUD’s net assets are invested in what are called capital assets, like the utility’s transmission and distribution facilities. None of these assets are for spending.

Assets that could be spent accounted for 21 percent of LMUD’s total assets. These assets can be used to pay obligations for the utility’s creditors and customers.

Of the expendable assets, the LMUD board of directors has set aside $3 million in what it calls a rate-stabilization reserve. The report said the reserve was established in the early 1990’s. The report also said the board has plans to increase this reserve by an additional $3 million, to reflect the 100 percent increase in the cost of power since the reserve was established. The purpose of the reserves is to help keep the rates paid by customers from fluctuating or increasing.

The last 22 percent of LMUD’s net assets are dedicated to restricted resources of income, such as state mandated funds and the Public Benefits Program.

Spending on the Public Benefits Program increased by $34,336 from last year. According to Assembly Bill 1890 passed in 1996, all electric utilities are required to collect 2.85 percent per kilowatt hour from each customer to be used for energy efficiency, research and development, building or buying “green” energy, such as energy produced by solar power or wind power, low-income assistance and any administrative costs to go along with maintaining these services.

The 2007 fiscal year saw LMUD spend $936,095 for the public benefits program. Unke noted all of the costs, other than administrative costs, included expenses for payroll, advertising, promotional materials and travel. Administrative costs covered the expenses needed to maintain the program in general.

Future plans
As far as Unke’s assessment of LMUD’s help in the auditing process, he said the staff was relatively prepared and ready for the audit, saying things would most likely be better next year. He said the fieldwork for the audit went smoothly, and all staff were both professional and respectful.

He also made recommendations to the board on what could be done to both improve the efficiency of the utility and be better prepared for next year’s audit. Among his recommendations was the consideration of a policy where an individual making the entry is not also approving the entry.

He also asked the board to implement a work order process to provide management a way to accurately track costs. Some of the weaknesses he cited were too many overlapping responsibilities, the need to rely more heavily on management’s knowledge and day-to-day contact with utility employees to safeguard assets.

Unke said there was evidence of inadequate documentation of internal procedures. He said all major procedures should be contained in written documents and must be understandable to any outside parties. He said these practices should be corrected before the 2008 audit process begins.