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    Tuesday, January 24, 2017-4:43:40P.M.

     

     

     

     

     

Audit report: CUC has yet to resolve several deficiencies

AN independent auditor’s report states that the Commonwealth Utilities Corp. has yet to resolve several findings of deficiencies relating to internal control.

But CUC has taken corrective action with respect to other deficiencies, according to the audit report of Burger Comer Magliari or BCM Certified Public Accountants that covered the years ending Sept. 30, 2014 and 2015.

The report notes that CUC had not conducted a physical count of all fixed assets and inventories as of Sept. 30, 2015 and was not able to quantify the impact of damage from Typhoon Soudelor damage on its financial statements.

“We were unable to obtain sufficient appropriate audit evidence by performing alternative auditing procedures.

“Because of the significance of [these] matters…we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements as of Sept. 30, 2015….”

The report also stated that CUC “has suffered recurring losses from operations and has a significant negative unrestricted net position, which raises substantial doubt about its ability to continue as a going concern….”

The report stated that for “the year ending Sept. 30, 2015, CUC has a loss from operations of about $8.6 million as compared to a loss of about $4 million for the year ending Sept. 30, 2014.”

During the year ending Sept. 30, 2015, the report added, CUC operating revenues decreased overall by $22 million or 23 percent when compared to revenues for the year ending Sept. 30, 2014. Operating expenses also decreased by $18 million or 18.8 percent.

According to the report:

“CUC will achieve fiscal stability if it recovers its collectible revenue of amounts at least equal to what it costs to provide services. Most of the capital improvement projects were financed by federal grants, rather than by rate payers. Such reliance on federal financial assistance is not sustainable due to future funding uncertainties. While CUC had some success in improving the overall quality of services, continued emphasis must be placed on reinvestment on maintenance, sustainment and infrastructure improvements.”

To be successful, the report said, CUC must:

• Evaluate and adjust its existing rate and fee schedules in such a way that they are sufficient to meet its financial obligations, operating expenses, debt service and capital improvement needs.

• Identify and implement programs to increase its revenue and improve its operations to a surplus and provide service to paying customers.

• Invest in the acquisition of new and replacement structures to generate and meet increasing power demand with an adequate amount of reserve capacity for the new developments in the CNMI.

• Identify water and wastewater infrastructure projects, with design and engineering of solutions, and the procurement of contractors to achieve timely completion of such projects. (Funded by U.S. EPA grant)

• Complete a Water/Wastewater 20-Year Master Plan to provide long range guidance regarding the infrastructure needs and solutions over the next two decades.

• Establish a dedicated crew for leak detection and repairs, resulting in conservation of water and subsequent energy savings. (Partially funded by U.S. EPA and Bureau of Reclamation grants)

• Continue building on 2015 successes in sewer line and lift station cleaning and rehabilitation to ensure safe and effective collection and transmission of wastewater to treatment plants.

• Ensure compliance with federal Stipulated Orders 1 and 2 regarding compliance with the Clean Water Act and Safe Drinking Water Act.

• Expand policies to encourage individuals to implement energy conservation and use of renewable energy sources in their homes and businesses, reducing dependence on fossil fuels.

• Maintain the operation of the power generation system in spite of lack of funds, and the challenge of hiring skilled mechanics and engineers caused in part by immigration restrictions.

• Continue to provide professional and functional training of all employees to deliver outstanding utility services to the CNMI.

As for the unresolved findings mentioned by the audit report, they include reconciliation of customer accounts, receivable subsidiary ledger to the general ledger account, negative accounts receivable, procurement, payroll processing, purchases, disbursements and payroll processing.

The report said controls should be in place to ensure that all customer billings, collections and adjustments are properly carried forward from the billings and collections software to the financial accounting software.

CUC, the report added, relies on computerized controls and the accounting department was not significantly involved in the design and implementation of the billing and collection software from which the significant volume of financial information is generated.

Due to this issue, “the interim financial reports may have been misstated for the effects of the unreconciled balances,” and “financial decisions involving receivables, such as provision for uncollectible accounts, could be based on inaccurate information and may have negative consequences.”

Moreover, “fraud, theft and errors could exist and not be detected.”

CUC agreed with the finding and presented its management’s plan of corrective action.

The audit report also stated that CUC is not in compliance with its travel policies and procedures.

It noted that 20 or 27 percent of 75 travel authorizations selected for testing were submitted less than three days prior to the planned departure; 13 or 17 percent of travel authorizations selected for testing were not recalculated properly upon liquidation; 6 or 8 percent of 75 travel authorizations selected, the travel voucher was submitted late; 27 or 36 percent were not dated; 20 or 27 percent were missing boarding passes and without justification; and 2 or 3 percent were not provided during the audit; and for 63 or 84 percent of 75 travel authorizations selected, the trip reports were not submitted together with the travel voucher.

The report said the turnover in and shortage of accounting personnel did not allow for CUC’s accounting department to make timely follow ups and properly monitor implementation of travel policies and procedures, particularly with liquidation.

“CUC should ensure that policies and procedures are complied with,” the report said.

CUC said it will review and update its existing travel policies and procedures.

“An administration office staff will be trained and assigned to monitor employee submission of completed travel documents and travel vouchers for liquidation,” CUC added.