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Home My WebLink About01102022 City Council LAYDOWN - Forensic AuditGREENE LLP Forensic Accounting Solutions www. greeneforensicas.com 220110 CC Meeting LAYDOWN City of Seward, Alaska Forensic Utility Audit January 10, 2022 Presenters ►Jim Edmonstone, CPA, CFE, CGMA, MBA - Strategic Partner ►Jim Scordo, CFE - Manager www. greeneforensicas.com Engagement Scope ➢ Identify and quantify irregular procedures, policies, and practices Greene Forensic Accounting Solutions LLP (GFAS) observed impacting the accuracy of invoices issued to customers of the City's Water, Sewer, and Electric utilities for the four -month sample period (November and December 2018, and February and March 2019). ➢ Are invoices consistent with applicable tariff provisions? ➢ Are invoices consistent with meter readings? ➢ Have the classifications of rate payers for billing purposes been correctly and consistently applied? ➢ Has the policy for placement of demand meters been correctly and consistently applied? ➢ Has the calculation of ERUs been correctly and consistently performed? www. greeneforensicas.com Two -Phase Approach A high-level review of the City's Electric, Water, and Sewer tariffs and a corresponding assessment of the City's equitable application. 2. A detailed analysis of the City's customer billings for the months of November and December 2018 and February and March 2019. www. greeneforensicas.com 4 Summary of Results (Forensic Audit Report Page References Included) 1. The City employs a classification system for city utility customers. The classification system is inconsistently applied, and the definition of a residential customer is confusing (p. 6). The City does not appear to have a detailed database to support the Equivalent Residential Units (ERUs) being charged to customers (p. 21). 3. ERUs do not appear to accurately estimate customer Water and Sewer consumption (p. 24). 4. The City is not charging eligible large customers a power factor adjustment, even though the charge has been consistently required per each annual tariff (p. 30). There are numerous discrepancies in the detailed customer charges for the four test months (p. 38). www. greeneforensicas.com Customer Classification (P• 5) ► Customer Characteristics vs Consumption (p. 10). ► Water/Sewer charges are generally based on Customer Characteristics (Except for Metered Users). ► Electric charges are generally based on Consumption. ► Exhibits: ► B - Seward Tariff Comparison (p. 236). ► C - Water/Sewer Utility Classification by Customer Characteristics (p. 239). ► Residential Service (p. 11). ► Water/Sewer vs. Electric. ► Rates vary for Electric customers. ► Electric Department proposing separate invoicing for Electric Customers. ► Residential Home Occupations (p. 14). ► Definition of "Owner". ► Auditor Conclusions on Residence (p. 17). ► Common Laundry Facilities Example (p. 18). ► Exhibits: ► D - Electric Department Demand Policy (p. 241). ► E - Residential Service Definitions and Descriptions (p. 244). www.greeneforensicas.com Equivalent Residential Units (ERUs) ► Customer Database of ERUs (p. 21). ► The City has a database showing the number of ERUs being charged to each Customer, but not the rationale supporting the number of ERUs. ► There appears to be no formal method for updating ERU counts (See note on Schedule F). ► Customers do not appear to understand the basis of ERU charges. ► No adjustment process for business changes or events such as the Pandemic. ► ERU Testing (p. 22). ► Schedule F—Test Results (p. 257). ► Meters vs. ERUs. ► Limited Testing indicated that ERUs were not accurately estimating large customer usage. ► Exhibits: ► G-1 to G-6 ERU vs. Meter Comparison (p. 262). www. greeneforensicas.com Power Factor (p. 30) ► Power Factor Rate is in the Electric Tariff. ► Not being charged to eligible Large Customers. ► Has been evaluated by former Electric Department Management. ► Charges would impact several businesses based on prior evaluations. ► City meters are not calibrated to measure the Power Factor per the Electric Department Director. ► Chugach is measuring City's Power Factor. Exhibits: ► H - DOE Power Factor (p. 273). ► 1 - Chugach Electric Association Power Statistics (p. 278). www. greeneforensicas.com Other Electric Charles (p. 33) ► Special Contracts ► For large customers. ► Being discontinued in 2022. ► Cost of Power Adjustment (COPA) ► Intent is to allocate the monthly Chugach bill to Seward Electric customers. ► Tariff allows straight allocation, or smoothing to minimize rate fluctuations. ► Chugach invoice includes periodic large credits and other "true -ups" to reconcile its own purcha! power costs charged to the City and the City's 1% participation in Bradley Lake. These adjustmer can be very large on occasion. ► The Finance Department smooths Chugach's allocations to Seward Customers, but does not have balancing account in the City's general ledger system to track its allocations. ► Exhibits: ► J - Chugach Invoice Example (p. 279). ► K - Seward COPA Overview (p. 283). www.oreeneforensicas.con) Other Electric Charles (continued) (p. 33) Seward Fuel Adjustment ► Designed to recover costs related to the operation and maintenance of the City's backup generation facility. ► Finance Department stated that at times, the City Manger may elect to charge the Electric Department's Budget rather than Seward Electric Customers for certain costs related to the back generation facility. Demand Charges ► Large General Service Customers are subject to demand charges. ► Measured in kilowatts (kW) registered over a 15 minute period during the month. ► Customers may have meters capable of measuring demand, but may not be charged demand. ► Chugach charges demand to the City in its monthly invoice. Chugach's demand charge is allocated to all Seward Electric Customers, not just demand customers. www. greeneforensicas.com Analysis of 2018 and 2019 Customer Charge! (P. 38) The following slides provide an overview of the findings from our analysis of the Billing Statisti provided to us for the test periods. Detailed findings are found in our report. ► The City does not maintain copies of individual customer invoices. ► The Finance Department has the ability to reprint individual invoices. ► We worked off of Excel worksheets containing Billing Statistics. ► We reviewed individual Billing Codes for each utility for each billing test period, comparing what was charged by the City to the applicable tariff. ► Each code on our report includes a description of the code. Exhibit L (p. 284) is a summary of billi codes and their descriptions. ► Following the analysis of billed statistics, there are summaries of the Meter Reading Verification Reports. www. greeneforensicas.com Analysis of 2018 and 2019 Customer Charges (continued) Individual Billing Codes (pp.44 - 105) Significant number of unknown rates throughout the different billing codes. ► Prior period rates are charged in the current period. ► Tariff rates are charged under an incorrect billing code. ► 0 or Null usage. ► $0 rates. Special contract rates. Rates are charged that are not in the Tariff for certain service types (e.g. certain bulb wattages). www. greeneforensicas.com Analysis of 2018 and 2019 Customer Charges (continued) Meter Water Service Findings (p. 106). 37 accounts with entries in W131 and no billings under billing code WMIN. 16 accounts with WMIN charges for all four examination months with no usage charged in WB1. Five of the 16 accounts have 0 or "NULL" usage. 15 accounts with WMIN charges for all four examination months being charged ERU rates instead of tariff. 18 accounts with an unknown rate for WMIN in November and December. When charged WMIN, not charged WB usage; when charged WB usage, not charged WMIN. www. greeneforensicas.com Analysis of 2018 and 2019 Customer Charges (continued) Meter Water Service Findings (p. 107) 21 accounts when charged WMIN, not charged WB usage; when charged WB usage, not charged WMIN. ► 4 accounts charged ERU rates under WMIN and not charged usage. ► 1 account charged unknown rates under WMIN, with 0 usage. In all four (4) examination months, we found instances where both billing codes WCUNIT and WB were charged to the same customer. www. greeneforensicas.com Analysis of 2018 and 2019 Customer Charges (continued) ► Sewer Service Findings (p. 108) 43 accounts with entries in SB1 and no billings under billing code SC. 42 accounts with SC charges for all four examination months with no usage charged in SB1. Ten of the 42 accounts have 0 usage. 23 accounts when charged SC, not charged SIB usage; when charged SIB usage, not charged SC 1 account switched from ERUs to SC (metered) but usage not charged. 1 account charged under SC is charged equivalent of 10 ERUs. www. greeneforensicas.com I Analysis of 2018 and 2019 Customer Charges (continued) Meter Reading Findings (Electric/Water) November 2018 (p. 111): 149 accounts appeared in the meter readings that are not in the billed statistics; 117 vacant. December 2018 (p. 112): 151 accounts appeared in the meter readings that are not in the billed statistics; 119 vacant. February 2019 (p. 113): Testing performed, consistent with other examination. March 2019 (p. 114): 152 accounts appeared in the meter readings that are not in the billed statistics; 121 vacant. Reasons these accounts had no billed statistics. ► Invalid meters with minor usage. ► Invalid meters with no registered usage. ► Invalid meters with 0 usage. ► Reading was skipped. www. greeneforensicas.com Questions or Comments? www. greeneforensicas.com