[Federal Register Volume 63, Number 137 (Friday, July 17, 1998)]
[Rules and Regulations]
[Pages 38720-38735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18758]
[[Page 38719]]
_______________________________________________________________________
Part IV
Department of Agriculture
_______________________________________________________________________
Rural Utilities Service
_______________________________________________________________________
7 CFR Part 1773
Policy on Audits of RUS Borrowers; Final Rule
Federal Register / Vol. 63, No. 137 / Friday, July 17, 1998 / Rules
and Regulations
[[Page 38720]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1773
RIN 0572-AA93
Policy on Audits of RUS Borrowers
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Utilities Service (RUS) hereby amends its
regulations on audits of RUS borrowers. This final rule incorporates
changes to the audit regulations necessitated by the Single Audit Act
Amendments of 1996 and by Office of Management and Budget (OMB)
Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations effective for audits of fiscal years beginning after June
30, 1996. This rule also clarifies the peer review requirements in the
interim final rule for certified public accountants (CPA) performing
audits of RUS borrowers, adopts individual management letters for
electric and telecommunications borrowers, and revises the language of
the auditor's report and management letter to conform with technical
guidance provided by the American Institute of Certified Public
Accountants (AICPA).
EFFECTIVE DATE: July 17, 1998.
FOR FURTHER INFORMATION CONTACT: Mr. Richard C. Annan, Chief, Technical
Accounting and Auditing Staff, Program Accounting Services Division,
Rural Utilities Service, Stop 1523, room 2221, South Building, U.S.
Department of Agriculture, 1400 Independence Avenue, SW, Washington, DC
20250-1523, telephone number (202) 720-5227.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not significant for the
purposes of Executive Order 12866 and therefore has not been reviewed
by OMB.
Civil Justice Reform
This final rule has been reviewed under Executive Order 12998,
Civil Justice Reform. RUS has determined that this final rule meets the
applicable standards provided in section 3 of the Executive Order.
Regulatory Flexibility Act Certification
The Administrator of RUS has determined that this rule will not
have significant impact on a substantial number of small entities
defined in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and
therefore, the Regulatory Flexibility Act does not apply to this rule.
Information Collection and Recordkeeping Requirements
The reporting and recordkeeping requirements contained in this
final rule will be submitted for approval to the Office of Management
and Budget (OMB) pursuant to the Paperwork Reduction Act of 1995 (44
U.S.C. Chapter 34, as amended) under control number 0572-0095. The
paperwork contained in this rule will not be effective until approved
by OMB.
Send questions or comments regarding this burden or any aspect of
this collection, including suggestions for reducing the burden to Mr.
F. Lamont Heppe, Jr., Director, Program Development and Regulatory
Analysis, Rural Utilities Service, Stop 1522, 1400 Independence Avenue
SW, Washington, DC 20250-1522.
National Environmental Policy Act Certification
The RUS Administrator has determined that this final rule will not
significantly affect the quality of the human environment as defined by
the National Environmental Policy Act of 1969(42 U.S.C. 4321 et seq.).
Therefore, this action does not require an environmental impact
statement or assessment.
Catalog of Federal Domestic Assistance
The program described by this final rule is listed in the Catalog
of Federal Domestic Assistance Programs under numbers 10.850--Rural
Electrification Loans and Loan Guarantees, 10.851--Rural Telephone
Loans and Loan Guarantees, and 10.852--Rural Telephone Bank Loans. This
catalog is available on a subscription basis from the Superintendent of
Documents, the United States Government Printing Office, Washington, DC
20402.
Executive Order 12372
This final rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation. A notice of final rule entitled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR. 47034) exempts RUS electric loans and loan guarantees from
coverage under this order.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Unfunded Mandates
This rule contains no Federal Mandates (under the regulatory
provision of Title II of the Unfunded Mandate Reform Act) for State,
local, and tribal governments or the private sector. Thus this rule is
not subject to the requirements of section 202 and 205 of the Unfunded
Mandate Reform Act.
Background
This final rule implements the changes required by the Single Audit
Act Amendments of 1996 (31 U.S.C. 7501 et seq.) and the revised OMB
Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations (31 U.S.C. 7501 et seq.). The purposes of the Single
Audit Act Amendments of 1996 were to promote sound financial management
with respect to Federal awards administered by non-Federal entities,
establish uniform requirements for audits of Federal awards, promote
the efficient and effective use of audit resources, and reduce the
burden on State and local governments, Indian tribes, and non-profit
organizations. OMB Circular A-128, Audits of States and Local
Governments, was merged with the former OMB Circular A-133, Audits of
Institutions of Higher Education and Other Non-Profit Institutions, to
form the revised OMB Circular A-133. The revised Circular implements
the Single Audit Act Amendments of 1996 and raises the expenditure
threshold. The Circular requires auditors to issue a report on
compliance and on internal control over financial reporting and a
report on compliance with requirements applicable to each major program
and internal control over compliance in accordance with OMB Circular A-
133.
Previously, separate reports were issued on compliance and internal
controls. With the issuance of the revised Circular A-133, the AICPA
developed illustrative report examples that merged the two reports into
one report on compliance and on internal control over financial
reporting.
On January 3, 1996, RUS published 61 FR 104 an interim final rule
with request for comments amending part 1773 to comply with the 1994
revision of Generally Accepted Government Auditing Standards (GAGAS)
and Statement on Auditing Standards (SAS) No. 74, Compliance Auditing
Considerations in Audits of Governmental Entities and Recipients of
Governmental Financial Assistance. The January 3, 1996, interim final
rule also amended RUS' peer review requirements to reflect the merger
of the Private Companies Practice Section of
[[Page 38721]]
the AICPA and the AICPA quality review program and to extend the time
period for peer reviews to 42 months. This final rule amends part 1773
in response to the comments filed on the interim final rule.
Section 1773.34, Management Letter, specifies the minimum
requirements for the CPA's management letter. Among these is the
requirement for the CPA to state whether the information submitted to
RUS in its most recent December 31 RUS Form 7, Financial and
Statistical Report; Form 12, Operating Report--Financial; or Form 479,
Financial and Statistical Report for Telephone Borrowers, is in
agreement with the borrower's records. This final rule clarifies that
section to require the CPA's statement to indicate whether the most
recent December 31 RUS Form 7, 12, or 479, agrees with the borrower's
``audited'' records if a borrower has a December 31 year end. For
borrowers with a year end other than December 31, the CPA must state
whether the information provided appears reasonable based upon the
audit procedures performed.
The management letter for electric borrowers was also modified to
conform with changes in Sec. 1717.612, which states that funds are cash
proceeds from loans made or guaranteed by RUS; Sec. 1717.618 to
redefine ``substantially all'' in management, operation, or maintenance
contracts covering the borrower's system as being 90 percent; and
Sec. 1717.609 to delete the provision requiring the CPA to determine
whether RUS approval was obtained for contracts between the borrower
and its manager.
The management letter for telecommunications borrowers was changed
to include additional requirements for compliance with RUS
telecommunications loan and security instrument provisions. The rule
clarifies that section to require the CPA to determine whether the
borrower is in compliance with the provisions pertaining to the funded
reserve requirements and net plant to secured debt ratio requirements
for RUS loans approved after June 10, 1991, and before October 7, 1997,
and the funded reserve requirement for RTB loans approved after June
10, 1991.
Both the management letters for electric and telecommunications
borrowers were modified to remove the negative assurance language
pertaining to items not tested in conformance with GAGAS.
The January 3, 1996, interim final rule also amended Sections
1773.5, Qualifications of CPA, and 1773.6, Audit Agreement, to include
changes necessitated by the 1994 revision of GAGAS. In that amendment,
the abbreviation OIG (Office of Inspector General, United States
Department of Agriculture) was inadvertently replaced by OGC (Office of
General Counsel) in paragraph 1773.5(c)(6)(iii) and paragraph
1773.6(a)(6). This final rule corrects that error.
The renaming of the Borrower Accounting Division (BAD) to the
Program Accounting Services Division (PASD) was not incorporated into
the interim final rule. This final rule serves to incorporate the name
change by deleting all references to BAD and replacing them with PASD.
This final rule also adds a definition of the term ``borrower'' to
mean all entities which receive financial assistance in the form of
loans, loan guarantees, or grants from RUS.
Comments
An interim final rule entitled ``Policy on Audits of RUS
Borrowers,'' published January 3, 1996, at 61 FR 104, invited
interested parties to submit comments on or before March 4, 1996.
Comments were received from three accounting firms, the Assistant
Administrator, Telecommunications Program, the Deputy Assistant
Administrator, Electric Program, and from OIG. The following paragraphs
address the topics that were discussed by the two commenters.
Comment. The revisions to Secs. 1773.33 (e)(1)(iii) and
1773.33(e)(2)(iii) require the CPA to state whether the information
submitted by a borrower to RUS in its most recent December 31 RUS Form
7, Financial and Statistical Report; Form 12, Operating Report-
Financial; or Form 479, Financial and Statistical Report for Telephone
Borrowers, is in agreement with the borrower's ``audited'' records.
Commenters expressed concern that this requirement did not properly
consider borrowers with fiscal year ends other than December 31. One
commenter asked if this requirement necessitated a calendar year audit
or alternate audit procedures to comply.
Response. The intent of this section was to require CPAs to state
whether the information submitted by a borrower to RUS in its most
recent December 31 RUS Form 7, 12, or 479 was in agreement with the
borrower's audited records if the borrower has a December 31 year end.
For borrowers with year ends other than December 31, the section was
intended to require the CPA to state whether the information provided
appeared reasonable based upon the procedures performed during the
audit. The final rule has been amended to clarify this requirement.
Comment. When 7 CFR part 1717 was revised by the electric program,
certain modifications affected part 1773. In Sec. 1717.608, RUS
approval of contracts between the borrower and its manager are no
longer required. Additionally, the electric program determined that the
quantification of ``substantial part'' was too low and raised it to 90
percent. Section 1717.612 defined funds as cash proceeds from loans
made or guaranteed by RUS. These changes should to be incorporated into
part 1773.
Response. This final rule has been amended to incorporate the
changes necessitated by revisions made to part 1717.
Comment. The revisions to Sec. 1773.33 (e)(2) excluded a
requirement for compliance with RUS loan and security instrument
provision for telecommunications borrowers. Under existing regulations,
if the loan maturity period selected by the borrower exceeds the
expected composite economic life of the facilities financed by a period
of more than three years, the loan is conditioned upon the borrower
electing to maintain a net plant to secured debt ratio of at least 1.2,
or a funded reserve in such amount that the balance of the reserve plus
the value of the facilities less depreciation be at least equal to the
remaining principal payments on the loan.
Response. It was not our intent to omit this requirement for
compliance with the RUS loan and security instrument from the
management letter. The final rule has been amended to include this
requirement.
Comment. One commenter noted that the management letter in part
1773 included a sentence that was in conflict with GAGAS. It was his
opinion that the sentence concerning negative assurance should be
eliminated from the management letter.
Response. We agree with the comment and we have deleted this
sentence from the management letter.
Comment. The revision to Sec. 1773.5 (c)(4)(C) set forth in the
January 3, 1996, interim final rule extended the timeframe for
submission of peer reviews to 42 months. Commenters expressed concern
that the 42 months timeframe did not meet the requirements of GAGAS.
Response. The intent of this section was to provide a 6-month
period for CPAs to submit their peer review reports to RUS. Upon
further review of the interim final rule, we have revised the language
in the final rule to require completion of peer reviews within 36
[[Page 38722]]
months of the issuance of the prior review in accordance with GAGAS.
List of Subjects in 7 CFR Part 1773
Accounting, Electric power, Loan programs--communications, Loan
programs--energy, Reporting and recordkeeping requirements, Rural
areas, Telecommunications.
For reasons set forth in the preamble, RUS hereby amends 7 CFR part
1773 chapter XVII as follows:
PART 1773--POLICY ON AUDITS OF RUS BORROWERS
1. The authority citation for part 1773 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L.
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).
2. In part 1773 all references to items indicated in the left
column are revised to read as stated in the right column:
------------------------------------------------------------------------
Remove BAD--Borrower Accounting Add PASD--Program Accounting
Division Services Division
------------------------------------------------------------------------
Director, BAD.......................... Assistant Administrator,
Program Accounting and
Regulatory Analysis.
Telephone Program report on compliance. Telecommunications Program
report on compliance and on
internal controls over
financial reporting.
Report on internal controls............ Report on compliance and on
internal controls over
financial reporting.
Report on compliance and internal Report on compliance and on
controls. internal controls over
financial reporting.
------------------------------------------------------------------------
3. Section 1773.2 is amended by adding the definition for Borrower.
Sec. 1773.2 Definitions.
* * * * *
Borrower means an entity that has an outstanding RUS, RTB, or FFB
loan or loan guarantee, or that has received a grant for electric,
telecommunications, distance learning, or telemedicine purposes under
the act.
* * * * *
4. Section 1773.3 is amended by removing paragraph (d)(2),
redesignating paragraphs (d)(3) and (d)(4) to (d)(2) and (d)(3) and
revising paragraphs (d) introductory text, (d)(1) through (d)(3)
introductory text, (d)(3)(ii) and (e).
Sec. 1773.3 Annual audit.
* * * * *
(d) A borrower that qualifies as a unit of state or local
government or Indian tribe as such terms are defined in the Single
Audit Act of 1984 (31 U.S.C. 7501 et seq.), the Single Audit Act
Amendments of 1996 (31 U.S.C. 7505 et seq.) and OMB Circular A-133,
Audits of States, Local Governments, and Non-Profit Organizations (copy
available from the Executive Office of the President, Publication
Services, 725 17th St., NW., Suite 2200, Washington, DC 20502; 202-395-
7332), must comply with this part as follows:
(1) A borrower that expends $300,000 or more in a year in Federal
awards must have an audit performed and submit an auditor's report
meeting the requirements of the Single Audit Act of 1984 and the Single
Audit Act Amendments of 1996.
(2) A borrower that expends less than $300,000 in Federal awards
during the year must have an audit performed in accordance with the
requirements of this part.
(3) A borrower must notify RUS, in writing, within 30 days of the
as of audit date, of the total Federal awards expended during the year
and must state whether it will have an audit performed in accordance
with the Single Audit Act of 1984 and the Single Audit Act Amendments
of 1996, or this part.
* * * * *
(ii) If an audit is performed in accordance with the Single Audit
Act of 1984 and the Single Audit Act Amendments of 1996, an auditor's
report that meets the requirements of the Single Audit Act of 1984, and
the Single Audit Act Amendments of 1996, will be sufficient to satisfy
that borrower's obligations under this part.
(e) OMB Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations does not apply to audits of RUS electric and
telecommunications cooperatives and commercial telecommunications
borrowers.
* * * * *
5. Section 1773.5 is amended by revising paragraphs (c)
introductory text and (c)(6) (iii) to read as follows:
Sec. 1773.5 Qualifications of CPA.
* * * * *
(c) Peer review requirement. The CPA must belong to and participate
in a peer review program, and must have undergone a satisfactory peer
review of the accounting and audit practice conducted by an approved
peer review program under paragraph (c)(4) of this section, unless a
waiver is granted under paragraph (c)(7) of this section. The reviewing
organization must not be affiliated with or have had its most recent
peer review conducted by the organization currently being reviewed
(reciprocal reviews). After the initial peer review has been performed,
the CPA must undergo a peer review of the accounting and audit practice
within 36 months of the issuance of the previous peer review or at such
additional times as designated by the peer review executive committee.
* * * * *
(6) * * *
(iii) A copy of the peer review report, accompanying letter of
comment, and the partners' inspections must be made available to OIG,
upon request.
* * * * *
6. Section 1773.6 is amended by revising paragraph (a)(6) to read
as follows:
Sec. 1773.6 Audit agreement.
(a) * * *
(6) The CPA will make all audit-related documents, including
auditor's reports, workpapers, and management letters available to RUS
or its representatives (OIG and GAO), upon request, and will permit the
photocopying of all audit-related documents; and
* * * * *
7. Section 1773.30 is amended by removing paragraph (a)(3), and
redesignating paragraph (a)(4) to (a)(3) and revising paragraphs (a)(2)
and (a)(3) to read as follows:
Sec. 1773.30 General.
(a) * * *
(2) A report on compliance and on internal control over financial
reporting, examples of which are set forth in appendices A, exhibits 2
and 3 (Electric) and B, exhibits 4 and 5 (Telecommunications) of this
part 1773; and
(3) A management letter, an example of which is set forth in
appendix C of this part 1773.
* * * * *
8a. Section 1773.31 is amended by revising the last sentence to
read as follows:
[[Page 38723]]
Sec. 1773.31 Auditor's Report.
* * * This report must be signed by the CPA, cover all statements
presented, and refer to the separate report on compliance and on
internal control over financial reporting issued in conjunction with
the auditor's report.
8b. Section 1773.32 is revised to read as follows:
Sec. 1773.32 Report on compliance and on internal control over
financial reporting.
As required by GAGAS, the CPA must prepare a written report on the
tests performed for compliance with applicable laws, regulations,
contracts, and grants, and on the borrower's internal control structure
and on the assessment of control risk made as part of the financial
statement audit. This report must be signed by the CPA and must
include, as a minimum:
(a) The scope of the CPA's work to obtain an understanding of the
borrower's internal control structure and in assessing the control
risk;
(b) A description of the reportable conditions noted which include
material weaknesses identified as a result of the CPA's work in
understanding and assessing control risk;
(c) If no reportable instances of noncompliance and no reportable
conditions were found, the CPA must issue a report as illustrated in
appendix A, exhibit 2 (Electric), and appendix B, exhibit 4
(Telecommunications) of this part 1773;
(d) If material instances of noncompliance and reportable
conditions are identified, the CPA must issue a report as illustrated
in appendix A, exhibit 3 (Electric), and appendix B, exhibit 5
(Telecommunications) of this part 1773;
(e) Other nonmaterial instances of noncompliance should not be
disclosed in the report on compliance and on internal control over
financial reporting, but should be reported in a separate communication
to the board of directors, preferably in writing. All such
communications must be documented in the workpapers and submitted to
RUS in compliance with Sec. 1773.21.
(f) If the CPA has issued a separate letter detailing immaterial
instances of noncompliance, the report on compliance and on internal
control over financial reporting must be modified to include a
statement such as:
We noted certain immaterial instances of noncompliance that we
have reported to the management of (borrower's name) in a separate
letter dated (month, day, year).
(g) If the CPA has issued a separate letter to management to
communicate other matters involving the design and operation of the
internal control over financial reporting, the report on compliance and
on internal control over financial reporting must be modified to
include a statement such as:
However, we noted other matters involving the internal control
over financial reporting that we have reported to the management of
(borrower's name) in a separate letter dated (month, day, year).
(h) The report must contain the status of known but uncorrected
significant or material findings and recommendations from prior audits
that affect the current audit objective.
9. Section 1773.33 is removed.
10. Section 1773.34 is redesignated to Sec. 1773.33 and amended by
removing paragraph (e)(1)(ii)(E), revising paragraphs (e)(1)(i),
(e)(1)(ii) introductory text, (e)(1)(ii)(C) and (e)(1)(iii) and
(e)(2)(iii) and adding (e)(2)(iv) to read as follows:
Sec. 1773.33 Management letter.
* * * * *
(e) * * *
(1) * * *
(i) The requirement for funds to be deposited in banks or other
depositories designated in the loan documents or approved by RUS. For
purposes of this part, funds shall be defined as cash proceeds from
loans made or guaranteed by RUS in accordance with 7 CFR 1717.612.
(ii) The requirement for a borrower to obtain written approval of
mortgagees to enter into any contract for the management, operation, or
maintenance of the borrower's system if the contract covers all or
substantially all (90 percent) of the electric system. For purposes of
this part, the following contracts shall be deemed as requiring RUS
approval:
* * * * *
(C) Operations and maintenance contracts in which the borrower has
contracted to have another borrower or other entity operate and/or
maintain all or substantially all (90 percent) of the physical plant
facilities of the plant.
* * * * *
(iii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. For borrowers with a December 31
year end, the CPA must state whether the information represented by the
borrower as having been submitted to RUS in its most recent December 31
RUS Form 7 or Form 12 is in agreement with the borrower's audited
records. For borrowers with a year end other than December 31, the CPA
must state whether the information appears reasonable based upon the
audit procedures performed. If the borrower represents that an amended
report has been filed as of December 31, the comments must relate to
the amended report.
(2) * * *
(iii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. For borrowers with a December 31
year end, the CPA must state whether the information represented by the
borrower as having been submitted to RUS in its most recent December 31
RUS Form 479 is in agreement with the borrower's audited records. For
borrowers with a year end other than December 31, the CPA must state
whether the information appears reasonable based upon the audit
procedures performed. If the borrower represents that an amended report
has been filed as of December 31, the comments must relate to the
amended report.
(iv) The requirement that a borrower maintain either a net plant to
secured debt ratio or a funded reserve.
(A) For loans approved after June 10, 1991, and before October 7,
1997, if a borrower selected a loan maturity period in excess of the
expected economic life of the facilities financed, the borrower must
maintain a secured debt ratio of at least 1.2 or a funded reserve. If,
during the audit period, the borrower has been issued refunding notes
that match the remaining composite economic life of the facilities thus
eliminating the requirement, the auditor should so state.
(1) If the net plant to secured debt ratio option was selected,
this ratio must be achieved one year following the first advance of
funds.
(2) If the funded reserve option was selected, the reserve must be
of such amount that the balance of the reserve plus the value of the
facilities less depreciation be at least equal to the remaining
principal payments on the loan. Funding of the reserve must begin
within one year of approval of release of funds and must continue
regularly over the composite economic life of the facilities financed.
(B) For loans approved after October 7, 1997, if a borrower
selected a loan maturity period in excess of the expected economic life
of the facilities financed, the borrower must maintain a funded reserve
in such amount that the balance of the reserve plus the value of the
facilities less depreciation be at least equal to the remaining
principal
[[Page 38724]]
payments on the loan. Funding of the reserve must begin within one year
of approval of release of funds and must continue regularly over the
composite economic life of the facilities financed. If, during the
audit period, the borrower has been issued refunding notes that match
the remaining composite economic life of the facilities thus
eliminating the requirement for maintaining the funded reserve
requirement, the auditor should so state.
* * * * *
11. Reserve Sec. 1773.34.
12. Appendix A to Part 1773 is amended by revising exhibits 1, 2,
and 3, removing exhibits 4, 5, and 6, and redesignating exhibit 7 as
exhibit 4 and revising it to read as follows:
Appendix A to Part 1773--Sample Auditor's Report for an Electric
Cooperative
* * * * *
Exhibit 1--Sample Auditor's Report
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors, Center County Electric Cooperative:
Independent Auditor's Report
We have audited the accompanying balance sheets of Center County
Electric Cooperative as of December 31, 1998 and 1997, and the
related statements of revenue and patronage capital, and cash flows
for the years then ended. These financial statements are the
responsibility of Center County Electric Cooperative's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards required
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Center County Electric Cooperative as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
In accordance with Government Auditing Standards, we have also
issued a report dated March 2, 1999, on our consideration of Center
County Electric Cooperative's internal control over financial
reporting and our tests of its compliance with certain provisions of
laws, regulations, contracts, and grants.
Certified Public Accountants
March 2, 1999
Exhibit 2--Sample Report on Compliance and on Internal Control
over Financial Reporting, the CPA found No Reportable Instances of
Noncompliance and No Material Weaknesses (No Reportable Conditions
Identified).
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors
Center County Electric Cooperative:
We have audited the financial statements of Center County
Electric Cooperative as of and for the years ended December 31, 1998
and 1997, and have issued our report thereon dated March 2, 1999. We
conducted our audit in accordance with generally accepted auditing
standards and the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller General
of the United States.
Compliance
As part of obtaining reasonable assurance about whether Center
County Electric Cooperative's financial statements are free of
material misstatement, we performed tests of its compliance with
certain provisions of laws, regulations, contracts, and grants,
noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing
an opinion on compliance with those provisions was not an objective
of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance
that are required to be reported under Government Auditing
Standards. [If the CPA has issued a separate letter to the
management detailing immaterial instances of noncompliance, modify
this paragraph to include a statement such as the following:
However, we noted certain immaterial instances of noncompliance
which we have reported to the management of Center County Electric
Cooperative in a separate letter dated March 2, 1999.]
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Center
County Electric Cooperative's internal control over financial
reporting in order to determine our auditing procedures for the
purpose of expressing our opinion on the financial statements and
not to provide assurance on the internal control over financial
reporting. Our consideration of the internal control over financial
reporting would not necessarily disclose all matters in the internal
control over financial reporting that might be material weaknesses.
A material weakness is a condition in which the design or operation
of one or more of the internal control components does not reduce to
a relatively low level the risk that misstatements in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control over
financial reporting and its operation that we consider to be
material weaknesses. [If the CPA has issued a separate letter to
management to communicate other matters involving the design and
operation of the internal control over financial reporting, modify
this paragraph to include a statement such as the following:
However, we noted other matters involving the internal control over
financial reporting which we have reported to the management of
Center County Electric Cooperative in a separate letter dated March
2, 1999.]
This report is intended for the information of the audit
committee, management, the Rural Utilities Service, and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
March 2, 1999
Exhibit 3--Sample Report on Compliance and on Internal Control
over Financial Reporting, the CPA found Reportable Instances of
noncompliance and Reportable Conditions Identified.
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors
Center County Electric Cooperative:
We have audited the financial statements of Center County
Electric Cooperative as of and for the years ended December 31, 1998
and 1997, and have issued our report thereon dated March 2, 1999. We
conducted our audit in accordance with generally accepted auditing
standards and the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller General
of the United States.
Compliance
As part of obtaining reasonable assurance about whether Center
County Electric Cooperative's financial statements are free of
material misstatement, we performed tests of its compliance with
certain provisions of laws, regulations, contracts, and grants,
noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing
an opinion on compliance with those provisions was not an objective
of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed instances of noncompliance that
are required to be reported under Government Auditing Standards. [A
description of the findings should be included in the report.][If
the CPA has issued a separate letter to the management detailing
immaterial instances of noncompliance, modify this paragraph to
include a statement such as the following: We also noted certain
immaterial instances of noncompliance which we have reported to the
management of Center County Electric Cooperative in a separate
letter dated March 2, 1999.]
[[Page 38725]]
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Center
County Electric Cooperative's internal control over financial
reporting in order to determine our auditing procedures for the
purpose of expressing our opinion on the financial statements and
not to provide assurance on the internal control over financial
reporting. However, we noted certain matters involving the internal
control over financial reporting and its operation that we consider
to be reportable conditions. Reportable conditions involve matters
coming to our attention relating to significant deficiencies in the
design or operation of the internal control over financial reporting
that, in our judgment, could adversely affect Center County Electric
Cooperative's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the
financial statements. [A description of the reportable conditions
should be included in the report.]
A material weakness is a condition in which the design or
operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements in
amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. Our consideration of the internal control over
financial reporting would not necessarily disclose all matters in
the internal control that might be reportable conditions and,
accordingly, would not necessarily disclose all reportable
conditions that are also considered to be material weaknesses.
However, we believe none of the reportable conditions described
above is a material weakness. [If conditions believed to be material
weaknesses are disclosed, the last sentence should be deleted and
instead the report should identify which of the reportable
conditions described above are considered to be material
weaknesses.][If the CPA has issued a separate letter to management
to communicate other matters involving the design and operation of
the internal control over financial reporting, modify this paragraph
to include a statement such as the following: We also noted other
matters involving the internal control over financial reporting
which we have reported to the management of Center County Electric
Cooperative in a separate letter dated March 2, 1999.]
This report is intended for the information of the audit
committee, management, the Rural Utilities Service, and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
March 2, 1999
EXHIBIT 4--SAMPLE FINANCIAL STATEMENTS
Center Telephone Company Balance Sheets--December 31, 19X9 and 19X8
Assets (Notes 1 and 2)
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
CURRENT ASSETS:
Cash--Construction Funds............ $21,000 $18,000
Cash--General Funds................. 128,300 140,083
Telecommunications Accounts.........
Receivable (less accumulated
provision of $11,597 in 19X9 and
$1,490 in 19X8).................... 139,642 122,623
Notes Receivable.................... 2,500 3,000
Materials and Supplies.............. 103,713 73,964
Prepayments (Note 3)................ 49,185 62,201
Other Current Assets................ 1,357 10,131
-------------------------------
445,697 430,002
===============================
NONCURRENT ASSETS:
Nonregulated Investments: (Note 4)
Net CATV Plant.................. 413,511 407,086
Net Nonregulated Customer
Premises Equipment............. 103,618 0
Deferred Maintenance and Retirements
(Note 5)........................... 40,000 45,000
-------------------------------
557,129 452,086
===============================
PROPERTY, PLANT, AND EQUIPMENT: (Note 6)
Telecommunications Plant in Service. 7,401,300 6,650,553
Telecommunications Plant Under
Construction....................... 67,626 199,092
Telecommunications Plant Adjustment
(Note 7)........................... 176,380 176,380
-------------------------------
7,645,306 7,026,025
Less: Accumulated Provision for
Depreciation....................... 1,760,587 1,504,255
-------------------------------
5,884,719 5,521,770
-------------------------------
6,887,545 6,403,858
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center Telephone Company Balance Sheets--December 31, 19X9 and 19X8
Liabilities and Equities
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable.................... $123,689 $290,484
Notes Payable....................... 61,600 70,400
Advance Billings and Payments....... 2,137 2,243
Customers Deposits.................. 11,878 4,940
Current Maturities of Long-Term Debt
(Note 8)........................... 146,646 145,998
Accrued Taxes....................... 242,076 224,566
[[Page 38726]]
Other Current Liabilities........... 8,500 9,079
-------------------------------
596,526 747,710
===============================
LONG-TERM DEBT:
RUS Mortgage Notes (Note 8)......... 4,592,658 4,128,106
===============================
OTHER LIABILITIES AND DEFERRED CREDITS:
Unamortized Investment Tax Credits
(Note 10).......................... 53,078 61,377
Deferred Income Taxes (Note 11)..... 37,137 35,039
-------------------------------
90,215 96,416
===============================
STOCKHOLDERS' EQUITY:
Capital Stock--Common $2 par value--
300,000 Shares Authorized; 102,600
Shares Outstanding 19X9 and 19X8... 205,200 205,200
Additional Paid-in Capital.......... 820,800 820,800
Retained Earnings (Note 8).......... 582,146 405,626
-------------------------------
1,608,146 1,431,626
-------------------------------
6,887,545 6,403,858
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center Telephone Company Statements of Income and Retained Earnings for
the Years Ended December 31, 19X9 and 19X8
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
OPERATING REVENUES:
Basic Local Network Services...... $836,822 $862,205
Network Access Services........... 125,042 -0-
Long Distance Network Services.... 897,300 775,073
Miscellaneous..................... 144,435 147,100
Less: Uncollectible Revenues...... (24,000) (24,500)
---------------------------------
1,979,599 1,759,878
=================================
OPERATING EXPENSES:
Plant Specific Operations......... 564,486 480,509
Plant Nonspecific Operations...... 187,162 393,143
Depreciation and Amortization..... 274,691
Customer Operations............... 94,473 78,772
Corporate Operations.............. 157,453 134,127
---------------------------------
1,278,265 1,086,551
=================================
OPERATING TAXES:
Federal and State Income..........
Taxes--Operating (Notes 10 and 11) 159,845 170,687
Other Operating Taxes............. 225,013 204,230
Provision for Deferred Taxes (Note
10).............................. 31,566 29,468
Investment Credits--Net........... 6,201 1,640
---------------------------------
422,625 406,025
=================================
OPERATING INCOME...................... 278,709 267,302
=================================
FIXED CHARGES:
Interest on Long-Term Debt........ 88,432 85,854
Interest Charged to Construction
Credit........................... (2,251) (1,516)
---------------------------------
86,181 84,338
=================================
NONREGULATED INCOME--NET (Note 4)..... 19,902 10,593
---------------------------------
NET INCOME FOR PERIOD................. 212,430 193,557
Retained Earnings--January 1, 19X9
and 19X8......................... 405,626 235,153
Dividends Declared................ (35,910) (23,084)
---------------------------------
[[Page 38727]]
Retained Earnings--December 31,
19X9 and 19X8.................... $582,146 $405,626
=================================
Earnings Per Share of Common
Stock--Average................... $2.07 $1.89
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center County Telephone Company Statements of Cash Flows for the Years
Ended December 31, 19X9 and 19X8
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Consumers...... $1,962,580 $1,733,289
Cash Paid to Suppliers and
Employees........................ (1,159,158) (960,459)
Interest Paid..................... (86,181) (84,338)
Taxes Paid........................ (401,316) (376,643)
---------------------------------
Net Cash Provided by Operating
Activities....................... 315,925 311,849
=================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and Acquisition of
Plant............................ (619,281) (507,617)
Investment in CATV Plant.......... (6,425) (18,246)
Investment in Nonregulated CPE.... (103,618)
Plant Removal Costs............... (18,359) (27,216)
(Increase)/Decrease In:
Materials Inventory............... (29,749) (19,478)
Notes Receivable.................. 500 1,000
Deferred Maintenance and
Retirements...................... 5,000 (45,000)
Nonregulated Income............... 19,902 10,593
---------------------------------
Net Cash Used in Investing
Activities....................... (752,030) (605,964)
=================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid.................... (35,910) (23,084)
Debt Proceeds..................... 465,200 386,000
Payments on Short-term Debt....... (8,800) (7,500)
Increase/(Decrease) In:
Consumer Deposits and Advance
Payments......................... 6,832 4,200
---------------------------------
Net Cash Provided by Financing
Activities....................... 427,322 359,616
---------------------------------
Net Increase/(Decrease) in Cash... (8,783) 65,501
Cash--Beginning of Year........... 158,083 92,582
---------------------------------
Cash--End of Year................. 149,300 158,083
=================================
The accompanying notes are an
integral part of these statements.
RECONCILIATION OF NET MARGINS TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Margins....................... 212,430 193,557
Less: Nonregulated Income......... (19,902) (10,593)
---------------------------------
Net Income from Regulated
Operations....................... 192,528 182,964
Adjustments to Reconcile Net
Margins to Net Cash Provided by
Operating Activities:
Depreciation and Amortization. 274,691 253,509
Provision for Uncollectible
Accounts Receivable.......... 10,107 (3,610)
(Increase)/Decrease In:
Customer and Other Accounts
Receivable................... (27,126) (22,979)
Current and Accrued Assets--
Other........................ 8,774 5,119
Prepaid Taxes................. 10,000 (10,000)
Other Prepaid Expenses........ 3,016 (5,426)
Increase/(Decrease) In:
Accounts Payable.............. (166,795) (126,472)
Accrued Taxes................. 17,510 37,742
Other Current Liabilities..... (579) (638)
Deferred Credits.............. (6,201) 1,640
---------------------------------
Total Adjustments............. 123,397 128,885
=================================
Net Cash Provided by Operating
Activities........................... 315,925 311,849
------------------------------------------------------------------------
[[Page 38728]]
The accompanying notes are an integral part of these statements.
13. Appendix B to Part 1773 is amended by revising exhibits 1, 2,
and 3, deleting exhibits 4, 5 and 6, and redesignating exhibit 7 as
exhibit 4 and revising it to read as follows:
Appendix B to Part 1773-Sample Auditor's Report for A Class A or B
Commercial Telecommunications Company
* * * * *
Exhibit 1--Same Auditor's Report
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors, Center Telephone Company: Independent
Auditor's Report
We have audited the accompanying balance sheets of Center
Telephone Company as of December 31, 1998 and 1997, and the related
statements of revenue and patronage capital, and cash flows for the
years then ended. These financial statements are the responsibility
of Center Telephone Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our audit.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Center Telephone Company as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then
ended in conformity with general accepted accounting principles.
In accordance with Government Auditing Standards, we have also
issued our report dated March 2, 1999, on our consideration of
Center Telephone Company's internal control over financial reporting
and our tests of its compliance with certain provisions of laws,
regulations, contracts, and grants.
Certified Public Accountants
March 2, 1999
Exhibit 2--Sample Report on Compliance and on Internal Control
over Financial Reporting, the CPA found No Reportable Instances of
Noncompliance and No Material Weaknesses(No Reportable Conditions
Identified)
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors
Center Telephone Company:
We have audited the financial statements of Center Telephone
Company as of and for the years ended December 31, 1998 and 1997,
and have issued our report thereon dated March 2, 1999. We conducted
our audit in accordance with generally accepted auditing standards
and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of
the United States.
Compliance
As part of obtaining reasonable assurance about whether Center
Telephone Company's financial statements are free of material
misstatement, we performed tests of its compliance with certain
provisions of laws, regulations, contracts, and grants,
noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing
an opinion on compliance with those provisions was not an objective
of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance
that are required to be reported under Government Auditing
Standards. [If the CPA has issued a separate letter to the
management detailing immaterial instances of noncompliance, modify
this paragraph to include a statement such as the following:
However, we noted certain immaterial instances of noncompliance
which we have reported to the management of Center Telephone Company
in a separate letter dated March 2, 1999.]
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Center
Telephone Company's internal control over financial reporting in
order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and not to
provide assurance on the internal control over financial reporting.
Our consideration of the internal control over financial reporting
would not necessarily disclose all matters in the internal control
over financial reporting that might be material weaknesses. A
material weakness is a condition in which the design or operation of
one or more of the internal control components does not reduce to a
relatively low level the risk that misstatements in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control over
financial reporting and its operation that we consider to be
material weaknesses. [If the CPA has issued a separate letter to
management to communicate other matters involving the design and
operation of the internal control over financial reporting, modify
this paragraph to include a statement such as the following:
However, we noted other matters involving the internal control over
financial reporting which we have reported to the management of
Center Telephone Company in a separate letter dated March 2, 1999.]
This report is intended for the information of the audit
committee, management, the Rural Utilities Service, and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
March 2, 1999
Exhibit 3--Sample Report on Compliance and on Internal Control
over Financial Reporting, the CPA found Reportable Instances of
Noncompliance and Reportable Conditions were Identified
Certified Public Accountants, 1600 Main Street, City, State 24105
The Board of Directors
Center Telephone Company
We have audited the financial statements of Center Telephone
Company as of and for the years ended December 31, 1998 and 1997,
and have issued our report thereon dated March 2, 1999. We conducted
our audit in accordance with generally accepted auditing standards
and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of
the United States.
Compliance
As part of obtaining reasonable assurance about whether Center
County Telephone Company's financial statements are free of material
misstatement, we performed tests of its compliance with certain
provisions of laws, regulations, contracts, and grants,
noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing
an opinion on compliance with those provisions was not an objective
of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed instances of noncompliance that
are required to be reported under Government Auditing Standards. [A
description of the findings should be included in the report.] [If
the CPA has issued a separate letter to the management detailing
immaterial instances of noncompliance, modify this paragraph to
include a statement such as the following: We also noted certain
immaterial instances of noncompliance which we have reported to the
management of Center Telephone Company in a separate letter dated
March 2, 1999.]
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Center
Telephone Company's internal control over financial reporting in
order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and not to
provide assurance on the internal control over financial reporting.
However, we noted certain matters involving the internal control
over financial reporting and its operation that we consider to be
reportable conditions. Reportable conditions involve matters coming
to our attention relating to significant deficiencies in the design
or operation of the
[[Page 38729]]
internal control over financial reporting that, in our judgment,
could adversely affect Center Telephone Company's ability to record,
process, summarize and report financial data consistent with the
assertions of management in the financial statements. [A description
of the findings pertaining to reportable conditions should be
included in the report.]
A material weakness is a condition in which the design or
operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements in
amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. Our consideration of the internal control over
financial reporting would not necessarily disclose all matters in
the internal control that might be reportable conditions and,
accordingly, would not necessarily disclose all reportable
conditions that are also considered to be material weaknesses.
However, we believe none of the reportable conditions described
above is a material weakness. [If conditions believed to be material
weaknesses are disclosed, the last sentence should be deleted and
instead the report should identify which of the reportable
conditions described above are considered to be material
weaknesses.][If the CPA has issued a separate letter to management
to communicate other matters involving the design and operation of
the internal control over financial reporting, modify this paragraph
to include a statement such as the following: We also noted other
matters involving the internal control over financial reporting
which we have reported to the management of Center Telephone Company
in a separate letter dated March 2, 1999.]
This report is intended for the information of the audit
committee, management, the Rural Utilities Service, and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
March 2, 1999
EXHIBIT 4--SAMPLE FINANCIAL STATEMENTS
Center County Electric Cooperative Balance Sheets--December 31, 19X9 and
19X8 Assets (Notes 1 and 2)
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
ELECTRIC PLANT: (Note 3)
In Service--at cost................. $9,524,646 $9,365,264
Construction Work in Progress....... 407,943 317,166
-------------------------------
9,932,589 9,682,430
Less: Accumulated Provisions for
Depreciation....................... 3,117,629 2,917,295
-------------------------------
6,814,960 6,765,135
===============================
OTHER ASSETS AND INVESTMENTS:
Nonutility Property................. 20,227 20,227
Investments in Associated
Organizations (Note 4)............. 391,258 292,798
-------------------------------
411,485 313,025
===============================
CURRENT ASSETS:
Cash--General Funds................. 37,350 51,544
Cash--Construction Funds............ 10,034 20,193
Accounts Receivable (Less
accumulated provision for
uncollectible accounts of $2,207 in
19X9 and $1,933 in 19X8)........... 36,527 35,255
Materials and Supplies (at average
cost).............................. 83,652 80,882
Other Current and Accrued Assets.... 8,613 8,692
-------------------------------
176,176 196,566
===============================
DEFERRED CHARGES (Note 5):.............. 5,666 1,762
-------------------------------
$7,408,287 $7,276,488
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center County Electric Cooperative Balance Sheets--December 31, 19X9 and
19X8 Equities and Liabilities (Note 1)
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
EQUITIES:
Memberships......................... $60,145 $59,440
Patronage Capital (Note 6).......... 1,761,798 1,526,833
Other Equities (Note 7)............. 53,647 35,900
-------------------------------
1,875,590 1,622,173
===============================
LONG-TERM DEBT:
RUS Mortgage Notes less current
maturities (Note 8)................ 5,249,115 5,396,385
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt 145,000 140,000
Accounts Payable--Purchased Power... 48,916 52,117
Accounts Payable--Other............. 21,859 6,556
Consumer Deposits................... 32,660 33,085
[[Page 38730]]
Accrued Taxes....................... 10,958 9,146
Other Current and Accrued
Liabilities........................ 12,285 6,461
-------------------------------
271,678 247,365
-------------------------------
DEFERRED CREDITS (Note 10).............. 11,904 10,565
-------------------------------
$7,408,287 $7,276,488
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center County Electric Cooperative Statements of Revenue and Patronage
Capital for the Years Ended December 31, 19X9 and 19X8
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
OPERATING REVENUES...................... $1,719,467 $1,605,690
OPERATING EXPENSES:
Cost of Power....................... 587,729 625,411
Distribution--Operation............. 111,058 121,682
Distribution--Maintenance........... 158,622 182,740
Consumer Accounts................... 76,675 72,927
Sales............................... 38,378 40,755
Administrative and General.......... 94,682 87,058
Depreciation and Amortization....... 288,389 279,776
Taxes............................... 34,920 34,438
-------------------------------
1,390,453 1,444,787
===============================
OPERATING MARGINS BEFORE FIXED CHARGES 329,014 160,903
FIXED CHARGES:
Interest on Long-Term Debt............ 113,713 115,082
===============================
OPERATING MARGINS AFTER FIXED CHARGES... 215,301 45,821
G&T AND OTHER CAPITAL CREDITS........... 14,460 17,500
===============================
NET OPERATING MARGINS................... 229,761 63,321
===============================
NONOPERATING MARGINS:
Interest Income......................... 24,289 18,802
Other Nonoperating Income............... 1,200 1,200
-------------------------------
25,489 20,002
===============================
NET MARGINS............................. 255,250 83,323
PATRONAGE CAPITAL--BEGINNING OF YEAR.... 1,526,833 1,469,125
===============================
1,782,083 1,552,448
RETIREMENT OF CAPITAL CREDITS........... 20,285 25,615
-------------------------------
PATRONAGE CAPITAL--END OF YEAR.......... $1,761,798 $1,526,833
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center County Electric Cooperative Statements of Cash Flows for the
Years Ended December 31, 19X9 and 19X8
------------------------------------------------------------------------
19 x 9 19 x 8
------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Consumers...... $1,721,496 $1,609,933
Cash Paid to Suppliers and
Employees........................ (1,049,139) (1,126,367)
Interest Received................. 24,289 18,802
Interest Paid..................... (114,131) (115,607)
Taxes Paid........................ (33,108) (32,132)
---------------------------------
Net Cash Provided by Operating
Activities....................... 549,407 354,629
=================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and Acquisition of
Plant............................ (322,234) (216,427)
[[Page 38731]]
Plant Removal Costs............... (25,994) (19,268)
Materials Salvaged from
Retirements...................... 10,014 7,327
(Increase)/Decrease In:
Materials Inventory........... (2,770) 1,916
Deferred Charges-Preliminary
Survey & Investigation....... (3,486) (2,617)
Investments-CFC Capital Term
Certificates................. (82,472) (69,412)
Inventory Adjustment-Deferred
Credit Decrease.................. (2,290) (1,057)
---------------------------------
Net Cash Used in Investing
Activities....................... (429,232) (299,538)
=================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirements of Patronage Capital
Credits.......................... (20,285) (25,615)
Retired Capital Credits--Gain..... 1,200 1,200
Donated Capital................... 16,547 6,178
RUS Loan Advances................. 174,976 197,450
Payments on RUS Debt.............. (317,246) (279,575)
Increase/(Decrease) In:
Consumer Deposits............. (425) 575
Memberships Issued............ 705 450
---------------------------------
Net Cash Used in Financing
Activities....................... (144,528) (99,337)
---------------------------------
Net Increase/(Decrease) in Cash... (24,353) (44,246)
Cash--Beginning of Year........... 71,737 115,983
---------------------------------
Cash--End of Year................. 47,384 71,737
The accompanying notes are an
integral part of these statements.
RECONCILIATION OF NET MARGINS TO NET
CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Margins........................... $255,250 $83,323
Adjustments to Reconcile Net
Margins to Net Cash Provided by
Operating Activities:
Depreciation and Amortization. 288,389 279,776
G&T and Other Capital Credits
(Non-Cash)................... (14,460) (17,500)
Patronage Capital Credits-
NRUCFC (Non-Cash)............ (1,528) (1,200)
Provision for Uncollectible
Accounts Receivable.......... 274 (526)
(Increase)/Decrease In:
Customer and Other Accounts
Receivable................... (1,546) 2,523
Current and Accrued Assets-
Other........................ 79 112
Increase/(Decrease) In:
Accounts Payable.............. 12,102 5,117
Accrued Taxes................. 1,812 2,306
Deferred Energy Prepayments... 3,629 2,246
Current and Accrued
Liabilities-Other............ 5,824 (1,023)
Deferred Interest Expense......... (418) (525)
---------------------------------
Total Adjustments............... 294,157 271,306
=================================
Net Cash Provided by Operating
Activities........................... 549,407 354,629
------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Center County Electric Cooperative Notes to Financial Statements
December 31, 19X9 and December 31, 19X8
------------------------------------------------------------------------
19X9 19X8
------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Include a brief description of the reporting entity's significant
accounting policies in accordance with Accounting Principles Board
Opinion No. 22, Disclosure of Accounting Policies.
Disclosure of accounting policies should identify and describe the
accounting principles followed by the borrower and the methods of
applying those principles that materially affect the determination
of financial position, cash flow, and results of operations.
Disclosures of accounting policies do not have to be duplicated in
this section if presented elsewhere as an integral part of the
financial statements.
2. ASSETS PLEDGED:
Substantially all assets are pledged as security for long-term debt
to RUS.
3. ELECTRIC PLANT AND DEPRECIATION RATES AND PROCEDURES:
Listed below are the major classes of the electric plant as of
December 31, 19X9, and 19X8:
Intangible Plant...................... $2,194 $2,194
Distribution Plant.................... 9,011,036 8,873,957
General Plant......................... 511,416 489,113
---------------------------------
Electric Plant in Service............. 9,524,646 9,365,264
[[Page 38732]]
Construction Work in Progress......... 407,943 317,166
9,932,589 9,682,430
=================================
Provision has been made for depreciation of distribution plant at a
straight-line composite rate of 2.86 percent per annum.
General Plant depreciation rates have been applied on a straight-line
basis as follows:
Structures and Improvement........ 2.5%
Office Furniture.................. 6.0%
Transportation Equipment.......... 14.0%
Power Operated Equipment.......... 12.0%
Other General Plant............... 4.0%
Communications Equipment.......... 6.0%
4. INVESTMENTS IN ASSOCIATED ORGANIZATIONS:
Investments in associated organizations consisted of the following
at December 31, 19X9 and 19X8:
Capital Term Certificates of
the National Rural Utilities
Cooperative Finance
Corporation (NRUCFC)......... $385,193 $288,261
NRUCFC Patronage Capital
Credits...................... 5,065 3,537
Other......................... 1,000 1,000
---------------------------------
391,258 292,798
=================================
5. DEFERRED CHARGES:
Following is a summary of amounts recorded as deferred charges as of
December 31, 19X9 and 19X8:
Preliminary Surveys 19X0--X1 Work
Plan............................. 5,666 1,762
=================================
6. PATRONAGE CAPITAL:
At December 31, 19X9 and 19X8, patronage capital consisted of:
Assignable $255,250 $83,323
Assigned to Date.............. 1,952,448 1,869,125
---------------------------------
2,207,698 1,952,448
Less: Retirements to Date..... 445,900 425,615
---------------------------------
1,761,798 1,526,833
=================================
Under the provisions of the Mortgage Agreement, until the equities
and margins equal or exceed forty percent of the total assets of
the cooperative, the return to patrons of contributed capital is
generally limited to twenty-five percent of the patronage capital
or margins received by the cooperative in the prior calendar year.
The equities and margins of the cooperative represent 25.3 percent
of the total assets at balance sheet date. Capital credit
retirements in the amount of $20,285 were paid in 19X9.
7. OTHER EQUITIES:
At December 31, 19X9 and 19X8,
other equities consisted of:
Retired Capital Credits--Gain. $36,190 $34,990
Donated Capital............... 17,457 910
---------------------------------
53,647 35,900
=================================
8. MORTGAGE NOTES--RUS:
Long-term debt is represented by mortgage notes payable to the
United States of America. Following is a summary of outstanding
long-term debt as of December 31, 19X9 and 19X8:
2% Notes due March 31, 19X5... $1,057,155 $1,098,700
2% Notes due December 31, 19X6 2,485,927 2,502,370
5% Notes due December 31, 19X6 1,851,033 1,935,315
Less: Current Maturities...... (145,000) (140,000)
---------------------------------
5,249,115 5,396,385
=================================
Unadvanced loan funds of $285,600 are available to the cooperative on
loan commitments from RUS.
Principal and interest installments on the above notes are due
quarterly in equal amounts of $99,600. As of December 31, 19X9,
annual maturities of long-term debt outstanding for the next five
years are as follows:
19X0.......................... $145,000
19X1.......................... 150,000
19X2.......................... 151,500
19X3.......................... 154,000
19X4.......................... 155,000
Advance payments of $252,300 may be applied to the installments.
9. PENSION PLAN:
Substantially all of the employees of the Cooperative are covered by
the ABC Retirement and Security Program, a multiemployer plan.
Pension expense for the years ended 19X9 and 19X8 was $22,400.00
and $20,400.00, respectively.
10. DEFERRED CREDITS:
Following is a summary of the amounts recorded as deferred credits
as of December 31, 19X9 and 19X8:
Customer Energy Payments...... $6,694 $3,065
Inventory Adjustment.......... 5,210 7,500
---------------------------------
[[Page 38733]]
11,904 10,565
=================================
11. LITIGATION:
The cooperative is a defendant in an action in which the plaintiff
claims damages totaling $200,000 for personal injuries sustained.
The action has been dismissed by the District Court, but is on
appeal before the State Supreme Court. Management is of the opinion
that no liability will be incurred by the cooperative as a result
of this action.
12. COMMITMENTS:
Under its wholesale power agreement, the cooperative is committed to
purchase its electric power and energy requirements from Central
Power Cooperative, Inc., until December 31, 19XX. The rates paid
for such purchases are subject to review annually.
------------------------------------------------------------------------
14. Appendix C To Part 1773 is revised to read as follows:
Appendix C to Part 1773--Illustrative Independent Auditor's
Management Letter for Electric Borrowers
RUS requires that CPAs auditing RUS borrowers provide a
management letter in accordance with Sec. 1773.33. This letter must
be signed by the CPA, bear the same date as the auditor's report,
and be addressed to the borrower's board of directors.
Illustrative Independent Auditors' Management Letter for
Electric Borrowers
March 2, 1999
Board of Directors
[Name of Borrower]
[City, State]
We have audited the financial statements of [Name of Borrower]
for the year ended December 31, 1998, and have issued our report
thereon dated March 2, 1999. We conducted our audit in accordance
with generally accepted auditing standards, the standards applicable
to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, and 7 CFR
part 1773, Policy on Audits of Rural Utilities Service (RUS)
Borrowers. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
In planning and performing our audit of the financial statements
of [Name of Borrower] for the year ended December 31, 1998, we
considered its internal control over financial reporting in order to
determine our auditing procedures for the purpose of expressing an
opinion on the financial statements and not to provide assurance on
the internal control over financial reporting.
A description of the responsibility of management for
establishing and maintaining the internal control over financial
reporting and the objectives of and inherent limitations in such
control is set forth in our independent auditors' report on
compliance and on internal control over financial reporting dated
March 2, 1999, and should be read in conjunction with this report.
Our consideration of the internal control over financial
reporting would not necessarily disclose all matters in the internal
control over financial reporting that might be material weaknesses.
A material weakness is a condition in which the design or operation
of one or more of the internal control components does not reduce to
a relatively low level the risk that misstatements in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control over
financial reporting that we consider to be material weaknesses. [If
a material weakness was noted, refer the reader to the independent
auditors' report on compliance and on internal control over
financial reportingstructure.]
7 CFR 1773.33 requires comments on specific aspects of the
internal control over financial reporting, compliance with specific
RUS loan and security instrument provisions, and other additional
matters. We have grouped our comments accordingly. In addition to
obtaining reasonable assurance about whether the financial
statements are free from material misstatements, at your request, we
performed tests of specific aspects of the internal control over
financial reporting, of compliance with specific RUS loan and
security instrument provisions, and of additional matters. The
specific aspects of the internal control over financial reporting,
compliance with specific RUS loan and security instrument
provisions, and additional matters tested include, among other
things, the accounting procedures and records, materials control,
compliance with specific RUS loan and security instrument provisions
set forth in 7 CFR 1773.33 (e)(1), related party transactions,
depreciation rates, and a schedule of deferred debits and credits,
upon which we express an opinion. In addition, our audit of the
financial statements also included the procedures specified in 7 CFR
1773.38--.45. Our objective was not to provide an opinion on these
specific aspects of the internal control over financial reporting,
compliance with specific RUS loan and security instrument
provisions, or additional matters, and accordingly, we express no
opinion thereon.
No reports (other than our independent auditors' report and our
independent auditors' report on compliance and on internal control
over financial reporting, all dated March 2, 1999) or summary of
recommendations related to our audit have been furnished to
management.
Our comments on specific aspects of the internal control over
financial reporting, compliance with specific RUS loan and security
instrument provisions, and other additional matters as required by 7
CFR 1773.33 are presented below.
Comments on Certain Specific Aspects of the Internal Control Over
Financial Reporting
We noted no matters regarding [Name of Borrower]'s internal
control over financial reporting and its operation that we consider
to be a material weakness as previously defined with respect to:
--The accounting procedures and records [list other comments];
--The process for accumulating and recording labor, material, and
overhead costs, and the distribution of these costs to construction,
retirement, and maintenance or other expense accounts [list other
comments]; and
--The materials control [list other comments].
Comments on Compliance With Specific RUS Loan and Security Instrument
Provisions
Management's responsibility for compliance with laws,
regulations, contracts, and grants is set forth in our independent
auditors' report on compliance and on internal control over
financial reporting dated March 2, 1999, and should be read in
conjunction with this report. At your request, we have performed the
procedures enumerated below with respect to compliance with certain
provisions of laws, regulations, contracts, and grants. The
procedures we performed are summarized as follows:
--Procedure performed with respect to the requirement to maintain
all funds from loans made or guaranteed by RUS in institutions whose
accounts are insured by an Agency of the Federal government:
1. Obtained information from financial institutions with which
[Name of Borrower] maintains cash proceeds from loans that indicated
that the institutions are insured by an Agency of the Federal
government.
--Procedures performed with respect to the requirement for a
borrower to obtain written approval of the mortgagee to enter into
any contract for the operation or maintenance of property, or for
the use of mortgaged property by others for the year ended December
31, 19X5 of [Name of Borrower]:
[[Page 38734]]
1. Obtained and read a borrower-prepared schedule of new written
contracts entered into during the year for the operation or
maintenance of its property, or for the use of its property by
others as defined in Sec. 1773.334 (e)(1)(ii).
2. Reviewed Board of Director minutes to ascertain whether
board-approved written contracts are included in the borrower-
prepared schedule.
3. Noted the existence of written RUS [and other mortgagee]
approval of each contract listed by the borrower.
--Procedure performed with respect to the requirement to submit RUS
Form 7 or Form 12 to the RUS:
1. Agreed amounts reported in Form 7 or Form 12 to [Name of
Borrower]'s records.
The results of our tests indicate that, with respect to the
items tested, [Name of Borrower] complied, except as noted below, in
all material respects, with the specific RUS loan and security
instrument provisions referred to below. The specific provisions
tested, as well as any exceptions noted, include the requirements
that:
--The borrower maintains all funds from loans made or guaranteed by
RUS in institutions whose accounts are insured by an agency of the
Federal government [list all exceptions];
--The borrower has obtained written approval of the RUS [and other
mortgagees] to enter into any contract for the operation or
maintenance of property, or for the use of mortgaged property by
others as defined in Sec. 1773.334 (e)(1)(ii) [list all exceptions];
and
--The borrower has submitted its Form 7 or Form 12 to the RUS and
the Form 7 or Form 12, Financial and Statistical Report, as of
December 31, 1998, represented by the borrower as having been
submitted to RUS is in agreement with the [Name of Borrower]'s
audited records in all material respects [list all exceptions] [or
if the audit year end is other than December 31], appears reasonable
based upon the audit procedures performed [list all exceptions].
Comments on Other Additional Matters
In connection with our audit of the financial statements of
[Name of Borrower], nothing came to our attention that caused us to
believe that [Name of Borrower] failed to comply with respect to:
--The reconciliation of subsidiary plant records to the controlling
general ledger plant accounts addressed at 7 CFR 1773.334 (c)(1)
[list all exceptions];
--The clearing of the construction accounts and the accrual of
depreciation on completed construction addressed at 7 CFR 1773.334
(c)(2) [list all exceptions];
--The retirement of plant addressed at 7 CFR 1773.33 (c)(3) and (4)
[list all exceptions];
--Sales of plant material, or scrap addressed at 7 CFR 1773.33
(c)(5) [list all exceptions];
--The disclosure of material related party transactions, in
accordance with Statement of Financial Accounting Standards No. 57,
Related Party Transactions, for the year ended December 31, 1998, in
the financial statements referenced in the first paragraph of this
report addressed at 7 CFR 1773.33 (f) [list all exceptions];
--The depreciation rates addressed at 7 CFR 1773.334 (g) [list all
exceptions]; and
--The detailed schedule of deferred debits and deferred credits.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The detailed schedule
of deferred debits and deferred credits required by 7 CFR 1773.33
(h) and provided below is presented for purposes of additional
analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
[The detailed schedule of deferred debits and deferred credits
would be included here. The total amount of deferred debits and
deferred credits as reported in the schedule must agree with the
totals reported on the Balance Sheet under the specific captions of
``Deferred Debits'' and ``Deferred Credits''. Those items that have
been approved, in writing, by RUS should be clearly indicated.]
This report is intended solely for the information and use of
the board of directors, management, and the RUS and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
15. Appendix D To Part 1773 is added to read as follows:
Appendix D to Part 1773--Illustrative Independent Auditor's
Management Letter for Telecommunications Borrowers
RUS requires that CPAs auditing RUS borrowers provide a
management letter in accordance with Sec. 1773.33. This letter must
be signed by the CPA, bear the same date as the auditor's report,
and be addressed to the borrower's board of directors.
Illustrative Independent Auditors' Management Letter for
Telecommunications Borrowers
March 2, 1999
Board of Directors
[Name of Borrower]
[City, State]
We have audited the financial statements of [Name of Borrower]
for the year ended December 31, 1998, and have issued our report
thereon dated March 2, 1999. We conducted our audit in accordance
with generally accepted auditing standards, the standards applicable
to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, and 7 CFR
part 1773, Policy on Audits of Rural Utilities Service (RUS)
Borrowers. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
In planning and performing our audit of the financial statements
of [Name of Borrower] for the year ended December 31, 1998, we
considered its internal control over financial reporting in order to
determine our auditing procedures for the purpose of expressing an
opinion on the financial statements and not to provide assurance on
the internal control over financial reporting.
A description of the responsibility of management for
establishing and maintaining the internal control over financial
reporting and the objectives of and inherent limitations in such
control is set forth in our independent auditors' report on
compliance and on internal control over financial reporting dated
March 2, 1999, and should be read in conjunction with this report.
Our consideration of the internal control over financial
reporting would not necessarily disclose all matters in the internal
control over financial reporting that might be material weaknesses.
A material weakness is a condition in which the design or operation
of one or more of the internal control components does not reduce to
a relatively low level the risk that misstatements in amounts that
would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control over
financial reporting that we consider to be material weaknesses. [If
a material weakness was noted, refer the reader to the independent
auditors' report on compliance and on internal control over
financial reporting.]
7 CFR 1773.33 requires comments on specific aspects of the
internal control over financial reporting, compliance with specific
RUS loan and security instrument provisions, and other additional
matters. We have grouped our comments accordingly. In addition to
obtaining reasonable assurance about whether the financial
statements are free from material misstatements, at your request, we
performed tests of specific aspects of the internal control over
financial reporting, of compliance with specific RUS loan and
security instrument provisions, and of additional matters. The
specific aspects of the internal control over financial reporting,
compliance with specific RUS loan and security instrument
provisions, and additional matters tested include, among other
things, the accounting procedures and records, materials control,
compliance with specific RUS loan and security instrument provisions
set forth in 7 CFR 1773.33 (e)(2), and related party transactions.
In addition, our audit of the financial statements also included the
procedures specified in 7 CFR 1773.38-.45. Our objective was not to
provide an opinion on these specific aspects of the internal control
over financial reporting, compliance with specific RUS loan and
security instrument provisions, or additional matters, and
accordingly, we express no opinion thereon.
No reports (other than our independent auditors' report, and our
independent auditors' report on compliance and on internal control
over financial reporting, all dated March 2, 1999) or summary of
recommendations related to our audit have been furnished to
management.
[[Page 38735]]
Our comments on specific aspects of the internal control over
financial reporting, compliance with specific RUS loan and security
instrument provisions, and other additional matters as required by 7
CFR 1773.33 are presented below.
Comments On Certain Specific Aspects of the Internal Control Over
Financial Reporting
We noted no matters regarding [Name of Borrower]'s internal
control over financial reporting and its operation that we consider
to be a material weakness as previously defined with respect to:
--The accounting procedures and records [list other comments];
--The process for accumulating and recording labor, material, and
overhead costs, and the distribution of these costs to construction,
retirement, and maintenance or other expense accounts [list other
comments]; and
--The materials control [list other comments].
Comments On Compliance With Specific RUS Loan and Security Instrument
Provisions
Management's responsibility for compliance with laws,
regulations, contracts, and grants is set forth in our independent
auditors' report on compliance and on internal control over
financial reporting dated March 2, 1999, and should be read in
conjunction with this report. At your request, we have performed the
procedures enumerated below with respect to compliance with certain
provisions of laws, regulations, contracts, and grants. The
procedures we performed are summarized as follows:
--Procedure performed with respect to the requirement to maintain
all funds in institutions whose accounts are insured by an Agency of
the Federal government:
1. Obtained information from financial institutions with which
[Name of Borrower] maintains funds that indicated that the
institutions are insured by an agency of the Federal government.
--Procedures performed with respect to the requirement for a
borrower to obtain written approval of the mortgagee to enter into
any contract for the operation or maintenance of property, for the
use of mortgaged property by others, or for services pertaining to
toll traffic, operator assistance, or switching for the year ended
December 31, 1998 of [Name of Borrower]:
1. Obtained and read a borrower-prepared schedule of new written
contracts entered into during the year for the operation or
maintenance of its property, for the use of its property by others,
or for services pertaining to toll traffic, operator assistance, or
switching as defined in Sec. 1773.33 (e)(2)(i).
2. Reviewed Board of Director minutes to ascertain whether
board-approved written contracts are included in the borrower-
prepared schedule.
3. Noted the existence of written RUS [and other mortgagee]
approval of each contract listed by the borrower.
--Procedure performed with respect to the requirement to submit RUS
Form 479 to the RUS:
1. Agreed amounts reported in Form 479 to [Name of Borrower]'s
records.
--Procedure performed with respect to funded reserve and net plant
to secured debt ratio requirements:
1. Reviewed loan security instrument to ascertain which
condition was elected by the borrower.
2. If the funded reserve option was selected, review financial
institution records to verify the existence of a separate bank
account for the reserve, and determine that it was funded within one
year of approval of release of funds and that it remained funded
over the composite economic life of the facilities financed.
3. If the net plant to secured debt ratio option was selected,
calculate the ratio and confirm that the 1.2 ratio was achieved one
year following the first advance of loan funds.
The results of our tests indicate that, with respect to the
items tested, [Name of Borrower] complied, except as noted below, in
all material respects, with the specific RUS loan and security
instrument provisions referred to below. The specific provisions
tested, as well as any exceptions noted, include the requirements
that:
--The borrower maintains all funds in institutions whose accounts
are insured by an agency of the Federal government [list all
exceptions];
--The borrower has obtained written approval of the RUS [and other
mortgagees] to enter into any contract for the operation or
maintenance of property, for the use of mortgaged property by
others, or for services pertaining to toll traffic, operator
assistance, or switching as defined in Sec. 1773.33(e)(2)(i) [list
all exceptions]; and
--The borrower has submitted its Form 479 to the RUS and the Form
479, Financial and Statistical Report, as of December 31, 1999,
represented by the borrower as having been submitted to RUS is in
agreement with the [Name of Borrower]'s audited records in all
material respects [list all exceptions] [or if the audit year end is
other than December 31], appears reasonable based upon the audit
procedures performed [list all exceptions].
Comments on Other Additional Matters
In connection with our audit of the financial statements of
[Name of Borrower], nothing came to our attention that caused us to
believe that [Name of Borrower] failed to comply with respect to:
--The reconciliation of subsidiary plant records to the controlling
general ledger plant accounts addressed at 7 CFR 1773.33(c)(1) [list
all exceptions];
--The clearing of the construction accounts and the accrual of
depreciation on completed construction addressed at 7 CFR
1773.33(c)(2) [list all exceptions];
--The retirement of plant addressed at 7 CFR 1773.33(c)(3) and (4)
[list all exceptions];
--Sales of plant material, or scrap addressed at 7 CFR 1773.33(c)(5)
[list all exceptions]; and
--The disclosure of material related party transactions, in
accordance with Statement of Financial Accounting Standards No. 57,
Related Party Transactions, for the year ended December 31, 1999, in
the financial statements referenced in the first paragraph of this
report addressed at 7 CFR 1773.33(f) [list all exceptions].
This report is intended solely for the information and use of
the board of directors, management, and the RUS and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Certified Public Accountants
Dated: July 8, 1998.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 98-18758 Filed 7-16-98; 8:45 am]
BILLING CODE 3410-15-P