PUD votes to accept 'disclaimer' opinion from state auditors

By Allison Arthur of the Leader
Posted 5/24/16

Jefferson County Public Utility District (PUD) commissioners voted unanimously May 19 to let go of trying to make 2013 and 2014 financial statements perfect, so they can move forward on an audit of …

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PUD votes to accept 'disclaimer' opinion from state auditors


Jefferson County Public Utility District (PUD) commissioners voted unanimously May 19 to let go of trying to make 2013 and 2014 financial statements perfect, so they can move forward on an audit of 2015 records.

PUD manager Jim Parker said the Washington State Auditor's Office wanted the PUD board to weigh in on whether to accept what is technically called a “disclaimer from opinion,” which means that the books are not in good enough shape for the state auditors to render an opinion on them. It's also called a “disclaimed” or “disclaimer” opinion.

Although the “disclaimed” opinion is better than an “adverse” opinion, there was concern over how that disclaimed audit opinion might impact the PUD's ability to seek loans in the future. With $12 million in the bank, the PUD isn't expecting to borrow money, but if it did, that disclaimed opinion could haunt it by potentially increasing the interest rate any bank would charge, Parker said.

There also was discussion of whether the 2013-2014 books could ever actually be reconciled to a point where state auditors could look them over and render an opinion. There was concern whether that was possible and if so, how much it might cost.

The PUD has gone through three permanent and two interim chief financial officers (CFOs) since buying the holdings of the private Puget Sound Energy in 2013.

There have been several bookkeeping systems as well.

After taking over the electric utility in 2013 (which serves all of East Jefferson County except the Brinnon area), the PUD learned that the first two systems, Springbrook and Quickbooks, weren't compatible with a system used by the Rural Utility Service (RUS), which is the arm of the U.S. Department of Agriculture that gave the PUD a loan to buy PSE.

Parker has said that at least one CFO quit because he didn't want to deal with the complicated RUS system. A second CFO was also unfamiliar with the RUS system, and a consulting firm, Moss Adams, was hired 18 months ago to help get the records into shape.

“If you have an inadequate system, you can't produce the financial records required, in my opinion, in an operation our size,” PUD Commissioner Barney Burke wrote in an email to the Leader, noting that he had warned in 2012 that the bookkeeping system needed improvements.

The other two commissioners at the time, Wayne King and Ken McMillen, disagreed and opted to stick with Springbrook. Voters have since replaced McMillen with Ken Collins.

The PUD last year switched to a system called NISC, which PUD officials say not only provides better financial records, but offers better customer service because it gives electricity consumption and temperature information dating back two years.

Newly hired interim CFO Tammy Esslinger-Lehman told commissioners and several Citizen Advisory Board members on May 19 that the 2013-2014 books would be audited, but that the disclaimed opinion would acknowledge that the state auditors “aren't rendering an opinion because there's not enough documentation on which to render an opinion.”

“They will say, 'We cannot express an opinion,' but that's better than an adverse opinion,” she said.

Finishing with the 2013-2014 books also will allow Esslinger-Lehman and Moss Adams accountants to move faster in getting the 2015 books ready for an audit this summer.

Burke made the motion to move forward.

“If I felt there was some certainty of going back and doing those two years, or there was a need to because of some evidence there was an impropriety or something, I'd be more inclined to do that,” Burke said of going back and trying to reconcile the records. “On the other side, there's a potential cost. If we need to borrow money, it would cost more. But I think the disclaim one is really at this point what I'm satisfied in doing … to move forward,” Burke said.

Commissioners Ken Collins and Wayne King agreed.

The PUD still is bracing for “findings” from the state for 2013 and 2014 books, in addition to that disclaimed opinion.

A finding is not common in the vast majority of some 2,000 audits of state and local governments, and it is the most serious of the three levels of audits.

The extent of the findings is expected to be laid out in the next month by the Washington State Auditor's Office. The PUD has an opportunity to comment on it before the audit is made public.

State auditors are expected to be at a public meeting to talk about what they found. A date and time for that has not been set.


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