July 20, 2001
Ty Cooke, President
West Texas Municipal Power Agency
We have completed the audit of WTMPA’s financial statements for the year ended September 30, 2000. As you are already aware, we had numerous significant adjustments to the books and several other issues identified during the audit. This letter is to provide you with a summary of the issues identified so that you can take the appropriate action too address them.
- We had 20 audit adjustments totaling over $34,000,000. The source of these entries ranged from unrecorded liabilities and other transactions to misclassifications between restricted bond funds and unrestricted/operating funds. Bond covenants require WTMPA to maintain books and records in accordance with Generally Accepted Accounting Principles (GAAP)- see page A-10, section 6.9 of the bond “Official Statement.” Based on this requirement, cash basis books and records are not adequate. Additionally, on page 31 under the subtitle “Annual Reports,” WTMPA is required to provide its annual audited financial statement to various parties within six months after the end of the fiscal year.
- On page 3 of the Official Statement under the subtitle “Bond Fund,” WTMPA is required to establish a “Bond Fund” and deposit in substantially equal monthly installments an amount sufficient to make the interest and principal payments required during the next twelve month period. WTMPA did not maintain such a fund.
- The “Operation Management Agreement” with the City of Lubbock, requires WTMPA to pay the City monthly based on an invoice from the City listing “labor hours, materials, supplies (including fuel) and overhead” (see paragraph 3.1 therein). Additionally, WTMPA is required to “secure and maintain comprehensive general liability, owner’s protective or contingent public liability, fire and casualty, boiler and machinery, business interruption and other customary insurance for similar electric utility units…” WTMPA has not been paying the City on a monthly basis, the City has not been submitting invoices of any kind and has not provided detail of the categories of costs identified above. Additionally, WTMPA has not been charged for fuel or insurance costs (we understand that WTMPA has not secured it’s own insurance, but is covered under the City’s policy-although WTMPA has not been billed for it’s prorata share of the premium) as required under the agreement and as would e necessary to accurately reflect the cost of operation for WTMPA.
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- WTMPA's restricted and unrestricted cash accounts are commingled in a single checking account. The unrestricted portion of the bank account was in a $254,000 overdraft position at year end, effectively borrowing restricted funds. The overdraft occurred because required transfers from the investment accounts were not made to cover operating disbursements.
- WTMPA's power sales to Lubbock were not recorded or billed during the year. This resulted in over $663,000 of uncollected operating cash at year end.
- There were unsupported journal entries recorded on the books. One entry recorded a $50,000 receivable from Lubbock and reduced legal fees; the other entry transferred $78,000 from unrestricted investments to restricted investments. We were not able to locate any support or identify any WTMPA or Lubbock personnel with knowledge of the transactions.
- Investment income was not allocated between restricted and unrestricted balances - all investment income was recorded in restricted accounts.
- A deposit of $108,000 from the City of Tulia was erroneously deposited into WTMPA's account and recorded in restricted assets. The subsequent refund was charged against unrestricted assets.
- $75,000 of unrestricted expenditures were inadvertently charged against restricted cash.
- $1,700 of restricted expenditures were inadvertently charged against unrestricted cash.
- WTMPA has not made or recorded the lease payments to Lubbock for the land that the JRM Station is located on as required by the "Ground Lease" between WTMPA and Lubbock.
I hope this information will be beneficial. We appreciate the opportunity to serve WTMPA.
Robinson Burdette Martin Seright & Burrows, L.L.P.