Kohm

Article Dean Dorton

Here are the key risks and opportunities for 2018:

Cybersecurity and Big Data

Co-operatives can be proactive by implementing effective controls to prevent and detect cyber-crime. A successful cybersecurity campaign includes educating employees of potential phishing schemes. Potential effects of a co-op network infiltration can include shut down of an energy grid, re-direction of energy to a particular location, or theft of customer payment information. Management can use simple software applications to create data analytics which help in identifying trends in business and ultimately help make informed decisions.

Power Supply Costs

Even though a proposal exists to repeal the EPA Clean Power Plan, continue to investigate alternative sources of energy, such as wind, solar, and biomass, to further diversify power sources as well as work with communities to deploy energy storage and efficiency technologies. Explore wholesale power markets as a way to obtain reliable electricity at an effective cost.

Safety, Including Overtime Management

Safety is a major concern for co-operatives as their employees routinely work in dangerous conditions (i.e. downed power line in a thunderstorm) that, if not taken seriously, can expose the co-operative. Monitor overtime hours to help protect the safety of employees; this important oversight role is a vital way to control costs.

Community and Environmental Responsibility

As an electric co-operative, you have to balance providing affordable electricity to your community, while protecting it from environmental degradation. You can launch conservation programs in your community by providing information and resources to members about how they can individually reduce their energy costs. This not only saves the members money but also keeps you from wasting energy resources and protects the environment. The enhanced use of social media and technology will facilitate great success in this area.

Succession Planning

As co-operative executives continue to grow older and retire in larger numbers than in the past, there must be a greater emphasis on succession planning and staff development. This risk flows all the way down to recruitment of top talent as urbanization continues to increase in the U.S. and competition from other industry sectors for talent intensifies. Whether you decide to use an internal or external hire to replace key top management, take the necessary steps to ensure a smooth transition.

Adoption of the New Revenue Standard

Co-operatives will need to adopt ASU 2014-09 (Revenue from Contracts with Customers) in 2019 or 2020, depending on fiscal year end. This standard focuses on a five-step process to assess revenue recognition for products and services. The concept of transfer of control is used to dictate when revenue is recognized. Identify your significant revenue streams and apply the new revenue criteria to each stream. In addition to potential changes in revenue recognition, expanded disclosures will be required. Management should use 2018 to assess this standard appropriately.

Adoption of the New Lease Standard

Co-operatives will need to adopt ASU 2016-02 (Leases) in 2020 or 2021, depending on fiscal year end. This standard focuses on placing almost all leases on the balance sheet through a right of use asset and liability. The concept of transfer of control is used to define a lease. The most important step for management in 2018 is to start building an inventory of leases. After the inventory is built, determine the need for investing in lease software to properly track the new accounting requirements.Sources: America’s Electric Cooperatives, Ernst & Young, Coop News, Cooperative Energy, Vanderbilt UniversityElectric Co-operative Key Performance IndicatorsNote: Group consists of various Kentucky-based electric co-operatives.

Measurement Trend 2016 2015 2014 2013
Debt to equity Positive 1.18 1.29 1.40 1.49
Equity to total assets Positive 43% 41% 38% 37%
Current ratio Stable 1.00 0.99 1.05 0.97
AP turnover Stable 15.48 17.72 16.58 15.59
AR turnover Stable 13.10 16.13 14.60 16.19
Operating margin %* Decline 4.2% 6.0% 6.2% 5.6%
Cost of purchase %* Stable 70% 70% 71% 72%
Capital expenditures %* Stable 9.7% 8.3% 7.3% 7.6%

* Percent of revenue

Overall, the results are positive and show the stability that exists in the electric co-operative industry in Kentucky. Operating margin slipped in 2016 due to a decline in revenue, attributed to weather patterns and increased energy efficiency programs.

Article Dean Dorton

Does your company rely on multiple third party vendors to achieve maximum efficiency in its day-to-day operations? How would you rate your company’s diligence in accepting and monitoring your third party vendors?

Dean Dorton can assess your risks around third party vendor management. One recent client project identified substantial overspending, which was corrected with significant savings. We’ve found that all companies should rate their vendors to allow for appropriate monitoring programs, as well as employ data analytics to monitor third party performance.

Fundamental vendor questions that your company should address

  1. Have the key vendors been identified?
  2. Does a complete inventory of all third party agreements exist?
  3. Are the key terms of each third party agreement being followed?
  4. Does an internal contact person exist for each agreement?
  5. How often does the contact person visit the third party?
  6. Has management reviewed the vendor master file and updatedit  accordingly?
  7. Does a vendor acceptance policy exist and is it being followed?
  8. Do any of the third parties have access to the company’s network?
  9. Do any of the third parties spend time on company property?
  10. Do any vendors have access to company systems?

Common outsourced business operations that increase risk

  • Billing
  • Payroll and employee benefits
  • Legal support
  • Call center operations
  • Data center
  • Cloud services
  • Email
  • Software or hardware partners
  • Offshore manufacturing
  • Offsite storage
  • Software development

Benefits of an active vendor management program

  1. Regulatory compliance
  2. Safeguarding of data
  3. Adherence to contract terms
  4. Timely identification of potential conflicts of interest
  5. Effective bidding
  6. Fraud reduction
  7. Protect reputation
  8. Accountability
  9. Effective use of data analytics to identify trends and help with vendor selection
  10. Identify opportunities to consolidate vendors
  11. Procurement cost reductions
  12. Enhanced vendor performance by the regular reviews

 

Please contact Bill Kohm at bkohm@deandorton.com if you would like to establish a VMP.

Article Dean Dorton

Bill Kohm, Director of Assurance Services, was appointed to serve on the Reclamation Guaranty Fund Commission for the Commonwealth of Kentucky by Governor Matt Bevin.

Bill will represent certified public accountants, serving a term expiring July 1, 2020. He is replacing Sharon P. Warriner of Barbourville, whose term has expired.

Bill has more than 20 years of experience in public accounting, specializing in audit and accounting services in the natural resources industry. He leads Dean Dorton’s Energy & Natural Resources Team which consists of approximately 15 professionals. A substantial portion of Bill’s professional career has focused on coal mining clients with a focus on internal and external audits. Due to his extensive experience, he has been utilized as an expert witness on several coal matters. He has also conducted internal and external coal accounting/auditing trainings over the years.

Bill has spoken at local, regional and national events focused on accounting and auditing matters. The presentations have focused on the coal industry and general accounting updates.

Some of his present and past professional activities include:

  • American Institute of Certified Public Accountants
  • Kentucky Society of Certified Public Accountants, Natural Resources Planning Committee Chair
  • Kentucky Coal Association, Firm Representative
  • Kentucky Oil and Gas Association
  • The Institute of Internal Auditors, Member
  • National Society of Accountants for Cooperatives

Dean Dorton has had the privilege of working with a wide variety of coal companies for many years. We understand the coal industry’s unique issues and have developed accounting and audit plans, tax services, and consulting processes to address them. We know what specific skills are needed to serve coal clients. Many of our coal clients are of significant size and complexity.

View Bill Kohm’s Bio

Article Dean Dorton

On November 16, Dean Dorton provided its 12th version of the annual Accounting and Ethics Update. The firm utilized 17 presenters over nine sessions that covered a variety of topics from the latest in nonprofit reporting to human resources best practices. Here are some of the highlights from each session:

  • The importance of identifying and mitigating key business risks was discussed during the combined internal audit/accounting functions update. Tools such as identifying key risk indicators and auditing vendor management files were discussed as well. Updates were provided on Form 1099 and Form 5500 for benefit plans. Finally, the emergence of wellness programs was covered with a keen eye on IRS compliance.
  • The FASB update focused on the latest changes in revenue and lease accounting. All companies should have an implementation plan soon for both areas.
  • The GASB update included recent fair value, pension, and post-employment benefit plan changes.
  • The tax update included federal and state tax updates. Additionally, tax-related identity theft and fraud was covered, along with state tax incentive opportunities.
  • The tax exempt section included nuances of SMLLCs, sales tax exemptions, and the new financial reporting framework for nonprofit entities.
  • Cybersecurity continues to be the #1 business risk and our IT team presented on cyber threats and cyber protection methods, including multi-factor authentication.
  • Fraud stories were shared during the fraud session to help elevate the real risk present at every business. The Wells Fargo incident was dissected as well. Methods to set an ethical tone were shared including establishing a fraud hotline.
  • Our human resources team presented on I-9s, EEO-1 reporting, and the new overtime regulations. We now offer HR consultants as an added business service.
  • At Dean Dorton, we differential our annual update by including ethics training. Participants were reminded of the AICPA code of professional conduct, importance of social media, and recent enforcement actions.

As you can see, we are clearly are a one stop shop and stand ready to address any question you may have.

If you missed our Lexington event, you can attend our December 8, 2016 session in Owensboro, Kentucky.

Article Dean Dorton

More than ever, public companies and their auditors are under tremendous scrutiny. History shows us that changes in the public realm may trickle down to the private sector as well. An assessment of the current public landscape highlights the following audit and accounting items:

  • The SEC requires audit firms to file with the PCAOB the name of the engagement partner for all public company audits issued on or after January 31, 2017. Will the personal identification of the audit partner(s) in a public document impact the extent of audit procedures?
  • The PCAOB is working on the following projects to enhance audit procedures:
      • Work of specialists
      • Supervision of other auditors
      • Accounting estimates
      • Going concern
  • New accounting standards facing public companies include:
      • Going concern assessment relevant in 2016 for calendar year end companies.
      • Lease accounting to implement by 2019 with early adoption allowed. Traditional operating versus financing leases is relevant, but now all long-term leases are placed on the balance sheet.
      • Revenue recognition can be early adopted in 2017 for calendar year end companies. Even if companies do not early adopt, systems should be set up now for purposes of transitioning in 2019 for comparative purposes.
  • The SEC and FASB continue to work on a joint disclosure simplification project. Other interesting FASB proposals include:
    • Removing step 2 of the goodwill impairment assessment. Impairment would equal the difference between carrying value and enterprise value.
    • Inclusion of restricted cash in the beginning and ending cash total on the statement of cash flows. This will remove the need to decide between operating and investing classification for restricted cash.

At Dean Dorton, we work with public companies in a consulting capacity including SOX compliance. Contact Bill Kohm or Jim Tencza to learn how we can partner to help you tackle these audit/accounting items and free you up to stay focused on your strategic objectives.

Bill Kohm: bkohm@deandorton.com
Jim Tencza: jtencza@deandorton.com