The Board of Public Utilities discussed the independent financial audit by Buffamante Whipple Buttafaro during Monday’s monthly meeting. The audit firm said the results were positive overall. Pictured is Danna Isaman, Buffamante Whipple Buttafaro’s manager of the Board of Public Utility’s financial audit. P-J photo by Timothy Frudd

The Board of Public Utilities discussed the positive results of the independent financial audit by Buffamante Whipple Buttafaro during Monday’s monthly meeting with the board of directors.

During her presentation to the BPU, Danna Isaman, BWB manager of the BPU’s financial audit, gave an overview of three key elements of the audit.

“The first one is our independent auditors report,” she said. “The whole reason that you hire us is to provide you with an opinion as to whether or not you’ve built financial statements that are fairly stated in accordance with the standards. Happy to say for each of the divisions, we are giving you unmodified opinion, which is the highest-level opinion you can receive. As far as audits go, this is really good news. Very nice job to your team and everybody involved in making that happen.”

According to Isaman, the second component in the financial audit is the management letter. The management letter includes any areas of improvement that are identified by the audit firm, such as financial reporting or ways of strengthening the utility company’s internal control processes.

Finally, Isaman said the third component of the audit is the governance letter, which is the required communication between the audit firm and the BPU’s financial oversight and management team.

Following her overview of the three basic components of the audit, Isaman presented a basic summary of each division at the BPU, comparing the revenues and expenditures of the utility company over the past three years.

For the electric division, Isaman said the BPU’s revenue has exceeded expenditures, providing the BPU with a surplus during each of the past three years. She shared that at the end of 2022, the electric division had a net surplus of about $5.2 million.

“The reason for the increase in the surplus this year, we did have an increase in sales to other distributors of about $1.8 million, really just due to better market rates in 2022,” she said.

Isaman said the water division has also had “pretty positive years” of operation over the past three years. In 2021, the BPU had a net surplus of $300,000. In 2022, the BPU had a net surplus of roughly $2.8 million. Isaman said the “biggest reason” for the significant revenue increase was the $2.2 million capital grant the BPU received in 2022.

“Pulling that out of the equation, our surplus at the end of year would have been closer to $500,000 which is right in line with where we were last year,” she said.

Isaman told BPU board members that the wastewater division is following a “similar theme” to the water division. While the wastewater division was close to breaking even in 2021, the division had a surplus of almost $300,000 in 2022. The increased surplus for the wastewater division has stemmed from relatively steady expenditures and an increase in revenue due to a 3% increase in wastewater rates for customers, as well as the division processing waste from outside municipalities.

While the electric, water and wastewater divisions have recently experienced positive financial years, Isaman said the solid waste division was close to breaking even in 2020 and 2021.

“In 2022, you can see our expenditures jumped up quite a bit,” she said. “We’re reporting a net loss this year of close to $350,000. There’s a couple of things that go into that change. First of all, our vehicle maintenance costs were up quite a bit this year, we had some retirements that were paid out in 2022, we had some salary increases, and then outside of that, just other costs were up in general across the board this year.”

In addition to the net loss in the solid waste division, Isaman reported that the district heat division has been operating at a loss for the past three years, with 2022 following “right in line” with previous years.

As part of the audit, Isaman said BWB issues a governance letter from the audit firm to the BPU board and the finance committee. Included in the letter was one new accounting pronouncement for 2022 regarding how the audit firm accounts for leases. Additionally, Isaman said any difficulties encountered in the audit or disagreements with management would be included in the letter; however, the audit firm did not have any issues for 2022.

As part of the management letter, Isaman said BWB provided BPU staff with a letter of recommendations to implement to improve financial operations.

“It’s our understanding that they are in the process of implementing and addressing some of these items,” she said, “so all positive reports.”

Recapping the audit for the board of directors, Isaman said the results were positive with clean audit opinions, a clean governance letter and a strong financial year for the electric, water and wastewater divisions. With the list of recommendations provided by BWB already being addressed by the BPU staff, Isaman indicated that the final results were “pretty positive” overall this year.

Kevin Karr, BPU finance manager, thanked BWB for managing the audit this year.

“Coming in year one, it’s difficult to do an audit and collect all the information,” he said. “They did a very thorough audit. I’m really impressed with their work and the recommendations that they gave us. We are already working to implement some of the different processes to account for things and to reconcile accounts.”

Karr indicated that next year’s audit will be “much easier,” and said he is looking forward to continuing the BPU’s association with BWB as the utility company’s audit staff.

Dave Leathers, BPU general manager, also thanked BWB, as well as Karr and his financial team for successfully completing the financial audit. He explained that the results of the independent financial audit will be available for the public “soon” on the BPU’s website.

Leathers noted that the electric division’s revenue increase was mostly the result of off-system sales.

“We did that in January, February and over the summer, and the capacity payments that we get to the plant, were also higher,” he said. “Most of the increased revenues in electric were related to off-system sales and off-system sales profits, that as you know, $1.225 million goes to the operating budget, but everything above that is restricted. It either goes to the overhaul reserve fund or it’s a refund back to customers right now. The majority, if not all of that revenue increase, was related to off-system sales profits, which really don’t hit net income the way that we track it internally.”