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HomeMy WebLinkAbout2002 Year End ReviewDRAFT Memo To: Sewer Board City of Jeffersonville, Indiana From: Robert A. Miller ~/~ CC: Hon. Peggy Wilder, Clerk/Treasurer City of Jeffersonville, Indiana Klm Johnson, Director Sewer Billing Office City. of Jeffersonville, Indiana Date: March 12, 2003 Re: City of Jeffersonville Wastewater Utility Review of 2002 Year-End Financials General Financial Observations and Recommendations This'memorandum provides a review of the City of Jeffersonvilie Wasteweter Utility's 2002 preliminary financial results and a progress report on my engagement to provide consulting services to the Jeffersonville Sewer Board. It is based on 2002 intedm financial statements produced from the Sewer Billing Office's financial reporting system, supplemented with reports from the Clerk/-I'reasure¢s City tinancial reporting system. This is a draft report, and its author earnestly solicits comments, questions and dadficafions from addressees named above. The report will be reissued in final form after all comments have been received. · Page 1 Sewer Board City of Jeffersonville, Indiana March 12, 2003 The 2002 Financial Statements General Observations The reader-friendliness and timeliness of the Billing Office's finandal statements appear to have improved markedly in 2002. In response to the Sewer Board's requests, the Billing Office has managed to produce a standard report consisting of tdal balance, detailed trial balance, balance sheet, income statement and check register report. This is a significant advance over what was available to the Board when it first engaged my services in 2001. There are, however, a number of issues that remain to be addressed. Account Detail Some potentially useful account detail has been added to the General Ledger. Thus, the GL now displays a "606" sedes of accounts, which appear to record, for 2002, drainage expenses for "Truck Repair" ($420), "Tools and Supplies" ($1,568), "Pipe and ;Catch Basin" ($32,636), "Job Contracts" ($25,501), "Professional Services" ($40,140) and "Drainage Other Expense" ($19,321). All told, these account additions detail abeut 2% of combined wastewater and drainage expenses. Ii should be noted that the foregoing detail drainage accounts were added in October 2002 and that, in January 2003, additional drainage expense accounts ("Drainage Salaries and Wagesi" "Drainage Pension/Benefits," "Drainage Office Supplies" and "Drainage Protective Clothing") have been opened in the General Ledger. At least with respect to drainage operations, these additions promise to give management and the Sewer and Drainage Boards a far better handle on financial results in 2003. Contrast this improvement in drainage financial reporting with the wastewater "Other Expense" accounts ("Lift Stations", "Planf', "Administrative and General") totaling $992,708, or almost 25% of 2002 expenses. If financial reporting is to be fully useful to management, "OtheF' or "Miscellaneous" accounts should not exceed 5% of expenses. A representative flavor of the matedality of what is booked to the "Other Expense" accounts can be dedved from the list, on the following page, of disbursements from these accounts exceeding $1,000, from the Billing Office's "Detailed Tdal Balance" reports for the third quarter of 2002. The purpose of presenting this list is not to intimate that there is anything irregular .about the utility's accounting practices, but to demonstrate how matedal to financial analysis many of the items charged to "Other Expenses" are. · Page 2 Sewer Board City of Jeffersonville, Indiana : March 12, 2003 775.610 0W01/02 0~06/02 0~1~02 0~1~02 775.650 07/01/02 07/01/02 07/01/02 07/15~02 08/15~02 08/15~02 08/15/02 08/15/02 08/15~02 09/15~02 775.680 07~01102 07/01/02 07/31/02 08/15~02 08/15102 08/15/02 09/15/02 09/15/02 09/15~02 09/15/02 Jeffersonville Wastewater Utility Selected "Other Expenses" Third Quarter 2002 Other Expenses - Lift Stations Liter's Quarry Jacobi, Toombs & Lantz ECL Contracting Excel Excavating 1,077.40 3,277.28 6,840.00 1,711.56 Other Expenses -Plant PEH Engineers American Contra Clark General T & L Pdnting T & L Printing Robert Miller T & L Pdnting Dell Matketing G & K Services Bank One Leasing Other Expenses - Admin & General Automated Mailing EMC AMS-TMS EMC AMS-TMS EMC EMC Magic Filer City of Jeffersonville Clark General 1,736.69 3,510.00 20,251.00 1,495.91 1,495.91 5,437.50 1,495.91 1,766.10 1,210.78 2,555.00 1,295.00 3,357.16 3,000.00 5,969.57 3,000.00 6,661.06 113,603.18 9,900.00 1(~0,000.00 69,980.64 Some of the expenses evidently have been miscoded. For example, payment of an invoice I submitted was charged to "Other Expenses - Plant", when deady it should have been charged either to "Other Expenses - Administrative and General" or to a more adequately descriptive account. A payment of $100,000 to the City of Jeffersonville was charged to "Other Expenses - Adminisfl'ative and General" when, more appropriately, it should have been recorded as an interfund transfer or payment in lieu of taxes Iand thus, under either option) not an operating expense of the utility. A monthly pm rata payment to EMC was recorded in "Other Expenses - · Page 3 Sewer Board City of Jeffersonville, Indiana March 12, 2003 Administrative and General," rather than to "Contractual Services - Plant." The booking of insurance expenses also appears to provide little analytical insight into the distribution of this operating cost. It appears, as well, that certain expenses that should be capitalized are being charged to "Other Expenses - Lift Stations." The Sewer Board approved all of these payments, so there is no question of impropriety. The real question the lumping of so many material expenses into "miscellaneous" accounts raises is: How useful are the wastewater utility's statements for financial analysis? The answer, at this point, is that while the utility is making some real headway in reporting its financial results, a great deal of digging and restatement is still necessary to provide the Sewer Board with analysis and recommendations that can inform understanding and action. Furthermore, the allocation of cost between wastewater and drainage functions understates the cost of the latter. In January 2003, a journal entry was made, transferring $750,513 from wastewater retained earnings (fund balance) to drainage retaihed earnings. This was in keeping with drainage net income recorded in the General Ledger for the year ended December 31, 2002, but, as will be shown later in this report;~' that figure is overstated materially, due to the inadequacy of cost ~llocations that were used. Following are observations developed from work on the Sewer Board's chart of accounts and financial statements during my previous engagement, ended December 31, 2002 and from a review of the financial statements for the year then ended and for January 2003, which I received last month in advance of this engagement. 2002 Results: Where's the Cash? The most stdking result of the utility's 2002 operations, as reported in the December trial balance is that, while the utility evidently had strong net income of $1.1 million, the cash balances of its key working capital funds (the Sewer Operation and Maintenance Fund, the Drainage Operation and Maintenance Fund and the Cumulative Improvement Fund) decreased by more than $600,000. In fact, at year end, their combined balances were negative by a little more than $100,000. Sewer O&M was $1.8 million in the red, while Drainage O&M (over $600,000 in the black) and Cumulative Improvement ($1.1 million) ostensibly were healthy (although Cumulative Improvement was down $300,000 for the year). Utility financial statements are presented on a consolidated basis, but it is necessary to understand the underlying fund accounting in order to follow these cash flows. · Page 4 Sewer Board City of Jeffersonville, Indiana March 12, 2003 The utility reported just under $6.3 million in revenues last year on a consolidated basis. But $900,000, drainage operating revenue, was distributed to the drainage cash and receivables accounts. Of the remaining $5.4 million "sewer revenues," more than $600,000 ('q'ap In Fees", "Inspection Fees", "Availability Fees") are recorded in the Cumulative Improvement Fund account. Thus, at the end of the day, the Sewer O&M fund account proper received only $4.7 million to meet $5.2 million in operating expenses, debt service and non-operating expenses. (Additionally, Sewer O&M transfers an average $30,000 each month to Cumulative improvement.) Collectively, these adjustments account for the decrease of $854,000 in the O&M fund's account balance in 2002. Recorded capital expense dudng 2002 was approximately $2.4 million. Approximately $1.2 million of the total outlay was prOvided from the ut'lity s State Revolving Fund loan and from lease financing. The other $1.2 million was provided from the Cumulative Improvement Fund, supplemented by $0.3 million transferred from the Sewer O&M Fund. There is nothing especially alarming about reductions in cash balances resulting from capital investment. Cleady, if the utility wishes to continue to invest at the pace of the last several years, however, it will need to borrow in 2003. In order to meet the "additional bonds test" of its revenue bond indenture, however, it will need to dadfy its cost accounting and to determine what portion of its billings it reasonably can expect to collect. Build-up of operating accounts receivable balances The increase in operating (sewer and drainage revenue) accounts receivable during 2002 is disturbing. These accounts totaled $1.4 million at December 31,2002, having nearly doubled from the 2001 year-end GL balances. At that level, the receivables equal about 25% of annual operating revenue (excluding tap-in fees and interest income, for which receivables are negligible). The increase in receivables for 2002 alone amounted to 12% (one-eighth) of operating revenue. interestingly, drainage accounts receivable represent only about 19% of current drainage operating revenue, while sewer accounts receivable represent 27% of current sewer operating revenue. Similarly, the 2002 increase in drainage accounts receivable was only 7.5% of drainage revenue, while the increase in sewer receivables was 13% of sewer revenue. This is notable because, typically, the collection rate on sewer billings is greater than the rate on drainage billings, the relationship of the former to service rendered being more palpable than the billing/service relationship of the latter. Most likely, the greater percentage of sewer delinquencies is due to non-payment by higher-than-average volume customers. · Page 5 - Sewer Board City of Jeffersonville, Indiana March 12, 2003 In any event, these receivables-to-revenues ratios are too high. In general, receivables should not exceed by much the amount of current billings at the end of the period, since Jeffersonville operates on a monthly billing basis, sewer and drainage receivables should not exceed about 8% of reported revenues. At their December 31, 2001 levels, sewer receivables already were 13% of revenues- about $0.2 million over the level to be expected. At December 31, 2002, sewer receivables were about $0.8 million over the level to be expected. Similarly, at their December 31, 2002 level, drainage accounts receivable were about $0.1 million over their optimal level (comparison with 2001 omitted because drainage billings did not begin until the middle of 2001). The financial implication of th~ foregoing analysis, of course is that utility 2002 net income probably is being overstated in the unaudited statements by as much as $0.7 million. The benchmark advanced may be a bit stringentl but there can be no doubt that the current level of utility operating receivables is unsustainable. A significant portion should be expensed and recognized as miscellaneous income when and if collected. At the Sewer Board meeting on Tuesday, March 11, staff indicated that approximately $600,000 of the sewer receivables are to be written down due to billings based on erroneous customer information Provided by the water utility. Although it will be a relief to find that Jeffersonville's delinquency rates are not as high as the current account balances suggest, a write-down of that magnitude presumebl¥ will have the same materially unfavorable impact on reported revenue outlined above. Net income and debt service coverage On the surface, as noted at the outset of these observations on the 2002 financial statements, the utility appears to have had strong operating results. After net income is adjusted to exclude depreciation and amortization, interest expense and the $0.1 million payment in lieu of taxes to the City of Jeffersonville, the utility produced $2.6 million in revenues available for debt service. (See Appendix A.) Since debt service on revenue bonds was a little less than $1.4 million, debt service coverage was 195%. (However, had accounts receivable been reduced as recommended above, debt service coverage would have been only 143% - less comfortable, but still in excess of the 125% coverage mandated by the revenue bond ordinances). It is important to keep in mind that these operating results include net drainage income. The revenue bond ordinances make no distinction between sewer and drainage revenues for purposes of defining debt service coverage. But the drainage revenue base was created to provide funds for drainage capital projects, and it must be assumed that, at some point in the not too distant future, they will be fully · Page 6 Sewer Board City of Jeffersonville, Indiana March 12, 2003 committed to drainage operations, debt service and/or direct capital outlay. Excluding reported drainage net income from reported total utility net income, revenue bonds debt service coverage for 2002 falls to 139%. (if net income is adjusted for "bad debts", as recommended above, available sewer revenues are only 87% of debt service). It also is noteworthy that reported 2002 drainage revenues, at just over $900,000, are $100,000 (10%) less than projected in Crowe Chizek's July 2000 User Charge Report: Stormwater Charge. To date, this has not caused any fiscal problems because no drainage debt has been issued (Crowe Chizek assumed bond issuance of more than $6 million). Expenses allocated to drainage in the statements amounted only to $164,000 (Crowe Chizek projected operating expenses closer to $300,000 - which, as we shall see, was closer to 2002 reality). Thus, drainage in 2002 provided, per books, the net revenue necessary to cover the debt service the rate consultant projected. Cost a/location issues Drair~age is onlY one of the larger cost allocation issues to be resolved if we are to bring 2002 operating results dearly in focus. It is critical to understand 2002, because it is the first full year during which drainage fees were in effect and because it is the y~ar during which the 1998 Revenue Bond and SRF proceeds, for all practical purposes, were exhausted. Proper cost allocation is the key to this critical understanding. First, the reported drainage operating results need to be allocated their share of direct salaries and benefits. Using the City's budget and salary ordinances, it is possible to make the allocation with a fair degree of precision. As illustrated in Appendix B of this report, this allocation adds $130,000 to drainage expense, bringing it in line with Crowe Chizek's projections. Next, it is necessary - and possible - to split billing and collection costs out of the General Ledger "Administrative and General" cost center (depreciation and amortization, the payment to the City of Jeffersonville and miscoded EMC pre ratas also have been removed to their appropriate accounts or non-operating expense categories). Using the City's budget and salary ordinances, supplemented by close analysis of the non-personnel line items, it is possible to isolate a billing and collection cost of $289,000. This cost does not include any "bad debt" expense f~om aged operating revenue accounts receivable. In Appendix B, billing and collection expenses have been presented in a new cost center, while the remaining "Administrative and General" expenses have been grouped in a redesignated "Administrative and Engineering" cost center which better · Page 7 Sewer Board City of Jeffemonville, Indiana March 12, 2003 reflects their character. In Appendix B, these "Billing and Collection" and "Administrative and Engineering" expenses have not been allocated to wastewater and drainage. This final step in the cost allocation process has been taken in Appendix C. The "Administrative and Engineering' and "Billing and Collection" costs have been allocated as overhead to the wastewater and drainage accounts. As you will see, at the bottom line, a fair allocation has the effect of shifting $220,000 of expenses from the wastewater account to the drainage account, resulting in a total drainage operating expense considerably in excess of what the rate consultant projected. As noted previously, in January the utility transferred $750,513 from wastewater retained earnings to drainage retained earnings. This reflected the partial allocation of costs provided in the General Ledger (Appendix A). Cleady, on the basis of a full and fair cost allocation, the number should be closer to $500,000. Preliminary conclusions Cost allocation, of course, is not an exact sdence, le{ alone rocket science. It is an art which involves making assumptions from raw account data about how people use time and materials. Where there are assumptions, there is room for disagreement and dialogue among reasonable people. But the rough outline of some of some fairly solid conclusions is possible from an (admittedly) rough cut at allocating the utility's 2002 revenues and expenses: 1. The drainage fee is yielding considerably less gross and net income than had been anticipated atthe time it went into effect. Thus, fully allocated net drainage revenue was $544,000, compared with the originally projected $735,000, On the other hand, tax exempt interest rates are considerably lower than the consultant projected in 2000. At today's rates, $544,000 net revenue would provide 125% debt service coverage for $7 million in borrowing - considerably more than was anticipated in the original drainage service charge analysis. In other words, drainage is fully capable of fulfilling the programmatic objectives that were set for it at its inception. 2. Billing and collection costs, computed simply as time and materials devoted to that function, are relatively competitive by either of the familiar measures of cost per billing, or total billing cost as a percentage of total revenue. On these bases, Jeffersonville's costs compare favorably, for example, with Louisville MSD's costs (most of which are contractual payments to the Louisville Water Company, though a substantial portion is in-house cost). Jeffersonville's cost per billing is approximately $2.49; Louisville's $3.33. Jeffersonville's billing cost as a percentage of revenues · Page 8 Sewer Board City of Jeffersonville, Indiana March 12, 2003 is 4.8%; Louisville's, 4.4%. However, Louisville's costs include bad debt write-offs. When 2002 "bad debt" expenses are imputed to Jeffersonville's billing costs, Jeffersonville's cost per billing dses to $8,24, and its cost of collections as a percentage of total revenue dses to 16.5%. One year's analysis is not adequate to provide an irrefutable conclusion on this issue. Perhaps aggressive collection efforts will cut Jeffersonville's bad debt costs. But increments of collection effort tend to be very expensive, and Jeffsrsonville will have to weigh the cost/benefit of adding muscle to its collection efforts, versus linking sewer and drainage billing to water billing. The Sewer Board needs to replenish its Sewer O&M aocount by reimbursing it for drainage expenses and sewer capital expenses. In the alternative, the Sewer Board should ask the City to fold the Cumulative Improvement Reserve Funds together with Sewer O&M into one "Sewer Revenue Fund." The accompanying appendices substantially indicate the appropriate wastewater/drainage allocation. They do not make an operating/capital allocation. Thus, not all capital expenses have been weeded out of the operating expense accounts, nor has any administrative overhead been allocated to capital. Capital expense represented at least 30% of total utility spending in 2002, yet not a single dollar of the $600,0(~0+ spent on "Administrative and Engineering' activities was charged to capital. The Sewer Board needs to borrow a substantial amount of capital in 2003 to meet the expenses of its projected sewer and drainage investment requirements. The market is very favorable~ with tax-exempt rates at four- decade lows. Subject to further field work and audit of the 2002 financial statements. I estimate that the 2002 utility net revenues of $2.6 million are capable of providing 125% debt service coverage to approximately $19 million in new borrowing - $12 million wastewater, $7 million drainage - at current market rates. It would be advisable for the utility to get into the market as soon as possible with a combined wastewater/drainage issue. If, as indicated above, the utility's net revenues must be adjusted for bad receivables, the amount of borrowing that can be covered at 125% falls to about $13 million - $6 million wastewater, $7 million drainage. Further Recommendations At the request of the Sewer Board, I am attaching as Appendix D, management recommendations I presented to the Board during my previous engagement. I have noted progress where it has been achieved. I look forward to discussing the contents of this memorandum with the Board and City staff. · Page 9 Appendix A. City of Jeffersonville, Indiana Wastewater Utility Income Statement for Year Ended December 31, 2002 (per Trial Balance) Wastewater Drainage Combined Income: 522.606 522.620 536.606 536.610 536.620 536.630 536.640 536.650 536.690 537.606 Drainage Operating Revenues Sewer Operating Revenues Drainage Penalties Penalties Tap-In Fees Inspection Fees Interest on Investments Sewer Income - Other Availability Fee Drainage Income - Other Gross Income Expenses: Sewer Maintenance 701.610 Sewer Maintenance Salaries 704.610 Employee pension/Benefits 715.610 Purchased Power 720.610 Materials & Supplies - Lift Stations 775.610 Other Expenses - Lift Stations $ 910,151 $ 910;151 4,399,174 4,399,174 4,005 4,005 62,455 62,455 595,360 595,360 11,250 11,250 129,864 129,884 138,275 138,275 28,373 28,373 25 25 $ 5,364,771 $ 914,181 $ 6,278,952 466,537 $ $ 466,537 233,311 233,311 41,818 41,818 79,442 79,442 44,382 44,382 865,490 865,490 Sewer Plant Operations 715.650 Purchased Power - Plant 225,497 225,497 720.650 Materials & Supplies - Plant 28,761 28.761 734.650 Contracted Services - EMC 1,237.371 1,237,371 775.650 Other Expenses - Plant 160, 595 160,595 1,652,224 1,652,224 Administrative and General 701.680 Salanes 271,132 271,132 704.680 Employee Pension/Benefits 720.680 Materials & Supplies-- Office 5,963 5,963 775.680 Other Expenses - Administrative 787,731 787.731 776.680 Depreciation 799,716 799,716 1,864,542 1,864,542 Drainage Operations 701.606 Salades 704.606 Employee Pension/Benefits 714.606 Track Repair 715.606 Tools and Supplies 420 420 1,568 1,568 Appendix A City of Jeffersonville, Indiana Wastewater Utility Income Statement for Year Ended December 31, 2002 (per Trial Balance) 716.606 Pipe and Catch Basin 718.606 Job Contracts 719.606 Materials 775.606 Drainage Other Expense 785.606 Professional Services Was~water Dmina~e Combined 32,636 32,636 25,501 25,501 44,280 44,280 19,321 19,321 40,140, 40,140 163,866 163,866 622,278 622,278 32,340 32,340 654,618 654,618 5,036,874 163,866 5,200,740 $ 327,897 $ 750,315 $ 1,078,212 327,897 750,315 1,078,212 1,554,334 1,554,334 $ t,882,231 $ 750,315 $ 2,632,546 730,000 730,000 622,278 622,278 $ 1,352,278 $ $ 1,352,278 139% NA 195% Other costa 801.600 Interest on Bonds 803.600 Amortization of Bond Issuance Costs Total expenses Net Income Debt service coverage: Available Revenues: Net Income Add depreciation, interest, payment to City Total Available Revenues Debt Service Principal Interest Total Debt service Debt Service Coverage Ratio Appendix B City of Jeffersonville, Indiana Wastewater Utility Restatement of Direct Functional Costs for Year Ended December 31, 2002' (per December Trial Balance and City Budget Documents) Income: Wastewater Draina~le Combined 522.606 Drainage Operating Revenues $ $ 910,151 $ 910,151 522.620 Sewer Operating Revenues 4,399,174 4,399,174 536.606 Drainage Penalties 4,005 4,005 536.610 Penalties 62,455 62,455 536.620 Tap-In Fees 595,360 595,360 536.630 Inspection Fees 11,250 11,250 536.640 Interest on Investments 129,884 - 129,884 536.650 Sewer Income - Other 138,275 - 138,275 536.690 Availability Fee 28,373 28,373 537.606 Drainage Income - Other 25 25 Gross Income $ 5,364,771 $ 914,181 $ 6,278,952 Expenses~ Sewer Maintenance 70,1.610 Sewer Maintenance Salaries 704.610 Employee Pension/Benefits 715.610 PurChaSed Power 720.610 Materials & Supplies - Lift Stations 775.610 Other Expenses - Lift Stations Sewer Plant Operations 715.650 Purchased Power- Plant 720.650 Materials & Supplies - Plant 734.650 Contracted Services - EMC 775.650 Other Expenses.- Plant Administrative and Engineering 701.680 Salaries 704.680 Employee Pension/Benefits 720.680 Materials & Supplies - Office 775.680 Other Expenses - Administrative 776.680 Depreciation Billing and Collections Salaries Employee Pension/Benefits Materials & Supplies - Office Other Expenses - Administrative $ 418,422$ $ 418,422 132,339 - 132,339 41,818 41,8~8 79,442 79,442 44,382 44,382 716,404 - 716,404 225,497 225,497 28,761 28,761 1,350,974 1,350,974 160,595 160,595 1,765,827 1,765,827 108,285 49,561 157,846 34,249 15,675 49,924 437,882 437,882 580,415 65,236 645,651 111,480 111,480 35,259 35,259 5,963 5,963 156,246 136,246 288,948 288,948 Appendix B City of Jeffersonville, Indiana Wastewater Utility Restatement of Direct Functional Costs for Year Ended December 31, 2002 (per December Trial Balance and City Budget Documents) Wastewater Draina~le Combined Drainage Operations 701.606 Salaries 49,920 49,920 704.606 Employee Pension/Benefits 15,789 15,789 714.606 Truck Repair 420~ 420 715.606 Tools and Supplies 1,568 1,568 716.606 Pipe and Catch Basin 32,636 32,636 718.606 Job Contracts 25,501 25,501 719.606 Materials 44,280 44,280 775.606 Drainage Other Expense 19,321 19,321 785.606 Professional Services 40,140 40,140 Other costs 229,575 229,575 80i.600 Interest on Bonds 622;278 622,278 803.600 Amortization of Bond Issuance Costs 32,340 ~ 32,340 Depreciation 799,716 799,716 Payment to City of Jeffersonville 100,000 100,000 1,554,334 1,554,334 Totalexpenses Net Income Debt service coverage: Available Revenues: Net Income Add depreciation, interest, payment to City Total Available Revenues Debt Service Principal Interest Total Debt service Debt Service Coverage Ratio 4,905,928 2941811 5,200,739 $ 458,843 $ 619,370 $ 1,078,213 458,843 619,370 1,078,213 1,554,334 1,554,334 2,013,177 619,370 $ 2,632,547 730,000 730,000 622,278 622,278 1,352,278 $ 1,352,278 149% NA 195% Appendix C City of Jeffersonville, Indiana Wastewater Utility Full Cost Allocation for Year Ended December 31, 2002 (from December Trial Balance and City Budget Documents) ~j Income: 522.606 522.620 536.606 536.610 536.620 536.630 536.640 536.650 536.690 537.606 Drainage Operating Revenues Sewer Operating Revenues Drainage Penalties Penalties Tap-In Fees inspection Fees Interest on Investments Sewer Income - Other Availability Fee Drainage income - Other Gross Income ExpenseS: Sewer Maintenance 701.610 Sewer Maintenance Salaries 704,610 Employee Pension/Benefits 715.610 Purchased Power 720.610 Materials & Supplies - Lift Stations 775.610 Other Expenses - Lift Stations Wastewater Draina~le Combined $ $ 910,151 $ 910,151 4,399,174 4;399,174 4,005 4,005 62,455 62,455 595,360 595,360 11,250 11,250 129,884 129,884 138,275 138,275 28,373 28,373 25 25 $ 5,364,771 $ 914,181 $ 6,278,952 $ 418,422$ $ 418,422 132,339 132,339 41,818 41,818 79,442 79,442 44,382 44,382 716,404 716,404 Sewer Plant Operations 715.650 Purchased Power - Plant 225,497 225,497 720.650 Materials & Supplies - Plant 28,761 28,761 734.650 Contracted Services - EMC 1,350,974 1,350,974 775.650 Other Expenses - Plant 160,595 160,595 1,765,827 1,765,827 Administrative and Engineering 701.680 Salaries 704.680 Employee Pension/Benefits 720.680 Materials & Supplies -- Office 775.680 Other Expenses - Administrative 776.680 Depreciation Billing and Collections Salades Employee Pension/Benefits Materials & Supplies - Office Other Expenses - Administrative 102,147 55,699 157,846 32,307 17,617 49,924 413,060 24,822 437,882 547,514 98,138 645,651 95,249 16,231 111,480 30,126 5,134 35,259 5,095 868 5,963 116,410 19,837 136.246 246,879 42,069 288,948 Appendix C City of Jeffersonville, Indiana Wastewater Utility Full Cost Allocation for Year Ended December 31, 2002 (from December Trial Balance and City Budget Documents) Drainage 701.606 704.606 714.606 715.606 716.606 718.606 719.606 775.606 785.606 Operations Salaries Employee Pension/Benefits Truck Repair Tools and Supplies Pipe and Catch Basin Job Contracts Materials Drainage Other Expense Professional Services Other costs 801.600 Interest on Bonds 803.600 Amortization of Bond Issuance Costs Depreciation Payment to City of Jeffersonville Total expenses Net Income Debt service coverage: Available Revenues: Net Income Add depreciation, interest, payment to City Total Available Revenues Debt Service Principal Interest Total Debt service Debt Service Coverage Ratio Wastewater Drainage Combined 49,920 49,920 15,789 15,789 420 420 1,568 1,568 32,636 32,636 25,501 25,501 44,280 44,280 19,321 19,321 40,140 40,140 229,575 229,575 622,278 622,278 32,340 32,340 799,716 799,716 85,441 14,559 100,000 1,539,775 14,559 1,554,334 4,816,398 384,341 5,200,739 $ 548,373 $ 529,840 $ 1,078,213 548,373 529,340 1,078,213 1,539,775 14,559 1,554,334 2,088,148 544,399 $ 2,632,547 730,000 730,000 622;278 622,278 1,352,278 $ 1,352,278 t54°/o NA 195°/o Appendix D City of Jeffersonville Wastewater Utility Financial RePorting Recommendations Recommendation: In order to enable timely finandal reporting, the City and the Sewer Board should adopt a "tenth-of-the-month-following cut-off date" for monthly accruals. (Substantially implemented) Recommendation: At a minimum, the Sewer Board should receive monthly financial reports for the Cumulative Improvement Fund and the Construction Fund. Such monthly reporting should show capital outlay by project, project phase (e.g., planning, design, construction), character, and object. Recommendation: The Sewer Board and the City of Jeffersonville should implement a fixed assets accounting which provides adequate detail as to the capital costs associated with wastewater utility operations, including a more realistic policy with respect to depreciation of fixed assets over their useful life. Recommendation: The wastewater utility should add at least one cost center, "Billing and Collections." Recommendation: The Sewer Board should require that the wastewater utility's financial results be reported from an expanded chart of expense accounts, using the Indiana State Board of Accountsl chart of accounts for municipal sewer utilities. Recommendation: The City of Jeffersonville either should formally consolidate the wastewater and stormwater drainage funds (incorporating complete, discrete cost centers and accounts for each function), or should remove all drainage revenue and expense from the wastewater chart of accounts (in the latter option, charging drainage for its ratable share of billing and collection expense). Latter option substantially implemented in January 2003. Recommendation: Drainage operating revenue should be reported in two categories - residential fiat rate and measured surface (ERU) rate. Recommendation: The SeWer Board should require more extensive recovery of cost of service data in the wastewater utility's chart of revenue accounts for interim financial reporting. Recommendation: Data processing issues are beyond the scope of this report, but the observed severe time limitations of the billing system's analytical reporting capacity suggest either that the software design was deficient or, more likely, that the hardware and/or system software deployed in the Sewer Billing Office is inadequate to support the reporting function of the automated billing system. The Sewer Board should evaluate existing Billing Office computer hardware and system software for possible upgrade necessary to realize the full reporting potential of the installed billing system. Information that this has been substantially implemented.