THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, November 5, 1994 TAG: 9411050655
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: BY LANE DEGREGORY, STAFF WRITER
DATELINE: BUXTON LENGTH: Long : 151 lines
During the past year, Hatteras Island's electric co-operative has paid a Virginia accounting firm more than $434,206, the power company's former manager said Friday.
That's outrageous, said John A. Echols, who resigned as general manager of Cape Hatteras Electric Membership Cooperative on Oct. 18 - less than four months after he came aboard. ``The members are paying for that. It's totally unnecessary. Those guys shouldn't be getting more than $6,000 a year.
``Hatteras Island residents are being charged higher rates than they should be because of this.''
Echols said when he left the rural electric co-op that he quit because of meddling by the board of directors, and said their interference created problems that hurt service and endangered linemen.
Owned by its members, the Cape Hatteras Electric Membership Cooperative serves about 5,000 Outer Banks homes and businesses from Rodanthe to Hatteras Village.
In addition to the accounting fees, Echols contended the co-op pays some of its employees too much money. As manager, Echols earned $75,000 annually. His assistant, Claudine Williams, who now is acting general manager, makes $64,000 a year, Echols said. ``The co-op is in big trouble.''
Although co-op attorney Norman W. Shearin Jr. said his clients ``have nothing to hide,'' the Nags Head lawyer refused to confirm or deny accounting payments or employees' salaries at Cape Hatteras Electric.
On Monday, The Virginian-Pilot asked Shearin to detail payments to Johnson and Dooley of Danville, Va., accountants for 1993 and 1994; provide salary information about some of the co-op's 21 full-time employees; furnish the total amount of money paid to Board of Directors President Jack S. Gray; and answer about 10 other questions. Shearin agreed to provide some of the information as soon as possible. He said, however, that salaries are not available for public knowledge.
On Friday, Shearin said he could not answer most of the questions because the co-op's financial records had been stolen.
``All of our bills, vouchers and original records were taken away by Mr. Echols,'' said Shearin, who has represented Cape Hatteras Electric for 20 years. ``Ms. Williams told me that. Another co-op employee confirmed it. We discovered early this week that the records were missing.''
Early Friday afternoon, Shearin said no one had reported the alleged theft to police. Shearin called later to say that the sheriff will be contacted. ``We want to be sure,'' the lawyer said, ``that what we thought happened actually did.''
Echols said he never removed original documents from Cape Hatteras Electric. While serving as manager, Echols said, he asked for copies of accounting payments at least three times. Finally, Williams gave him the paperwork. Echols said he made copies of some of the bills and vouchers - then returned the originals to office files.
``Those folks . . . are trying to discredit me. When I left the co-op, those original documents were still in the office,'' Echols said.
Echols gave copies of the accounting payments to a Hatteras Island monthly newspaper, ``The Island Breeze,'' for a story which was published Thursday.
Shearin said that because the records are missing ``I've asked the accountants to provide me information about what the co-op has paid them. I have not yet received that information.''
Ron Johnson, part-owner of Johnson and Dooley accountants in Danville, said Friday that he sent Shearin those numbers ``a few days back.''
Johnson said he could not recall, however, whether he had mailed or faxed the documents. And the accountant refused to release how much money his firm has been paid - or the billable hourly fee charged to the co-op.
Shearin said he charges the co-op $150 per hour for legal advice. But the lawyer would not release information on how much money his firm received from Cape Hatteras Electric in 1993 or so far this year.
According to Echols' records, the accounting firm has received at least $30,000 every month of this year - $382,791 so far for 1994.
In 1993, the electric co-op paid Johnson and Dooley $93,917. The figures for both years include a total of $22,380 for a private chartered plane to fly the accountants from Danville to Buxton; and $10,429 for meals, hotel rooms and other travel expenses.
``We are more consultants than accountants. We provide very specialized services for rural electric co-ops,'' said Johnson, whose 12-member firm has represented Cape Hatteras Electric since 1979.
``We do rate designs and analysis, purchase power, provide cost-benefit analysis and long-range financial projections, monitor agreements, apply for loans and make cost of living adjustments for salaries. We set costs for new commercial customers who may require additional lines. And we update the depreciation of equipment.
``There is an entire range of hourly fees we charge - depending on who does the work,'' said Johnson. ``I can't tell you what that range is. But I can assure you it's far below the normal costs for those services.'' Johnson, however, refused to say what he considered ``normal costs'' to be.
Echols and Shearin said they have never seen the contract with the accounting firm. Although Shearin was the co-op's attorney when the accountants were first hired 15 years ago, the lawyer said he did not negotiate any fees or approve any contracts. Board of Directors President Jack S. Gray said he did not know what the accountants' hourly billing fee was - but he did not see any problem with payments to Johnson and Dooley.
``They've done a terriffic amount of work for us. And those guys don't come cheap,'' said Gray, who has been on the nine-member board for 18 years. ``We're going to hire another firm to see if we've paid these accountants too much. But I don't think their fees were high.''
Claudine Williams signs all of the checks the electric co-op disburses. And Gray co-signs costly payments. Although monthly accounting bills were as high as $51,692 in May, Gray said he never questioned a Johnson and Dooley invoice.
``Those figures just show the work that has gone on this year,'' said Gray, citing extra costs for repairing damage caused by Hurricane Emily and the March 1993 Storm of the Century. ``Everything just mounted up. We got loans and storms going on. It's just been a busy year.''
One of the most costly functions Johnson and Dooley provided this year, Johnson said, was helping the co-op apply for a $14.8 million federal loan to upgrade power capacity.
``Our costs to Cape Hatteras really skyrocketed in 1994,'' said Johnson, whose firm represents 10 other rural utility co-operatives. ``And those fees probably will continue until all the work is done. The projected completion date is May 1995.''
Besides doing accounting and financial advising for Cape Hatteras Electric, Johnson and Dooley also perform the co-op's annual audit. Echols said that dual role is ``a gross conflict of interest'' since the firm auditing the co-op also receives so much money from it. But Shearin and Gray see no problem with the arrangement.
Johnson said he charges the co-op about $2,500 for the annual audit.
``If it weren't for us, the customers' rates would be much, much higher,'' Johnson said Friday, adding that his financial consulting has saved the co-op millions of dollars. ``We found it more economical to fly than drive from Danville. We bring two or three people down at least monthly to meet in Hatteras. It's the most complex electric system I've ever encountered. Therefore, it requires more consulting services than other rural co-ops.''
Monday night, the co-op's Board of Directors plans to meet with its attorney and accountants in a special session. But, like most of the board meetings, the gathering will be closed to co-op members, the public and press. Cape Hatteras Electric is a non-profit organization which does not pay federal taxes.
``Not every member of this co-op has a right to root around in the accounting records at will or have access to employees' salaries,'' Shearin said. ``Our meetings are not public. This is not the school board.'' MEMO: POWER RATES
Rates charged for 1,000 kilowatts of electricity as of December
1993
Cape Hatteras Electric Membership Cooperative, Hatteras Island:
$103.20
Tideland Electric Membership Cooperative, Ocracoke and Hyde Co:
$100.30
Halifax Electric Membership Cooperative, Halifax Co.: $95.30
North Carolina Power, Outer Banks and parts of mainland, N.C.:
$78.93
According to these figures, Hatteras Island residents' average
monthly electric bills are 30 percent higher than bills of residents of
nearby Nags Head.
Source: Rural Electrification Administration, North Carolina Power. by CNB