THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, March 23, 1995 TAG: 9503230556
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: BY LANE DeGREGORY, STAFF WRITER
DATELINE: BUXTON LENGTH: Medium: 73 lines
An annual audit by a Morehead City accounting firm shows that the Cape Hatteras Electric Membership Corp. is in sound financial shape.
The accountants, McGladrey & Pullen, said Tuesday night that they did not take into account a pending lawsuit in which the utility is suing its former accounting firm for $700,000.
``We're not saying everything is 100 percent clean and lily white,'' accountant Gary A. Ridgeway told the co-op's board of directors. ``There is a problem which you all have identified with your previous accountants. But as far as the ramifications of that problem go, we can't tell yet.
``We can't say from this audit whether previous accountants' billings were or were not excessive.''
In January, the directors of the co-op unanimously voted to fire their former accounting firm, Johnson and Dooley of Danville, Va., after a third auditing firm conducted an investigation showing that Johnson and Dooley had overcharged the co-op more than $100,000 since November 1993.
The charges came to light after former co-op manager John A. Echols resigned - citing inappropriate spending practices and interference from the co-op directors. According to Echols, the utility paid Johnson and Dooley more than $430,000 in less than 12 months during 1993 and 1994.
In their lawsuit against Johnson and Dooley, the utility directors are seeking at least $200,000 in compensatory damages and $500,000 in punitive damages and attorney fees.
``A judge and jury will decide what happened to us - or what didn't happen to us - with those billings,'' board of directors member Dale Burrus said Tuesday night. ``Until then, that issue cannot be part of this audit.''
Cape Hatteras Electric serves all Hatteras Island residents and businesses. The nonprofit, tax-exempt co-op employs about 20 people full time. It is owned by its 3,825 customers.
According to the 1994 audit, Cape Hatteras Electric has more than $19 million in assets.
Last year, co-op officials paid $4.4 million to purchase power from the North Carolina Electric Membership Corp.
The co-op is liable for $8.6 million in debts - primarily to cover the cost of implementing Hatteras Island's new upgrade project on the power lines.
Although overall the utility's audit was favorable, accountants recommended seven changes in internal control methods that could help eliminate future monetary reporting problems.
Most of the changes involved splitting duties between co-op employees. For example, the auditors said billing clerks should not double as cashiers because that way the same employee who is responsible for recording payments also handles the money.
``Some materials have been ordered without approved purchase orders. Some invoices were not documented as to who approved the actual payment. This could lead to invoices being paid that were not authorized,'' Ridgeway said. ``Some invoices were not marked as paid after proper payment had been made. Packing reports and receipts weren't all saved. These methods need to be corrected. Some of them are being worked on already. Other changes may require computer upgrades, scheduling changes for employees or policy adjustments.''
The accountants would not say whether some of their proposals may have prevented alleged over billings such as co-op officials said occurred with Johnson and Dooley. But co-op manager Claudine Williams assured the directors that such problems were extremely rare - despite the recommended changes in accounting procedures.
``I can assure you that all of the bills that come into this office are checked,'' Williams said. ``I've been here 27 years and I checked those bills back and forwards.
``The Johnson and Dooley bills were the only ones that slipped by us,'' said Williams. ``And that's because we were trusting them to perform those duties.'' by CNB