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COL YELL COMMUNITY WATER ASSOCIATION, INC. LIVINGSTON, LOUISIANA

ANNUAL FINANCIAL STATEMENTS

As of and for the Year Ended December 31, 2013

PHILHEBERT CERTIFIED PUBLIC ACCOUNTANT

A PROFESSIONAL ACCOUNTING CORPORATION

Colyell Community Water Association, Inc. Livingston, Louisiana

Table of Contents December 31, 2013

Independent Auditor's Report

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Notes to the Financial Statements

Supplementary Information:

Schedule of Water Rates and Customers

Schedule of Aggregate Dollar Billed for Services and Average Monthly Billing Per User

Schedule of Insurance Policies

Schedule of Compensation Paid to Board Members

Independent Auditor's Report on Internal Control over Financial Financial Reporting and on Compliance and Other Matter Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Schedule of Prior Year Audit Findings

Schedule of Current Year Audit Findings and Responses ....

Statement Page 1

A 2

B 3

C 4

5

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13

13

14

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Phil Hebert, CPA MEMBER ^ PROFESSIONAL ACCOUNTING CORPORATION ^

American Institute of Society of Louisiana Certified Public Post Office Box 1151" Ponchatoula, Louisiana 70454 Certified Public

Accountants Office: (985) 386-5740 • Fax (985) 386-5742 Accountants

Independent Auditor's Report

To the Board of Directors Colyell Community Water Association, inc. Livingston, Louisiana

Report on the Financial Statements

I have audited the accompanying financial statements of Colyell Community Water Association, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2013, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that 1 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free fi'om material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, 1 express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

1 believe that the audit evidence 1 have obtained is sufficient and appropriate to provide a basis for my audit opinion.

1

Phil Hebert, CPA A PROFESSIONAL ACCOUNTING CORPORATION

Opinion

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Colyell Community Water Association, Inc. as ofDecember 31,2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Other Information

My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Water Rates and Customers, Schedule of Aggregate Dollar Billed For Services and Average Monthly Billing Per User, Schedule of Insurance Policies, and Schedule of Compensation Paid to Board Members, as required by Louisiana Department of Health and Hospitals, Office of Public Health, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, I have also issued my report dated May 26,2014, on my consideration of the Association's internal control over financial reporting and on my tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Colyell Community Water Association's internal control over financial reporting and compliance.

. / /I

Phil Hebert, CPA A Professional Accounting Corporation May 26, 2014


Statement A Statement of Financial Position

December 31,2013 Assets

Current Assets: Cash and Cash Equivalents $ 70,399 Investments 205,432 Accounts Receivable, Net 1,192 UnbilledSales 42,946 Inventory 1,200 Prepaid Expenses 10,971

Total Current Assets 332,140

Restricted Assets: Cash and Cash Equivalents: 186,105 Investments:

Member Deposits 51,358 Total Restricted Assets 237,463

Property, Plant and Equipment: Land 17,033 Property and Equipment, Net 1,755,194

Toti Property, Plant and Equipment 1,772,227

Other Assets: Loan Issuance Costs 10,168

Total Other Assets 10,168

Total Assets $ 2,351,998

Liabilities and Net Assets Current Liabilities:

Accounts Payable $ 2,547 Payroll Taxes Payable 3,198 Accrued Interest 26,173 Notes Payable - Current Portion 85,000

Total Current Liabilities 116,918

Noncurrent Liabilities: Members'Deposits 50,100 Notes Payable - Long Term 1,240,200

Total Noncurrent Liabilities 1,290,300 Total Liabilities 1,407,218

Net Assets: Unrestricted 944,780

Total Net Assets 944,780 Total Liabilities and Net Assets $ 2,351,998

The accompanying notes are an integral part of this statement. 3


Statement of Activities For the Year Ended December 31,2013

Statement B

Operating Income: Water Sales Penalties Connections

Total Operating Income

Operating Expenses:

Nonoperating Revenue and (Expenses): Interest Income Interest Expense and Fees Sale of Fixed Asset

Total Nonoperating Revenue (Expenses)

Change in Net Assets

Net Assets, Beginning Net Assets, Ending

Unrestricted

338,150 14,088 6,678

358,916

Advertising 262 Amortization 678 Bad Debt 20 Bank Charge 1,622 Conferences 1,024 Depreciation 81,577 Dues and Subscriptions 3,052 Fuel 3,600 Insurance 14,341 Miscellaneous 4,177 Office Expenses 7,357 Payroll Taxes 8,558 Postage 4,170 Professional Fees 19,800 Repairs and Maintenance 5,226 Salaries 100,658 Software 3,352 Supplies 21,882 Telephone and Utilities 18,325

Total Operating Expenses 299,681

aerating Income 59,235

901 (53,969)

1,275 (51,793)

7,442

937,338 $ 944,780

The accompanying notes are an integral part of this statement.

4


Statement of Cash Flows For the Year Ended December 31,2013

Statement C

Cash Flow From Operating Activities: Change in Net Assets Adjustments to Reconcile Changes in Net Assets to

Net Cash Provided by Operating Activities:

Cash Flows From Investing Activities: Acquisition of Capital Assets Increase in Investment in Certificates of Deposit

Net Cash Used by Investing Activities

Cash Flows From Capital and Related Financing Activities: Principal Paid on Debt

Net Cash Used in Capital and Related Financing Activities

Net Decrease in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year

7,442

Depreciation 81,577 Amortization 678 Changes in Current Assets and Liabilities:

(Increase) Decrease in Receivables 4,782 (Increase) Decrease in Unbilled Sales (639) (Increase) Decrease in Prepaid Expense (2,361) Increase (Decrease) in Other Liabilities 1,181 Increase (Decrease) in Accrued Interest (1,623) Increase (Decrease) in Members' Deposits (600)

Net Cash Provided by Operating Activities 90,437

(19,026) (865)

(19,891)

(82,200) (82,200)

(11,654)

268,158 $ 256,504

Reconciliation of Cash and Cash Equivalents to Statement of Financial Position: Cash and Cash Equivalents, Unrestricted Cash and Cash Equivalents, Restricted

Total Cash and Cash Equivalents

Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest and admin fees were $55,592.

70,399 186,105

$ 256,504

The accompanying notes are an integral part of this statement.

5


Notes to the Financial Statements For the Year Ended December 31, 2013

Business Organization

Colyell Community Water Association, Inc. ("the Association") was incorporated on May 21,1973, as a nonprofit corporation. The Association was organized to provide water distribution services to residents of the Colyell Community in Livingston Parish. At December 31,2013, Colyell provided service to a total of 1,002 Customers.

1. Summary of Significant Accounting Policies

A. Basis of Presentation

The Association is required to report information regarding the financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, as applicable. At December 31,2013, all of the Association's net assets are considered unrestricted.

B. Basis Accounting

The financial statements of Colyell Community Water Association, Inc. are maintained on an accrual basis of accounting and accordingly reflect all significant receivables, payables and other liabilities. This method recognizes revenues when earned, and expenses when incurred.

C. Accounts Receivable

Accounts Receivable are stated at unpaid balances, less an allowance for doubtful accounts.

D. Income Taxes

The Association files income tax returns in the U.S. federal jurisdiction. The Association is a non-profit association formed under Section 501(C)12 of the Internal Revenue Code. With few exceptions, the Association is no longer subject to federal income tax examinations by tax authorities for years before 2010. Any interest and penalties assessed by income taxing authorities, if any, are not significant and would be included in the Statement of Activities.


Notes to the Financial Statements For the Year Ended December 31, 2013

E. Property, Plant and Equipment

Property, plant and equipment are stated at cost and do not purport to represent replacement or realizable values. The cost of depreciable property, plant and equipment is charged to earnings over the estimated useful lives of the assets. Expenditures for maintenance ond repairs are charged to expenses as incurred; expenditures for renewals and betterments of $500 or more are generally capitalized. When properties are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Depreciation of all depreciable property, plant and equipment is computed using the straight-line method over the following lives:

Description Estimated Lives Water System 10-40 Years Equipment 5-10 Years Land N/A

F. Compensated Absences

Because of the immateriality of estimating compensating absences, the water system has not attempted to accrue a liability for them.

G. Statement of Cash Flows

For the purposes of the statement of cash flows, Colyell Community Water Association, Inc. considers all bank accounts and certificates of deposit with an initial maturity of ninety days or less when purchased to be cash equivalents for purposes of reporting cash flows.

H. Concentration of Credit Risk

At December 31, 2013, the Association had deposits in two local banks in excess of the FDIC insurance limit in the amount of $23,077.


Notes to the Financial Statements For the Year Ended December 31,2013

I. Restricted Assets

Certain resources set aside for the repayment of the notes payable and a capital addition and contingency account, are classified as restricted assets because their use is limited by applicable bond covenants.

J. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

K. Inventory

Inventories are stated at the lower of cost or market determined by the first-in, first-out method. Inventories consist of chemicals and water supplies.

L. Investments

The Association maintains investments in certificates of deposit with an initial maturity of more than 90 days. The fair value of the certificates of deposit at December 31, 2013 was $256,790.

2. Restricted Assets

At December 31, 2013, the Association had restricted assets as follows:

Debt Service Sinking Account $ 93,187 Debt Service Reserve Account 51,061 Capital Additions and Contingencies Account 32,077 Customer Deposit Account 9,780 Customer Deposit Certificate of Deposit 51,358

$ 237,463

3. Receivables

The followii^ is a summary of receivables at December 31, 2013:

Accounts Receivable $ 8,083 Allowance for Uncollectible Accounts (6,891) Net Accounts Receivable $ 1,192

Estimated unbilled sales are recognized at the end of each fiscal year on a pro-rata basis. The estimated amount is equal to one hundred percent ofthe January 1,2014 billing and one half ofthe February 1,2014 billing. Accrued unbilled sales totaled $42,946 at December 31, 2013,


Notes to the Financial Statements For the Year £nded December 31, 2013

4. Property, Plant and Equipment

A summary of the changes in property, plant and equipment follows:

Balance Balance December 31, December 31,

Capital Assets: 2012 Additions Deletions 2013 Land $ 17,033 $ - $ $ 17,033 Water System and Equipment 2,647,045 19,026 (84,249) 2,581,822 Building 10.700 - - 10.700 Total Capital Assets 2,674,778 19,026 (84,249) 2,609,555

Less Accumulated Depreciation (840,2861 (81.5771 84.535 (837.3281 Total Capital Assets, Net $ 1,834,492 $ (62,551) $ 286 $ 1,772,227

Depreciation expense for the year ended December 31, 2013 was $81,577.

5. Notes Payable

The Association has entered into two loan agreements with the State of Louisiana for construction costs and upgrades to the Association' s water system. The Association has pledged revenues derived from these assets to pay the debt service of these loans. On June 27,2002, the Association borrowed $948,600 and on March 1, 2009, the Association borrowed $899,732. These loans are collateralized by the receivables, land and water system improvements of the Association.

Description/Purpose

2002 Expansion of Water System

2009 Expansion of Water System

Original Amount

Interest Rate

$ 948,600 3.45%

$ 899,732 3.45%

Balance Final December 31,

Maturity 2013

July 1,2023 $ 563,200

July 1,2028 $ 762,000


Notes to the Financial Statements For the Year Ended December 31, ,2013

Changes in Long-Term Debt: Long-term debt liability activity for the year ended December 31, 2013 are as follows:

Balance Balance December 31, December 31, Due Within

2012 Additions Reductions 2013 One Year

2002 Loan $ 608,400 $ - $ 45,200 $ 563,200 $ 47,000

2009 Loan 799,000 37,000 762,000 38,000

$ 1,407,400 $ - $ 82,200 $ 1,325,200 $ 85,000

The debt service requirements to maturity for the 2002 DHH loan are as follows:

.5% Year Ending Administrative December 31 Principal Interest Fee Total

2014 $ 47,000 $ 19,430 $ 2,816 $ 69,246 2015 48,900 17,809 2,581 69,290 2016 50,800 16,122 2,337 69,259 2017 52,800 14,369 2,083 69,252 2018 54,900 12,548 1,818 69,266

2019-2023 308,800 32,782 4,751 346,333 $ 563,200 $ 113,060 $ 16,386 $ 692,646

The debt service requirements to maturity for the 2009 DHH loan are as follows:

.5% Year Ending Administrative December 31 Princinal Interest Fee Total

2014 $ 38,000 $ 26,289 $ 3,810 $ 68,099 2015 40,000 24,978 3,620 68,598 2016 41,000 23,598 3,420 68,018 2017 43,000 22,184 3,215 68,399 2018 45,000 20,700 3,000 68,700

2019-2023 250,000 79,178 11,475 340,653 2024 - 2028 305,000 32,395 4,695 342,090

$ 762,000 $ 229,322 $ 33,235 $ 1,024,557

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Notes to the Financial Statements For the Year Ended December 31,2013

Compliance with Loan Covenants

Under the Loan Agreement, the Association must provide and additional amount equal to at least one hundred twenty-five percent (125%) of the principle and interest maturing on the Note in each fiscal year. The Association is not in compliance with the Loan Covenant.

6. Members^ Deposits

Members' deposits are paid by customers upon application for utility services and are returnable to them upon termination of service. The Association has established a separate bank account for member deposits.

At December 31,2013 Members' Deposits amounted to $50,100. The Association has deposited funds in a separate restricted certificate of deposit account. The balance in this account at December 31, 2013 is $51,358.

1. Litigation

At December 31, 2013 there is no litigation pending against the Association.

8. Compensated Absences, Pension Plan, and Other Postemployment Benefits

At December 31, 2013, the Association has no plan or provision for compensated absences, pension plan or other post employment benefits.

9. Risk Management

The Association is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets and errors and omissions. To handle such risk of loss, the Association maintains commercial liability and surety bond insurance policies. There were no significant reductions in insurance coverage during the year ending December 31,2013.

10. Subsequent Events

The Association evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through May 26, 2014 the date the financial statements were available to be issued.

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Supplementary Information

12

Residential

Commercial

Colyeil Community Water Association, Inc. Livingston, Louisiana

Schedule of Water Rates and Customers

Customers

992

10

Gallons

1,002

0 - 2,000 Gallons Over 2,000 Gallons

0- 10,000 Gallons Over 10,000 Gallons

Rate

$16 $2.50 per 1,000 gallons

$25 $2.50 per 1,000 gallons

Schedule of Aggregate Dollar Billed For Services and Average Monthly Billing Per User

Water Sales

Total Operating Income

Average Monthly Billing Per Customer:

Water Sales Average Monthly Billing Per User

Total Operating Income Average Monthly Billing Per User

$ 338,150

$ 358,916

$ 28.12

29.85

Schedule of Insurance Policies

Insurance Company Coverage Period Louisiana Workers' Compensation Corporation Workers' Compensation 07/28/13 - 07/28/14 CNA Surety Bond 03/22/13 - 03/22/14 First Financial Company General Liability 11/14/13- 11/14/14 Farm Bureau Fire Policy 07/08/13 - 07/08/14 Farm Bureau Vehicle Policy 12/04/13 -06/04/14 Farm Bureau Vehicle Policy 11/03/13 - 05/03/14 Farm Bureau Equipment Utility Trailer 11/13/13-05/13/14 Farm Bureau Equipment Back Hoe 06/18/13 -06/18/14 First Premium Mobile Home Insurance 09/10/13 -09/10/14

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Schedule of Compensation Paid to Board Members

Board Member 2013

Hulon Taylor $ 300

Charles McCon $ 250

Carlton Watts $

Daniel Piper $ 300

Board Member 2013

Dennis Piper $

Luvawn Andrews $

Kenny Morrison $

Carlton Toby McCon $

250

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Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance And

Other Matters Based on an Audit of Financial Statements Performed in Accordance with

Government Auditing Standards

15

Phil Hebert, CPA MEMBER A PROFESSIONAL ACCOUNTING CORPORATION MEMBER

American Institute of Society of Louisiana Certified Public Post Office Box 1151* Ponchatoula, Louisiana 70454 Certified Public

Accountants Office: (985) 386-5740 • Fax (985) 386-5742 Accountants

Independent Auditor's Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On

An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards

To the Board of Directors Colyell Community Water Association, Inc. Livingston, LA

I have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Colyell Community Water Association, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31,2013, and the related statements of activities, and cash flows for the year ended, and the related notes to the financial statements, and have issued my report thereon dated May 26,2014.

Internal Control Over Financial Reporting

In planning and performing my audit of the financial statements, I considered Colyell Community Water Association, Inc.'s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Colyell Community Water Association, Inc.'s internal control. Accordingly, I do not express an opinion on the effectiveness of the Colyell Community Water Association, Inc.'s internal control.

My consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Current Year Audit Findings and Responses, 1 identified certain deficiencies in internal control that I consider to be material weaknesses.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. 1 consider the deficiencies described in the accompanying Schedule of Current Year Audit Findings and Responses and responses to be material weaknesses. See Finding 2013-1

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Colyell Community Water Association, Inc. Livingston, LA

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Colyell Community Water Association, Inc.'s financial statements are free of material misstatement, I performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of my audit, and accordingly, I do not express such an opinion. The results of my tests disclosed one instance of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying Schedule of Current Year Audit Findings and Responses as 2013-2.

Colyell Community Water Association's Response to Findings

Colyell Community Water Association's response to the findings identified in my audit is described in the accompanying Schedule of Current Year Audit Findings and Responses. Colyell Community Water Association's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, I express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

This report is intended solely for the information and use of management, the Board of Directors, and the Office of the Legislative Auditor, State of Louisiana, and federal awarding agencies and pass through entities and is not intended to be and should not be used by anyone other than these specified parties. Under Louisiana Revised Statute 24:513, this report is distributed by the Legislative Auditor as a public document.

Respectfully submitted.

Phil Hebert, CPA A Professional Accounting Corporation May 26. 2014

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Schedule of Prior Year Audit Findings For the Year Ended December 31,2013

2012-1 Loan Covenant Requirements

Condition: Management tried to implement a new utility billing software in June 2012 but was unable to print the necessary reports in a timely manner to complete the audit by June 30. They are working with the software company to resolve the problems.

Recommendation: I recommend management prepare for the audit in a timely manner and issue the Association's audited financial statements within six months of the close of the fiscal year.

Resolved

2012-2 Segregation of Duties

Condition: As noted in the prior year audit, due to the small size of the Association, there is an overall lack of segregation of duties. The basic premise is that no one employee should have access to both physical assets and the related accounting records or to all phases of transactions. One of the most critical areas is separation of duties in the depositing and recording of cash transactions. The office manager receives incoming checks, prepares the deposit slip, and then delivers the deposit to the bank. The result is the danger that intentional or unintentional errors could be made and not detected.

In the previous year I recommended that check signers review and initial supporting documentation before signing checks. During my audit testing, I noted that supporting documentation was reviewed and initialed by the check signers for bills received after June 2012. This policy was put into place after the exit conference following the 2011 audit which took place in June 2012.

I also recommend that a board member who was not involved in the check signing process review the bank statement and cancelled checks on a monthly basis and initial the bank statements as part of his review. Management implemented this policy, however the bank statements were not reviewed in a timely manner which resulted in a delay in the bank reconciliation process and preparing financial statements.

Continued

18



Recommendation: I recommend a board member who is not involved in the check signing process review the bank statements and cancelled checks on a monthly basis and initial and date the statements as proof of his review. The bank statements should be given to the Association's accountant to reconcile the bank account on a monthly basis. I also recommend the check signer continue to review the supporting documentation before signing checks. The check signer should initial and date the supporting documentation as proof of his review.

Resolved

2012-3 Lack of Daily Deposits

Condition: In May 2012, management began making deposits three to four times per month as opposed to twice per month. Most of the deposits were for material amounts. The lack of a daily or at least more current deposits, lends itself to possible theft and loss.

Recommendation: Although a daily deposit may not be practical, I recommend management make more deposits.

Resolved

2012-4 Utility Billing Software

Condition: As noted in the prior year audit, meter readings are input into a spreadsheet and formulas are used to calculate the utility bills. The utility bills are printed from the spreadsheet and mailed on the T' of the month. The spreadsheet is well designed and sufficient in printing utility bills but it has limitations when it comes to reporting. Reports such as billing journals, payment registers, credit and debit adjustments, accounts receivable and an aging of accounts receivable cannot be printed. Management purchased a utility billing software and unsuccessfully tried to implement it in 2012. Management is working with the software provider to have the software working properly and implemented in 2013.

Recommendation: I recommend management implement the utility billing software as soon as it is working properly and begin printing the necessary reports needed to reconcile the accounts receivable to the general ledger and provide other supporting documentation.

Resolved

Continued

19



2012-5 Reconciliation of Accounts Receivable to General Ledger

Condition: The accounts receivable balance in the general ledger was not reconciled to the balance in the utility billing software. The reports necessary to reconcile cannot be easily printed from the Excel spreadsheet. A material journal entry was proposed by the auditor at year end to adjust accounts receivable.

Recommendation: I recommend management implement the utility billing software as soon as it is working properly and begin printing the necessary reports to reconcile the accounts receivable balance in the utility billing software to the general ledger. The necessary reports will include a billing register, payment regi ster, penalty report, and credit and debit adjustment registers. These reports should be given to the Associations accounting firm on a monthly basis to reconcile.

Resolved

2012-6 Cut Off Policy

Condition: The Associations policy is to cut off delinquent accounts when their balance reaches $50 which is equal to the customer's deposit. After the 201 laudit, the Association's management mailed a written notice to its customers notifying them that all customers with balances of more than $50 will be placed on a cut off list and service would be disconnected if the balance was not paid in full or below $50. The Association has reduced its receivable balance from the prior year by approximately $ 14,700 and greatly reduced the number of customers with balances of more than $50 at December 31,2012. However, the Association continues to have a few delinquent accounts with a balance of more than $50.

Recommendation: I recommend management continue to comply with the Associations's cut off policy.

Partially Resolved, See Finding 2013-1

Continued

20



2012-7 Write Off of Uncollectible Accounts Without Board Approval

Condition: During the year management wrote off many accounts totaling $7,184.88. I discussed this matter with the Governing Board and they stated that management contacted a member of the board before writing off any customer balance and they were aware of the write offs. The board approval was oral and not documented in the minutes of the meetings.

Recommendation: I recommend management prepare a list of accounts to be written off and present the list to the board at a monthly meeting for approval. The Approval of the write offs should be documented in the minutes and the list should be signed and dated by the board president. I also recommend the Board meet on a monthly basis rather than a quarterly basis. Management should consider turning these accounts over to a collection agency for collection.

Resolved

2012-8 Financial Statements

Condition: Management and the governing board are not provided financial statements for their review on a monthly basis.

Recommendation: I recommend management and the governing board review the financial statements as part of their board meetings. Financial statements should consist of abalance sheet, and income statement but may also include bank reconciliations and a general ledger. Review of the financial statements should be clearly documented in the minutes.

Resolved

2012-9 Written Policies and Procedures

Condition: All of the utility billing functions are performed using an Excel spreadsheet which was created by the Association's manager. The association's manager is the only person who understands how the spreadsheet works. There are no written policies and procedures for accounting for and processing receipts, billings, customer meter deposits, or debit and credit adjustments. Written procedures are necessary as a clear understanding of what should be done, how, who and when it should be done, and that the procedures followed meet management's expectations.

Continued

21



Recommendation: I recommend management write policies and procedures for accounting for and processing receipts, billings, customer meter deposits, debit and credit adjustments and billing.

Resolved

2012-10 Material Journal Entries

Condition: Material adj ustments were proposed by the auditor. These entries include adjustments to accounts receivable and accrued interest on debt. The Association's accountant was not given the necessary reports to adjust the accounts receivable. Failure to record these entries would result in a material misstatement of the Association's financial statements.

Recommendation: I recommend management provide the Association's accountant with the necessary reports to properly adj ust the asset and liability accounts in a timely manner.

Resolved

Concluded

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Schedule of Current Year Audit Findings and Responses For the Year Ended December 31, 2013

I have audited the basic financial statements of Colyell Community Water Association, Inc. as of and for the year ended December 31,2013, and have issued my report thereon dated May 26,2014. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Governmental Auditing Standards, issued by the Comptroller General of the United States. My audit of the financial statements as of December 31, 2013 resulted in an unqualified opinion.

Section I. Summary of Auditor's Report

a. Report on Internal Control and Compliance Material to the Financial Statements

Internal Control Material Weakness, Yes Significant Deficiencies, No

Compliance Compliance Material to Financial Statements, Yes

b. Federal Awards

Not Applicable

Was a management letter issued? No

Section II Financial Statement Findings

Internal Control

2013-1 Cut OffPoUcy

Condition: The Associations policy is to cut off delinquent accounts when their balance reaches $50 which is equal to the customer's deposit. The Association has reduced its receivable balance from the prior year by approximately $4,782 and reduced the number of customers with balances of more than $50 at December 31, 2013. However, the Association continues to have a few delinquent accounts with a balance of more than $50.

Recommendation: I recommend management continue to work out a payment schedule for the customers to pay the account down to the $50 limit. In the event the customer fails to pay as promised they must be cutoff.

Compliance

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Schedule of Current Year Audit Findings and Responses For the Year Ended December 31, 2013

Management's Response: In the event the hill is over $50, we try to work out a payment schedule for the customer to pay the account down to the $50 limit. This does not remove the customer from the cutoff list. It keeps the customer on the cutoff list and in the event the customer fails to pay as promised, they are cutoff and must pay the entire amount plus a reconnect fee to be reconnected. The customer must get the balance down to or below the $50 membership fee to be removed from the cutoff list. We have the cutoff list under control and are diligently working every month to get all accounts below the $50 limit. Responsible party is Carlton Edwards, Manager (225) 698-3739.

2013-2 Loan Covenant Requirements

Criteria: The Association must provide an additional amount equal to at least one hundred twenty-five percent (125%) of the principal and interest maturing on the Note in each fiscal year.

Condition: The net revenues of the Association were not sufficient to cover 125% of the principal and interest maturing on the note for December 31, 2013.

Recommendation: I recommend management increase user fees to a rate that is sufficient to provide an additional amount that is equal to at least one hundred twenty-five percent (125%) of the principal and interest maturing on the Note in each fiscal year.

Management's Response: Effective immediately management will review the utility rates and apply to the Public Service Commission for permission to raise the rates to be in compliance with the bond covenant. Responsible party is Carlton Edwards, Manager (225) 698-3739.

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