9.18.09

State auditor finds no abuse
By: Joe Ruff, Omaha World-Herald

A State Auditor’s Office investigation of customer accounts and internal audit procedures at the Metropolitan Utilities District concluded that some processes might be improved but that there was no evidence of abuse or fraud.

District officials noted Thursday that auditors did not find any deficiencies in internal controls, no abuse and no violations of any contracts. They also disputed many of the facts and figures in the auditors’ report, saying they were based on erroneous or incomplete assumptions and information.

The review was launched in early February after M.U.D.’s internal auditor, Kenneth McNary, told State Auditor Mike Foley of alleged problems. At the time, Foley said he could not describe the nature of the possible irregularities.

In January, McNary had taken his concerns to the M.U.D. board at its monthly meeting. McNary had been suspended by the district on the day of the board meeting and placed on paid administrative leave.

M.U.D. officials said McNary returned to work June 29, but they could not comment on the reason for his suspension because it was a personnel issue.
Foley did not return telephone calls seeking comment on the report. McNary did not immediately return a telephone call seeking comment

A public utility, M.U.D. provides water, natural gas or both to more than 200,000 customers in Omaha, Bellevue and several surrounding communities. It had operating revenue of more than $410 million in 2008.

State auditors concluded that the utility had problems implementing a new customer information system in 2004 and faced a rapid escalation of natural gas prices. Those problems complicated bill collecting and increased the district’s annual write-offs as a percentage of revenue, though the write-offs appeared to be within industry norms, auditors said.

Ron Bucher, an M.U.D. senior vice president, said the auditors’ report failed to take fully into account the impact natural gas price spikes have on bill collections. As natural gas bills increase, a larger segment of M.U.D.’s customer base has trouble paying bills, which increases the number of write-offs the utility must make, Bucher said.

The state auditors’ report said the district was working to improve collections, including replacing its computer software with a new system. However, the district should consider hiring more people to help with collections, auditors said.

Bucher said that particularly in light of the fact that write-offs were within industry standards, the cost of hiring more people in bill collections would not be worth the benefits, although the district reviews such matters annually.

“We could hire two, five, 10 more people to collect bills, but will that be offset by the cost of more salaries and benefits?” Bucher said.

State auditors said another problem involved more than 150,000 customers potentially being overcharged because of technical difficulties estimating bills for gas flows through low-pressure gas meters. Some customers could be paying about $6.85 more each year than they should, auditors said.

Bucher said people were being charged within industry standards, and adjusting measurements for gas flow differences was problematic.

“Our meters are accurate. All customers are being billed accurately,” Bucher said.

The State Auditor’s Office also noted that district officials had taken steps to identify errors in gas flow metering and reimburse customers, and it was putting in new software in late 2010 or 2011 that it hoped would address the problem.

On another note, state auditors said the district’s internal audit staff could strengthen its independence by reporting to the district’s board of directors instead of to the president.

District officials said they would review the recommendation, but internal audits were available to board members and reviewed by the president, all senior vice presidents and any other district officials asked to respond to audit findings. In addition, an independent auditor had never questioned the district’s internal audits, officials said.

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