1. Financial Management & Internal Control for Utility Companies Julia Barber, CPA and Sherman, Barber & Mullikin, CPAs Madison, IN 47250

2. Introduction This presentation is designed to help individuals gain a better understanding of the effect that proper financial management and internal controls can have for utilities. It is based on the expertise of Sherman, Barber & Mullikin CPAs, who works closely with utilities, their staff and boards of directors. 2

3. Financial Management The primary role of Financial Management is to control and direct the resources of the utility in support of its mission and goals. 3

4. Elements of Financial Management Oversight of the utility’s manager and/or superintendent Oversight of utility’s compliance with applicable laws, agreements and regulations Budgeting & projecting cash flows Timely receipt and review of financial reports Consistent and accurate financial records Effective internal controls 4

5. Benefits of Financial Management Provides a financial plan to support utility’s goals Promotes proactive decision making, rather than reactive Establishes trust and confidence with utility users Ensures integrity of your utility 5

6. Financial Management Should Ask… Do we have a sound financial plan? Do we have enough cash? Are our reserves satisfactory? Are our major expenses in line? Are we meeting our budget? Are our expenditures appropriate? Are we insured appropriately against risks? Are we meeting the applicable guidelines and requirements? Are internal controls in effect to assure reliability of financial reporting? 17

7. Internal Control Definition of Internal Control A process, affected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations 6

8. Why is it important to your utility? An effective system of internal controls will protect the utility from employee dishonesty Efficiencies of operations will improve with effective controls leading to reduced costs Financial reporting will be more reliable Internal controls assist with compliance with applicable laws and regulations 6

9. Financial Management & Internal Control How effective financial management can complement internal controls: No one person has sole control over financial transactions and assets  Proper segregation of duties  Checks require two signatures  Employees take vacation/Their duties performed by another person Reconciliation processes are in place  Bank statements and reconciliations are reviewed by financial management Accounting personnel are qualified and trained Qualified accounting service providers are engaged Implement recommendations from outside auditors to improve controls 6