A new audit of the Nome Joint Utility System is in, and while the examination of the utility’s 2013 finances shows its accounting practices are sound, the numbers show the utility is operating at a loss and will struggle to pay down its debts if changes aren’t made.
“Overall the utility’s accounting practices do appear to conform to generally accepted accounting principles and practices,” said Michelle Drew with accounting and consulting firm BDO USA. She led a teleconference Wednesday evening with Utility Manager John Handeland, the utility board, and members of the Nome City Council.
Several times in her presentation, however, Drew noted that the utility continues to struggle when it comes to managing its grants; specifically, the audit found it’s far behind when it comes to applying to get grants and other reimbursements back for work on projects like sewer and water repairs that have already been completed.
“You’re sitting on large receivables,” Drew said to the collected group. Being slow to collect that money, Drew said, can cause “obviously some issues with cash flow, so getting that cash in the door on the receivables as timely as possible, very, very critical.”
Cash flow problems are exactly what happened in November, after Wells Fargo dropped the utility’s credit line, leaving NJUS with just $430,000 in cash on hand, according to the audit’s numbers. That lack of liquid funds forced the City of Nome to step in and extend $2.2 million in emergency credit to keep the utility’s bills paid and the lights on.
Ultimately, the auditors said, those are bookkeeping issues that are more or less easily corrected. The larger problem for the utility could be one of book balancing.
The audit finds the utility operated at a loss in 2013. While far from insoluble—in fact, the audit finds the utility’s total value is over $101 million when all of its assets and other infrastructure are balanced against debts and other liabilities—it does mean NJUS did not bring in enough money to pay its bills and chip away at its millions of dollars in debt (which includes fuel loans and roughly $12 million in long-term debt).
Utility Manager John Handeland said steps are already being taken to address both issues.
“We didn’t make as much progress as quickly as we should have on this,” Handeland said, when referring to being quicker to apply for reimbursements. “I can tell you that, for the last many months here [at the utility], the reimbursements are going in on a very regular basis.”
Handeland said the 2013 audit also doesn’t reflect changes made in 2014, and more changes to come, that he said can bring in enough money to get the utility into the black.
In 2014 and now 2015, he said the utility’s “operation costs are different, our debt service is different, and that’s why we have been looking at both rates and budgets with much greater scrutiny.” At their last meeting, the Nome City Council made an initial approval for a rate hike for the utility, the first in nearly two decades; it faces a final vote at the Monday, Jan. 26 meeting.
Utility board member Berda Wilson said after the teleconference that she wants the utility board to find a path toward financially stability.
“We have a lot of work to do at the board level and also at the utility level to get back to a good financial position. There is a rate study being done to look at not only rates that will cover the operating costs but also rates that will cover the debt service and any capital expenditures that need to be made.”
The utility board meets Thursday, Jan. 22, at 7:30 p.m. in City Council chambers to discuss the details of its 2013 audit.
