§ 1773.33 Report on compliance with aspects of contractual agreements and regulatory requirements.  


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  • The auditor must prepare a report on compliance with aspects of contractual agreements and regulatory requirements that includes, at a minimum, comments on:

    (a) Audit procedures. State whether the audit has been performed in accordance with this part;

    (b) Special reports. State whether any special reports, summaries of recommendations, or similar communications were furnished to the auditee's management during the course of the audit or during interim audit work, and provide a description of the information furnished;

    (c) Accounting and records. Comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the auditee did not maintain adequate and effective accounting procedures and records and utilize adequate and fair methods for accumulating and recording labor, material, and overhead costs, and for distributing these costs to construction, retirement, and maintenance or other expense accounts. Where appropriate, comment on whether anything came to the auditor's attention to indicate that the auditee did not:

    (1) Establish continuing property records (CPRs) that are updated on a current basis, at least annually, and are reconciled with the controlling general ledger plant accounts;

    (2) Promptly clear construction clearing accounts of costs of completed construction to the proper classified plant accounts and accrue depreciation on such completed construction from the date the plant was placed in service;

    (3) Currently and systematically record and properly price retirements of plant;

    (4) Properly account for the accumulated provision for depreciation accounts associated with retirements of plant or properly disclose any unusual charges or credits to such accounts; and

    (5) Obtain RUS approval for the sale, lease or transfer of capital assets secured under the RUS security agreement when approval is required, and properly handle any proceeds from the sale or lease of plant, material or scrap in conformance with RUS requirements.

    (d) Materials control. Comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the control over materials and supplies was not adequate.

    (e) Compliance with RUS loan and security instrument provisions. Comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the following provisions of RUS' loan and security instruments have not been complied with:

    (1) For electric auditees, provisions related to:

    (i) The requirements for an auditee to obtain written approval of mortgagees to enter into any contract for the management, operation, or maintenance of the auditee's system if the contract covers all or substantially all of the electric system. For purposes of this part, the following contracts shall be deemed as requiring RUS approval:

    (A) Management contracts in which the auditee has contracted to have another auditee or other entity manage its affairs;

    (B) Operations and maintenance contracts in which the auditee has contracted to have another auditee or other entity operate and/or maintain all or substantially all of the physical plant facilities of the auditee.

    (C) Operations and maintenance contracts in which the auditee has contracted to operate and maintain the physical plant facilities of another auditee or other utility system;

    (ii) The requirement for an auditee to prepare and furnish mortgagees annual or periodic financial and operating reports on the auditee's financial condition and operations accurately and within the required deadlines. The auditor shall comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the information represented by the auditee as having been submitted to RUS in its most recent December 31 Financial and Operating Report Electric Distribution or Financial and Operating Report Electric Power Supply was not in agreement with the auditee's audited records. If the auditee represents that an amended report has been filed as of December 31, the comments must relate to the amended report; and

    (iii) The requirement for an auditee to use depreciation rates that are within the ranges established by RUS for each primary plant account (See RUS Bulletin 183-1, Depreciation Rates and Procedures at https://www.rd.usda.gov/files/UPA__Bulletin__183-1.pdf), or with the requirements of the state regulatory body having jurisdiction over the auditee's depreciation rates in computing monthly accruals.

    (2) For telecommunications auditees, provisions related to:

    (i) The requirement for an auditee to obtain written approval of the mortgagees to enter into any contract, agreement or lease between the auditee and an affiliate other than as allowed under 7 CFR part 1744, subpart E; and

    (ii) The requirement for an auditee to prepare and furnish mortgagees annual or periodic financial and operating reports on the auditee's financial condition and operations accurately and within the required deadlines. The auditor shall comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the information represented by the auditee as having been submitted to RUS in its most recent December 31 Operating Report for Telecommunications Borrowers was not in agreement with the auditee's audited records. If the auditee represents that an amended report has been filed as of December 31, the comments must be related to the amended report.

    (3) For Broadband auditees, provisions relating to the requirement for an auditee to prepare and furnish mortgagee quarterly or periodic financial and operating reports on the auditee's financial condition and operations accurately and within the required deadlines. The auditor shall comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the information represented by the auditee as having been submitted to RUS in its most recent BCAS filing was not in agreement with the auditee's audited records. If the auditee represents that an amended report has been filed, the comments must be related to the amended report.

    (4) For grantees, provisions related to:

    (i) Recipients of Broadband Initiatives Program loans and grants, the requirement for the recipient to prepare and furnish RUS quarterly and annual financial and operating reports on the financial condition and operations of the auditee accurately and within the required deadlines. The auditor shall comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the information represented by the auditee as having been submitted to RUS in its most recent BCAS filing was not in agreement with the audited records of the auditee. If the auditee represents that an amended report has been filed, the comments must relate to the amended report. The auditor must state whether the Annual Compliance Certificate required by the RUS Security Agreement has been filed in a timely manner with RUS.

    (ii) Recipients of all other grant programs within the electric and telecommunications programs, the requirements to prepare and furnish RUS with any required financial reporting accurately and within required deadlines, as appropriate for that specific program. The auditor shall comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the information represented by the grantee as having been submitted to RUS in its most recent filing was not in agreement with the audited records of the grantee. If the grantee represents that an amended report has been filed, the comments must relate to the amended report.

    (f) Related party transactions. Comment on whether, during the course of the audit, anything came to the attention of the auditor to indicate that all material related party transactions have not been disclosed in the notes to the financial statements in accordance with ASC 850, entitled “Related Party Disclosures”.

    (g) Deferred debits and deferred credits. For electric auditees, comment on whether, during the course of the audit anything came to the attention of the auditor to indicate that the auditee provided detailed schedule of deferred debits and deferred credits, including, but not limited to, margin stabilization plans, revenue deferral plans, and expense deferrals is not accurately presented. This schedule must be included as supplemental information or within the notes to the financial statements; and

    (h) Investments. For electric and telecommunications auditees, comment on whether, during the course of the audit, anything came to the auditor's attention to indicate that the auditee provided detailed schedule of investments is not accurately presented. This schedule must be included as supplemental information or within the notes to the financial statements. The auditor must state that the audit did not disclose any investments in subsidiary or affiliated companies.