Reduction of risk exposure for an electric cooperative

Understanding the need

A leading electric cooperative outsources internal audit projects to supplement its internal staff. They desired a review of their payroll processes for compliance with existing policies, accuracy in timekeeping reporting, compliance with documentation of procedures in employee hiring and terminations and legal compliance with Fair Labor Standards Act requirements (FMSA/FMLA).

Baker Tilly Solutions

Our energy and utilities team consultants are experienced in outsourced internal audit projects. We design our work plan steps to be tailored to the client’s project objectives. Our desired outcome is to not only test for compliance with existing policies but also to review efficiencies in the client’s current condition business processes. We strive to provide value for improvements and efficiencies in business processes, find the causes of inefficiencies, and make recommendations for meeting the criteria of best in class operations and minimizing the effects of risk that can occur from not correcting inefficient processes. Our approach here was to review processes used in payroll reporting and the hiring/termination of employees throughout the utilities’ main office and remote generation facility locations. We found that while policies and procedures were documented, that inconsistent application of the policies led to inefficiencies in proper time and cost allocations. This allowed for under-recovery of costs billed to third party generation owner/participants. In addition, we uncovered risk exposure by the utility in the area of applying federal laws for the FMSA/FMLA requirements. Our solution made pointed recommendations to implement processes to minimize risk exposure in these areas.

Results

As a result of our recommendations, the client initiated manager training to emphasize the requirements in payroll and hiring processes and made adherence to these areas as part of the managers’ annual goal setting and evaluation process. The client implemented additional ongoing review procedures to verify that improvements are being made. The client feels that there is less risk exposure in this area now due to recommendations from the internal audit process.