Utility performance and regulatory compliance are increasingly visible in the utility industry. “Doing more with less” is a common refrain. Regulatory bodies and public service commissions frequently order management reviews, and utilities themselves often internally review their operations for efficiencies.
The depth and complexity of an evaluation or performance audit will depend on what assessment modules are implemented and how effective and mature those modules are. If your utility practices continuous improvement, assessment may be common and an evaluation model may already be established. If your utility is new to routine evaluations, a more rigorous review may be necessary. In any case, regular performance audits can be conducted to improve utility operations and increase efficiency.
Industry standards and gap analysis tools
The general technical approach to utility industry performance audits is based on the Management Audit Manual which is prepared by the National Association of Regulatory Utility Commissioners (NARUC) and covers all major utility cycles, including operations, financial, governance, and regulatory processes. This publication is widely accepted by state commissions who oversee utility operations. It’s an excellent resource to use when preparing the work plan for a management audit. It contains step-by-step guidance on everything from procedures to interview questions along with several other elements to help streamline the audit process and make it more systematic. Additionally, it provides ample information on common performance gaps in the industry which may be helpful as you work to identify weaknesses in your own utility.
Basic project design, information sources, and key deliverables
The following guidelines will help you develop a work plan for your utility’s next performance audit, identify information sources necessary to streamline the process, and establish deliverables that should result from the audit:
Basic project design
- Determine the current state of utility operations.
- Interview key process owners
- Perform walk-throughs of key controls to fully understand processes and evaluate their current states
- Summarize and record your findings
- Analyze findings from your assessment in order make recommendations for improvement
- Develop mitigation programs to address gaps in performance
Information sources to secure and leverage
- SOX documentation
- Written policies and procedures
- Intercompany service level agreements (with affiliated companies, internal service companies, etc.)
- Business process maps
- Network diagrams
- Documentation that describes the segregation of duties and defines roles among employees
- Governance charters
- Strategic plans
- Physical security control documentation
- Any other documentation that can assist in understanding current operations, roles, and responsibilities
Key deliverables to expect
- Demonstration of process flows, either narrative or illustrative (i.e., flowcharts)
- Interview notes
- Network system process documentation
- Review of current policies and procedures
- Improvement recommendations in all areas under assessment
Once the performance audit is complete, you can determine strategies for re-engineering, remediation, and mitigation of areas identified as having performance gaps. You will likely need to develop estimates of the resources necessary to carry out activities that will strengthen vulnerabilities (e.g., timing, staffing, technology needs, budgetary requirements).
This assessment will be time- and resource-intensive, involving a fair number of internal and/or external parties to reach completion (especially if using outside consultants). Despite its magnitude, a performance audit is an exercise worth performing regularly and well before it is ordered by a commission or oversight body.
If your utility has an internal audit group, portions of this project should be part of each year’s audit plan. The type of analysis executed during a performance audit can only help operations and will contribute to achieving utility strategic goals. Some specific positive outcomes include:
- Determination of the effectiveness of current operations and evaluation of key business processes against industry best practices
- Ensuring compliance with regulatory oversight decisions and orders
- Improving policies and procedures, ensuring they are effective and contribute to strategic goals
- Evaluation of internal controls, and determination of material weaknesses and significant deficiencies
- Collection and cataloguing of utility-specific information used in determining resource allocations to remedy performance gaps and in considering system changes for more efficient workflows
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.