Original Audit Report Issued September Audit Services

Transcription

1 KARENE.RUSHING ClerkoftheCircuitCourtandCountyComptroller FOLLOWUPof FloridaPower&LightCompanyFranchiseFee OriginalAuditReportIssuedSeptember2013 Audit Services Jeanette L. Phillips, CPA, CGFO, CIG Director of Internal Audit and Inspector General Audit Team David Beirau, CFE, CIGA Manager of Audit Services William Bousman Internal Auditor/Investigator December 2014

2 TABLE OF CONTENTS Page Summary and Results 3 Closed Conditions and Follow-Up Results 5 Appendix A Correspondence from the Office of the County Attorney dated December 11, Appendix B Original Audit Report dated September

3 Summary and Results Background The purpose of the September 2013 audit of Florida Power & Light Company Franchise Fee was to determine whether the franchise fees being billed, collected and submitted to Sarasota County (the County) by Florida Power & Light Company (FP&L) are in accordance with County Ordinance The original audit report concluded that the County lacked adequate documentation necessary to monitor the collection of franchise fees in compliance with County Ordinance Opportunities for Improvement were identified to improve the monitoring process of the franchise fees billed, collected and submitted to Sarasota County. Objectives The objectives of this follow-up audit were to evaluate the observations reported on the Florida Power & Light Company Franchise Fee audit report, dated September, 2013 and subsequent corrective actions taken by responsible management. This was achieved by providing independent, objective analysis as well as reasonable assurance that the previous concerns have been addressed and appropriate corrective measures implemented. To meet the objectives of the follow-up audit, the following procedures were performed: Performed inquiries of County personnel. Reviewed County Ordinance between Sarasota County and Florida Power & Light Company signed May 8, Reviewed Florida Public Services Commission (FPSC) Rule and the FPSC Website. Reviewed Florida Statute and Reviewed relevant Florida case law relating to franchise fees. Obtained an understanding of the various FP&L processes including billing, determination of customers within the County, additions and removal of customers, calculation of franchise fees billed to customer, remittance of franchise fee payments to Sarasota County. Inspected communications between the Office of Financial Management (OFM) and FP&L. Reviewed correspondence between the Office of the County Attorney and OFM. 3

4 Overall Results Based on the results of our follow-up audit procedures, responsible management has addressed all four conditions identified in the original audit report. These items are further described in this report and include: Condition Status A Reconciliation of data Closed B C Reconciliation of property records to FP&L s customer listing Unable to Verify the Accuracy of the Franchise Fee Rates Charged to Customers Closed Closed D Remittance of street lighting franchise fee revenue Closed 4

5 Closed Conditions and Follow-Up Results A. Reconciliation of data Data Received for Audit Does Not Agree to Information Remitted with Franchise Fees to the County. Audit Observation, Original Report dated September 2013: Each month, FP&L remits franchise fees to the County and provides the County with a summary of the total revenues generated by FP&L for residential, commercial and industrial clients. For the audit, details of FP&L revenue were requested for each month so that individual customer bills could be selected and tested. It was expected that the totals per FP&L s detailed reports provided for the audit would match the total revenue amounts FP&L reported to the County. The total customer charges per the FP&L detailed reports were different from the FP&L revenue amounts reported to the County. There were also differences between what was expected to be remitted (5.9% of the customer billings per the FP&L reports received for the audit) and the amounts actually remitted to the County. The unreconciled differences in revenue and franchise fees for the audit period are as follows: Date Franchise Fee was Received Revenue Per Remittance to County Revenue Per Reports Provided for Audit Difference Between Revenue Reported to County and Revenue Reported for Audit Positive (Negative) Franchise Fee Received Based on 5.9% of Revenue Per Remittance to County Franchise Fee Based on 5.9% of Revenue Based on Reports Provided for Audit Difference in Franchise Fees Positive (Negative) 06/28/2011 $ 21,065,435 $ 20,952,397 $ 113,038 $ 1,242,861 $ 1,236,191 $ 6,670 08/01/ ,909,522 22,746, ,534 1,351,662 1,342,072 9,590 08/29/ ,714,106 26,562, ,520 1,576,132 1,567,193 8,939 09/30/ ,029,979 26,877, ,098 1,594,640 1,585,795 8,845 10/31/ ,776,359 27,624, ,006 1,638,805 1,629,837 8,968 11/30/ ,242,042 28,038, ,211 1,666,280 1,654,291 11,989 12/30/ ,297,053 22,144, ,040 1,315,526 1,306,497 9,029 01/30/ ,944,627 17,849,400 95,227 1,058,711 1,053,115 5,596 02/29/ ,640,086 18,561,385 78,701 1,099,765 1,095,122 4,643 03/30/ ,099,407 21,004,976 94,431 1,244,865 1,239,294 5,571 04/30/ ,102,966 17,966, ,512 1,068,075 1,060,021 8,054 05/30/ ,310,923 19,192, ,753 1,139,345 1,132,337 7,008 TOTAL $ 271,132,505 $ 269,521,434 $ 1,611,071 $ 15,996,667 $ 15,901,765 $ 94,902 5

6 Recommendation, Original Report dated September 2013: The County should formulate an agreement with FP&L to receive, or have FP&L maintain, electronic copies of the detailed billing reports substantiating the franchise fee amounts remitted to the County. These reports should be made available for audit. Current Status, Follow-Up Audit dated December 2014: Since the completion of the original audit report dated September 2013, OFM has requested from FP&L detailed reports that match the revenues used as a basis for the 5.9% remittance. FP&L responded by stating that they already provide a summary report to the County and that the difference between the revenue remittance per these reports and the actual revenue remittance noted in the original report s observation was less than two-thirds (2/3) of one (1) percent. The difference is due to credits and timing differences. FP&L also indicated that additional detailed reports would not be feasible due to the strain that it would put on their computer systems. Although this difference is considered an immaterial variance between the Franchise Fee remittance and actual collections, OFM will work with the external auditors to request periodic audits of this revenue every three years. Since the original audit report was completed in 2013, the next request for an audit of this revenue will be in

7 B. Reconciliation of Property Records to FP&L s Customer Listing Without a periodic reconciliation between the County and FP&L data, there is a risk that franchise fees assessed and remitted to the County will not include all appropriate properties and there was no reliable way to ensure that the FP&L customer database was complete and accurate. Audit Observation, Original Report dated September 2013: To verify the completeness of addresses included in the FP&L report of customer billings, the report was electronically compared to a listing of properties obtained from the Sarasota County Property Appraiser s office. There were 13,172 discrepancies including 2,203 properties listed in the County data that were not included in the FP&L data, and 10,969 customer addresses in the FP&L data that were not included in the County data. Various potential reasons were given by both the Sarasota County Property Appraiser s office and FP&L for differences and included items such as: The County assigns addresses to all new construction; however, new construction addresses will not appear in the FP&L database until an FP&L account is created. Vacant plots will appear in the County s database and will not appear in the FP&L database until electrical work begins and a service account is created for the property. Typographical errors and differences in spelling and abbreviations between the two databases. Boundary changes may not be communicated between the entities. There are no formal processes to ensure that changes and new addresses are shared between the County and FP&L, or to reconcile customer/property addresses and other data between the two entities. Based on discussions with both FP&L and County personnel neither party was certain that FP&L customer data and County address data had ever been reconciled. Recommendation, Original Report dated September 2013: The County and FP&L should develop a process to exchange and reconcile County property data to ensure that franchise fees are assessed and remitted on all eligible properties. 7

8 Current Status, Follow-Up Audit dated December 2014: In the original audit report FP&L responded that they currently have an internal process after receipt of all address lists received including advising the municipality of any differences we may have when comparing both files. Since the completion of the original audit report dated September 2013, OFM has provided FP&L with a link to the Property Appraiser s website where the database is maintained for all properties in Sarasota County. This database is updated weekly and is available for public download at any time. OFM has also requested, more than once, the comparison file that is completed through FP&L s internal process. As of the date of this audit report, FP&L has not provided the County with a copy of their comparison file. OFM has stated that the Office of the County Attorney has been notified and that their office will send a request to receive the comparison file in an effort to verify that the database being utilized is current and accurate. As of the date of this audit report OFM has been unsuccessful in obtaining the requested documentation. 8

9 C. Unable to Verify the Accuracy of the Franchise Fee Rates Charged to Customers FP&L charged customers Franchise Fees at rates that were adjusted for factors that were not available for examination. It was therefore not possible to verify that the Franchise Fee amounts charged to FP&L customers were accurate. However, the rate charged to customers did not affect the franchise fee amounts that were remitted to the County, which appeared to be consistently calculated at a rate of 5.9% of customer billings. Audit Observation, Original Report dated September 2013: Franchise fees are subject to the Florida Gross Receipts Tax (GRT) and the Florida Public Service Commission (FPSC) Regulatory Administration Fee (RAF). The Franchise Fee line item on customer invoices was grossed up for the recovery of these two amounts from customers. For example, the following is a simplified calculation of the expected franchise fee rate (including the GRT and RAF charges) to be billed to a customer with service charges of $100: FP&L Charges Before Franchise Fee, GRT & RAF Charges $ Franchise Fee Charge Breakdown: a. Franchise Fee to County (5.9% of FP&L Charges) $ b. GRT on Franchise Fee (2.5641% of a) c. RAF on Franchise Fee (0.072% of a) Total Franchise Fee Charge Expected (a+b+c) $ Expected Franchise Fee Charge Rate (Total Franchise Fee Charge Divided by FP&L Charges) ~ 6.056% Based on this simplified calculation, the expected franchise fee assessment rate would be approximately 6.056%. Sarasota County customers were billed for Franchise Fees at rates that fluctuated during the audit period from 6.30% (April 2011 through September 2011) to 6.20% (October 2011 through March 2012). In 2013, after the audit period, the Franchise Fee rate charged dropped below the expected rate. FP&L provided the following reasons to support charging rates that differ from the 6.056% expected rate: Timing - There is a lag time between billing, collecting and remitting the franchise fees and GRT and RAF assessments. During this lag, there are various adjustments that happen with the billings. FP&L periodically (approximately quarterly) reviews the amounts received from customers for franchise fees, GRT and RAF against the amounts that were required to be remitted to the County, State and FPSC. When FP&L has over-recovered these assessments from its customers, the Franchise Fees rate is adjusted down. When FP&L has under- 9

10 recovered, they adjust the Franchise Fee rate up. Essentially, the rate fluctuations are attributed to timing. FP&L reports are in real time as noted in Opportunity for Improvement A. Therefore, reconciling the current data to data at the point in time when the rates were determined is not feasible. In order to determine if the amounts billed to customers were correct, the following items beyond the scope of this audit would need to be examined: GRT amounts assessed and remitted to the State of Florida since inception of the Ordinance. RAF amounts assessed and remitted to the FPSC since inception of the Ordinance. Franchise fee amounts assessed and remitted to the County since inception of the Ordinance. Adjustments to billings, including those due to timing, and the rates charged since inception of the Ordinance. While this audit could not verify that the amounts charged to customers was accurate, the amounts charged do not affect franchise fee amounts remitted to the County, which appeared to be consistently remitted using a rate of 5.9%. Recommendation, Original Report dated September 2013: The County should monitor the rates being charged as Franchise Fees and determine if additional action should be taken. The County could also consider requesting additional information to support electricity invoices paid by the County to FP&L in order to ensure that the County is being appropriately charged for franchise fees. Current Status, Follow-Up Audit dated December 2014: The County has obtained legal clarification from the Office of the County Attorney in a correspondence dated December 11, Through review of the correspondence it was determined that the roles and responsibilities of the FPSC are to review and regulate FP&L rates and the County s responsibility is to review the collection of the franchise fees. See Appendix A for the detailed correspondence from the Office of the County Attorney. 10

11 D. Remittance of Street Lighting Franchise Fee Revenue The data provided by FP&L to support the franchise fee amounts remitted to the County appeared to exclude street lighting in accordance with the Ordinance. However, FP&L invoices paid by the County for street lighting included charges for Franchise Fees. Therefore, it appears that FP&L is charging franchise fees for items excluded in the Ordinance and not remitted the related fees to the County. Audit Observation, Original Report dated September 2013: The Franchise Ordinance with FP&L, Section 5, states that revenues subject to the franchise fees are limited to the precise revenues described in the Ordinance and do not include: (a) revenues from the sale of electrical energy for Public Street and Highway Lighting (service for lighting public ways and areas); The Finance Department provided details of invoices paid by the County for what appears to be street lighting. The invoices included Franchise Fee charges totaling $39,912* during the audit period (June 2011 to May 2012). These amounts appear to have been charged and paid by the County. However, the same dollars were not remitted to the County as franchise fees. *Amount was derived from those invoices provided by the Finance Department and coded by FP&L as SL-1 Street Lighting, OL-1 Outdoor Lighting, and SL-2 Traffic Signal Service. The invoices and payments were not verified as part of this audit. Recommendation, Original Report dated September 2013: The County should obtain legal guidance on whether or not FP&L is permitted to charge the County (and other customers) Franchise Fees on revenues that are excluded in the Ordinance and subsequently not remit those amounts to the County. Additional action may be warranted. The County should also consider this issue when negotiating and preparing future franchise agreements. Current Status, Follow-Up Audit dated December 2014: As recommended in the original report, the County has obtained legal guidance from the Office of the County Attorney. The County provided a correspondence, dated December 11, 2014, from the Office of the County Attorney to support FP&L s process. See Appendix A for the detailed correspondence from the Office of the County Attorney. 11

12 Appendix A Correspondence from the Office of the County Attorney, dated December 11, 2014 SARASOTA COUNTY GOVERNMENT Office of the County Attorney Interoffice Memorandum TO: FROM: RE: Karen Fratangelo, Fiscal Consultant; Steve Botelho, CFMO, Acting Assistant County Administrator Kathleen F. Schneider, Deputy County Attorney FPL franchise fees DATE: December 11, 2014 QUERY: Who is the responsible party to provide oversight of FPL rates, fees and charges, including fees charged to customers for recovery of FPL's franchise fee obligation to the County? DISCUSSION: Section , Florida Statutes, provides that the Florida Public Service Commission (FPSC) has jurisdiction to regulate and supervise each public utility [including electric utilities] with respect to its rates and service. Further, the jurisdiction conferred upon the commission shall be exclusive and superior to that of all other boards, agencies, political subdivisions, municipalities, towns, villages or counties, and, in case of conflict therewith, all lawful acts, orders, rules and regulations of the commission shall in each instance prevail. With respect to franchise fees in particular, section provides that No provision of this chapter shall in any way affect any municipal tax or franchise tax in any manner whatsoever. Thus, the FPSC will not interfere with or regulate the franchise fee remitted to the County as negotiated between the County and FPL pursuant to Ordinance No (the FPL Franchise ). However, because FPL's franchise fee obligation is an operational expense of the utility, regulation of the rates charged by FPL to recover those expenses lies solely with the FPSC and is not a function of local government. 12

13 Section 5 of the FPL Franchise provides for FPL's obligation to pay to the County what is commonly referred to as a franchise fee : As a consideration for this franchise, the Grantee shall pay to the Grantor, commencing 90 days after the effective date hereof, and each month thereafter for the remainder of the term of this franchise, an amount which added to the amount of all licenses, excises, fees, charges and other impositions of any kind whatsoever (except ad valorem property taxes and non-ad valorem tax assessments on property), levied or imposed by the Grantor against the Grantee's property, business or operations and those of its subsidiaries during the Grantee's monthly billing period ending 60 days prior to each such payment will equal 5.9 percent of the Grantee's billed revenues, less actual write-offs, from the sale of electrical energy to residential, commercial and industrial customers (as such customers are defined by FPL's tariff) within the unincorporated areas of the Grantor for the monthly billing period ending 60 days prior to each such payment, and in no event shall payment for the rights and privileges granted herein exceed 5.9 percent of such revenues for any monthly bill period of the Grantee. The Grantee understands and agrees that such revenues as described in the preceding paragraph are limited to the precise revenues described therein, and that such revenues do not include: (a) revenues from the sale of electrical energy to Public Street and Highway Lighting (service for lighting public ways and areas); (b) revenues from Other Sales to Public Authorities (service with eligibility restricted to governmental entities); (c) revenues from Sales to Railroads and Railways (service supplied for propulsion of electric transit vehicles); (d) revenues from Sales for Resale (service to other utilities for resale purposes); (e) franchise fees; (f) late payment charges; (g) field collection charges, (h) other service charges. As indicated by the bold-face excerpts above, the calculation of franchise fees is not a simple calculation of 5.9% of the consumer's monthly charges. In other words, it is not a pass-thru charge. Rather, the amount remitted to the County is an amount which when added to any other charges or fees the County charges to FPL and adjusted for write-offs is equal to 5.9% of FPL's billed revenues. The term billed revenues is further refined by excluding revenues from the sale of electrical energy for Pubic Street and Highway Lighting, revenues from Other Sales to Public Authorities, revenues from Sales to Railroads and Railways, revenues from Sales for Resale, franchise fees, late payment charges and other service charges. Thus, the calculation for the amount of the franchise fee remitted to the County starts with a determination of the applicable billed revenues, multiplied by 5.9%, less any other charges or fees that FPL pays to the County. Pursuant to the Audit of Florida Power & Light Company Franchise Fee, dated September 30, 2013, performed under the direction of the Clerk of Court (the FPL Audit Report ), it was determined that the amount remitted to the County by FPL was based on the 5.9% rate contained in the FPL Franchise. 13

14 The expectation that the franchise fee as it appears on the customer's bill is going to be 5.9% of the amount charged for electrical service on that bill is incorrect. Rather, it is a variable number that fluctuates with such things as customer write-offs and costs of permits, licenses or fees that are charged to FPL by the County and any over or underrecovered amounts. As stated in the FPL Audit Report on page 9, due to the complex nature of determining the fee amount, verifying the rate may be difficult without knowing the details of revenues, write-offs, permits, fees, etc. If the County were to request this information, it may reach beyond the scope of the current Franchise Agreement. In fact, it is beyond the scope of the current FPL Franchise in that Section 11 limits the County's right to examine FPL's records to those records relating to the calculation of the franchise payment for the year preceding... It is this limited review that led to the conclusion in the FPL Audit Report that FPL had properly calculated the 5.9% franchise fee paid to the County. Pursuant to the FPL Audit Report, FPL describes the franchise fee billed to customers as recovery of an operating expense. The operating expense is FPL's obligation under the FPL Franchise to remit to the County 5.9% of the applicable billed revenues. FPL recovers that expense by charging each customer a % that will result in full recovery of that cost for the preceding month, taking into account the variables previously mentioned. In the chain you forwarded to me between an FPL customer and J.R. Kelly, Office of Public Counsel, FPSC, J.R. Kelly stated that Franchise fees between a utility and a governmental entity (i.e., county or municipality) do not fall within the jurisdiction of the PSC; therefore, it would be the responsibility of the governmental entity to audit and determine that these fees are being properly calculated, collected and remitted to the appropriate entity. This is exactly what the FPL Audit Report determined. However, the query to Mr. Kelly by the FPL customer was not who audits the franchise fee being remitted to the County, it was who audits the fees being charged to the customer to recover that expense. These fees billed to the customers are a component of the rates charged by FPL to recover operational expenses, including the franchise fee paid to the County, and, as stated at the outset of this memo, it is the responsibility of the FPSC to review and to regulate those rates. 14

15 Appendix B Original Audit Report Dated September 2013 Summary and Results The Clerk of the Circuit Court and County Comptroller s Internal Audit Department has completed an audit of Florida Power & Light Company Franchise Fee. The purpose of the audit was to determine whether the franchise fees being billed, collected and submitted to Sarasota County (the County) by Florida Power & Light Company (FP&L) are in accordance with County Ordinance The audit was planned and conducted in accordance with Generally Accepted Government Auditing Standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Background Sarasota County Ordinance No , effective on May 17, 2007 for a term of thirty (30) years, granted Florida Power & Light Company an electric franchise for the unincorporated areas of Sarasota County. This franchise agreement provides for the payment of fees to the County in exchange for the nonexclusive right and privilege of providing electricity and other electric-related services throughout the County free of competition from the County, pursuant to certain terms and conditions. Per the Ordinance, as consideration for the franchise, FP&L is to pay Sarasota County each month, an amount which added to the amount of all licenses, excises, fees, charges and other impositions of any kind whatsoever (except ad valorem property taxes and non-ad valorem tax assessments on property) levied or imposed by the Grantor (Sarasota County) against the Grantee s (FP&L s) property, business or operations and those of its subsidiaries during the Grantee s (FP&L s) monthly billing period ending sixty (60) days prior to each such payment will equal 5.9 percent of the Grantee s (FP&L s) billed revenues, less actual write-offs, from the sale of electrical energy to residential, commercial and industrial customers and in no event shall payment for the rights and privileges granted herein exceed 5.9 percent of such revenues for any monthly billing period of the Grantee (FP&L). Sarasota County received $15,996,667 in franchise fees from FP&L during the audit period from June 1, 2011 to May 31,

16 Objectives, Scope and Methodology The scope of the audit was franchise fee receipts from FP&L during the period from June 1, 2011 through May 31, The ordinance provides for FP&L to remit amounts to the County within sixty (60) days, therefore, the FP&L billing months covered in the audit period were the months of April 2011 through March To meet the objectives of the audit, the following procedures were performed: Performed inquiries of County & FP&L personnel Reviewed documents relating to franchise fees including o Electronic Franchise Ordinance No between Sarasota County and Florida Power & Light Company signed May 8, 2007 o Sarasota County Financial Reports o Florida Public Services Commission (FPSC) Rule and website o Florida Department of Revenue website o Detail of FP&L franchise fee payments by month from County Finance o Detail of Sarasota County property addresses from the Sarasota County Property Appraiser s office o Details of addresses and customer billings from FP&L Obtained an understanding of the various FP&L processes including billing, determination of customers within the County, additions and removal of customers, calculation of franchise fees billed to customer, remittance of franchise fee payments to Sarasota County Examined a sample of sixty (60) transactions for the audit period Identified opportunities for improvement Overall Results There were four (4) findings identified during the audit. 1. The data received for the audit did not agree to the information remitted with the franchise fees to the County. FP&L information updates in real time and the reports originally used to calculate the franchise fees remitted are not maintained by FP&L. 2. Property information maintained by the Sarasota County Property Appraiser s office differs from customer information maintained by FP&L and used to determine franchise fee amounts. This data is an integral component in determining the completeness of the properties subject to franchise fees. 3. Within the scope and authorization of this audit, it was not possible to verify the accuracy of the franchise fee rates charged to customers. However, the amount remitted to the County was based on the 5.9% rate contained in the Franchise Ordinance. 4. Street lighting is an excluded revenue category in the Franchise Ordinance. FP&L billed and the County paid street lighting invoices that included charges for franchise fees. However, FP&L did not remit the franchise fees back to the County. 16

17 Opportunities for Improvement, Management Responses and Action Plan The audit identified certain policies, procedures and practices that could be improved. This audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, the Opportunities for Improvement, Management Responses and Action Plan presented in this report do not encompass all areas related to the Florida Power & Light Company (FP&L) Franchise Fee where improvements may be needed. Observations and recommendations were made in the following areas: A. Reconciliation of data B. Reconciliation of property records to FP&L s customer listing C. Unable to Verify the Accuracy of the Franchise Fee Rates Charged to Customers D. Remittance of street lighting franchise fee revenue A. Reconciliation of Data Data Received for Audit Does Not Agree to Information Remitted with Franchise Fees to the County. Observation: Each month, FP&L remits franchise fees to the County and provides the County with a summary of the total revenues generated by FP&L for residential, commercial and industrial clients. For the audit, details of FP&L revenue were requested for each month so that individual customer bills could be selected and tested. It was expected that the totals per FP&L s detailed reports provided for the audit would match the total revenue amounts FP&L reported to the County. The total customer charges per the FP&L detailed reports were different from the FP&L revenue amounts reported to the County. There were also differences between what was expected to be remitted (5.9% of the customer billings per the FP&L reports received for the audit) and the amounts actually remitted to the County. The unreconciled differences in revenue and franchise fees for the audit period are as follows: Date Franchise Fee was Received Revenue Per Remittance to County Revenue Per Reports Provided for Audit Difference Between Revenue Reported to County and Revenue Reported for Audit Positive (Negative) Franchise Fee Received Based on 5.9% of Revenue Per Remittance to County Franchise Fee Based on 5.9% of Revenue Based on Reports Provided for Audit Difference in Franchise Fees Positive (Negative) 06/28/2011 $ 21,065,435 $ 20,952,397 $ 113,038 $ 1,242,861 $ 1,236,191 $ 6,670 08/01/ ,909,522 22,746, ,534 1,351,662 1,342,072 9,590 08/29/ ,714,106 26,562, ,520 1,576,132 1,567,193 8,939 09/30/ ,029,979 26,877, ,098 1,594,640 1,585,795 8,845 10/31/ ,776,359 27,624, ,006 1,638,805 1,629,837 8,968 11/30/ ,242,042 28,038, ,211 1,666,280 1,654,291 11,989 12/30/ ,297,053 22,144, ,040 1,315,526 1,306,497 9,029 01/30/ ,944,627 17,849,400 95,227 1,058,711 1,053,115 5,596 02/29/ ,640,086 18,561,385 78,701 1,099,765 1,095,122 4,643 03/30/ ,099,407 21,004,976 94,431 1,244,865 1,239,294 5,571 04/30/ ,102,966 17,966, ,512 1,068,075 1,060,021 8,054 05/30/ ,310,923 19,192, ,753 1,139,345 1,132,337 7,008 TOTAL $ 271,132,505 $ 269,521,434 $ 1,611,071 $ 15,996,667 $ 15,901,765 $ 94,902 17

18 Recommendation: The County should formulate an agreement with FP&L to receive, or have FP&L maintain, electronic copies of the detailed billing reports substantiating the franchise fee amounts remitted to the County. These reports should be made available for audit. FP&L Response The detailed customer reports provided to the auditors were derived from a real-time database which is continually updated and reflects customer records at one point in time. If a revised customer bill is created after the date the franchise fees are calculated, the data from the original bill is replaced with the new billing data. Therefore there may be timing differences between what is initially reported versus the information provided several months or years later. For example, August 2011 revenue is reported to the County as $100 and the franchise fee paid for that revenue is 5.9% or $5.90. In October 2011, a credit for $10 is processed pertaining to a customer s August 2011 billing. After issuing the credit, a detailed customer billings report for August 2011 would show billings of $90, $10 less than what was reported. However, that $10 credit is included in the October 2011 Franchise Fee report and remittance, since that is when the credit actually occurred. FP&L reconciles the customer billings to its general ledger and franchise fee reporting for the company as a whole on a monthly basis and there are no discrepancies. Management Response The Office of Financial Management will contact FP&L and ask if they can create and maintain a detailed billing report, at the time of billing, which matches the revenues used as a basis for the 5.9% remittance (to be available to auditors upon request). However, this request may be outside the scope of the existing FP&L agreement. B. Reconciliation of Property Records to FP&L s Customer Listing Without a periodic reconciliation between the County and FP&L data, there is a risk that franchise fees assessed and remitted to the County will not include all appropriate properties and there was no reliable way to ensure that the FP&L customer database was complete and accurate. Observation: To verify the completeness of addresses included in the FP&L report of customer billings, the report was electronically compared to a listing of properties obtained from the Sarasota County Property Appraiser s office. There were 13,172 discrepancies including 2,203 properties listed in the County data that were not included in the FP&L data, and 10,969 customer addresses in the FP&L data that were not included in the County data. Various potential reasons were given by both the Sarasota County Property Appraiser s office and FP&L for differences and included items such as: The County assigns addresses to all new construction; however, new construction addresses will not appear in the FP&L database until an FP&L account is created. Vacant plots will appear in the County s database and will not appear in the FP&L database until electrical work begins and a service account is created for the property. Typographical errors and differences in spelling and abbreviations between the two databases. Boundary changes may not be communicated between the entities. There are no formal processes to ensure that changes and new addresses are shared between the County and FP&L, or to reconcile customer/property addresses and other data between the two entities. Based on discussions with both FP&L and County personnel neither party was certain that FP&L customer data and County address data had ever been reconciled. Recommendation: 18

19 The County and FP&L should develop a process to exchange and reconcile County property data to ensure that franchise fees are assessed and remitted on all eligible properties. Management Response There are many legitimate reasons for address discrepancies (vacant land with no electric, multifamily/apartment residences that show as one parcel in the PA database vs. multiple accounts in FPL, differences in address spelling/abbreviations, etc.), with that, The Office of Financial Management will contact FP&L to discuss creating a process to verify this information. FP&L Response A total of 169,875 addresses within the jurisdiction of Sarasota County-OCL were provided. FP&L did not receive the 13,172 discrepancies for review, but do agree the reasons given are valid conditions in causing exceptions. In addition to those mentioned, FP&L also has exceptions caused by having the same location with two different unique addresses. Even though both can be correct, FP&L tries to make updates to match the municipality s record if the customer is not being inconvenienced. Another major cause of exceptions is multiple dwellings, where a municipality has one record and FP&L has multiple addresses (apartment buildings, shopping centers). However from the discrepancies found, there were no findings on any of the address exceptions to have caused them to be under the incorrect tax jurisdiction. Since April 1998, FP&L has no record of receipt of an address list from Sarasota County-OCL. Per Florida Statute , an address list should be provided by the municipality on a quarterly basis to assure compliance. A formal notification is also expected on any new ordinances that are created. FP&L is in agreement with the recommendations and welcomes any communication that is received to assure both our records are properly maintained. We currently have an internal process after receipt of all address lists received including advising the municipality of any differences we may have when comparing both files. C. Unable to Verify the Accuracy of the Franchise Fee Rates Charged to Customers FP&L charged customers Franchise Fees at rates that were adjusted for factors that were not available for examination. It was therefore not possible to verify that the Franchise Fee amounts charged to FP&L customers were accurate. However, the rate charged to customers did not affect the franchise fee amounts that were remitted to the County, which appeared to be consistently calculated at a rate of 5.9% of customer billings. 19

20 Observation: Franchise fees are subject to the Florida Gross Receipts Tax (GRT) and the Florida Public Service Commission (FPSC) Regulatory Administration Fee (RAF). The Franchise Fee line item on customer invoices was grossed up for the recovery of these two amounts from customers. For example, the following is a simplified calculation of the expected franchise fee rate (including the GRT and RAF charges) to be billed to a customer with service charges of $100: FP&L Charges Before Franchise Fee, GRT & RAF Charges $ Franchise Fee Charge Breakdown: d. Franchise Fee to County (5.9% of FP&L Charges) $ e. GRT on Franchise Fee (2.5641% of a) f. RAF on Franchise Fee (0.072% of a) Total Franchise Fee Charge Expected (a+b+c) $ Expected Franchise Fee Charge Rate (Total Franchise Fee Charge Divided by FP&L Charges) ~ 6.056% Based on this simplified calculation, the expected franchise fee assessment rate would be approximately 6.056%. Sarasota County customers were billed for Franchise Fees at rates that fluctuated during the audit period from 6.30% (April 2011 through September 2011) to 6.20% (October 2011 through March 2012). In 2013, after the audit period, the Franchise Fee rate charged dropped below the expected rate. FP&L provided the following reasons to support charging rates that differ from the 6.056% expected rate: Timing - There is a lag time between billing, collecting and remitting the franchise fees and GRT and RAF assessments. During this lag, there are various adjustments that happen with the billings. FP&L periodically (approximately quarterly) reviews the amounts received from customers for franchise fees, GRT and RAF against the amounts that were required to be remitted to the County, State and FPSC. When FP&L has over-recovered these assessments from its customers, the Franchise Fees rate is adjusted down. When FP&L has underrecovered, they adjust the Franchise Fee rate up. Essentially, the rate fluctuations are attributed to timing. FP&L reports are in real time as noted in Opportunity for Improvement A. Therefore, reconciling the current data to data at the point in time when the rates were determined is not feasible. In order to determine if the amounts billed to customers were correct, the following items beyond the scope of this audit would need to be examined: GRT amounts assessed and remitted to the State of Florida since inception of the Ordinance. RAF amounts assessed and remitted to the FPSC since inception of the Ordinance. Franchise fee amounts assessed and remitted to the County since inception of the Ordinance. Adjustments to billings, including those due to timing, and the rates charged since inception of the Ordinance. 20

21 While this audit could not verify that the amounts charged to customers was accurate, the amounts charged do not affect franchise fee amounts remitted to the County, which appeared to be consistently remitted using a rate of 5.9%. Recommendation: The County should monitor the rates being charged as Franchise Fees and determine if additional action should be taken. The County could also consider requesting additional information to support electricity invoices paid by the County to FP&L in order to ensure that the County is being appropriately charged for franchise fees. FP&L Response The franchise fee billed to customers is a recovery of an operating expense and not a pass-through tax such as sales tax or utility tax. Therefore the recovery mechanism is not exact due to, among other things, customer write-offs and the costs of permits, licenses, and fees that are also variables in the calculation of total franchise fees paid to the County. Additionally, since FP&L must pay to the State of Florida and the Florida Public Service Commission Gross Receipts tax and Regulatory Assessment Fee on the franchise fees, these are added into the franchise fee billed. FP&L periodically reviews and monitors the difference between franchise fee remittances to the County versus customer billings in total and adjusts as necessary. The billing factor has been 5.9% since September Management Response Due to the complex nature of determining the fee amount, verifying the rate may be difficult without knowing the details of revenues, write-offs, permits, fees, etc. If the County were to request this information, it may reach beyond the scope of the current Franchise Agreement. D. Remittance of Street Lighting Franchise Fee Revenue The data provided by FP&L to support the franchise fee amounts remitted to the County appeared to exclude street lighting in accordance with the Ordinance. However, FP&L invoices paid by the County for street lighting included charges for Franchise Fees. Therefore, it appears that FP&L is charging franchise fees for items excluded in the Ordinance and not remitting the related fees to the County. Observation: The Franchise Ordinance with FP&L, Section 5, states that revenues subject to the franchise fees are limited to the precise revenues described in the Ordinance and do not include: (a) revenues from the sale of electrical energy for Public Street and Highway Lighting (service for lighting public ways and areas); The Finance Department provided details of invoices paid by the County for what appears to be street lighting. The invoices included Franchise Fee charges totaling $39,912* during the audit period (June 2011 to May 2012). These amounts appear to have been charged and paid by the County. However, the same dollars were not remitted to the County as franchise fees. *Amount was derived from those invoices provided by the Finance Department and coded by FP&L as SL-1 Street Lighting, OL-1 Outdoor Lighting, and SL-2 Traffic Signal Service. The invoices and payments were not verified as part of this audit. 21

22 Recommendation: The County should obtain legal guidance on whether or not FP&L is permitted to charge the County (and other customers) Franchise Fees on revenues that are excluded in the Ordinance and subsequently not remit those amounts to the County. Additional action may be warranted. The County should also consider this issue when negotiating and preparing future franchise agreements. FP&L Response FP&L vehemently disagrees with the above observation that implies that the company did not pay $39,912 in franchise fees. FP&L has paid the correct amount per the franchise agreement. The agreement governs only what should be remitted to the County while the Florida Public Service Commission governs what can be charged by FP&L. The Florida Public Service Commission requires that the franchise fee be charged to all FP&L customers, and does not allow for exemptions. The Ordinance sets forth the calculation formula for determining the amount to be remitted to the County and provides that the amount shall be equal to 5.9 percent of FPL s billed revenues from the sale of electricity under three types of customer accounts: residential, commercial, and industrial. For further clarity, the Ordinance then explicitly provides that revenues from all other types of accounts, including street lighting accounts, are NOT to be included in the calculation formula. The Ordinance does not state that street lighting customers will not be charged franchise fees. Therefore, the charges on street lighting (and other categories excluded from the calculation formula under the agreement) are valid and are allowed to be part of FP&L s recovery of the franchise fees remitted to the County. Further, FP&L does not keep any of the amounts collected as franchise fees. The percentage rate used to assess franchise fees on FP&L customers is adjusted as necessary to account for any over or under recovered amounts. Management Response We agree that this issue should be referred to the Office of the County Attorney to research the legality of this process and it should be considered when negotiating future agreements. 22

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