Richard Duller CPA Services, LLC 345 East Academy Avenue Post Office Drawer 1429 Jennings, Louisiana 70546

Transcription

1 LOUISIANA 19 JEFFERSON DAVIS JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. JENNINGS, LOUISIANA FINANCIAL STATEMENTS AS OF DECEMBER 31, 2009 AND 2008 AND INDEPENDENT AUDITORS' REPORT Richard Duller CPA Services, LLC 345 East Academy Avenue Post Office Drawer 1429 Jennings, Louisiana 70546

2 TABLE OF CONTENTS Independent Auditors' Report 1-2 Comparative Balance Sheet 3-4 Comparative Statement of Revenues and Patronage Capital 5 Comparative Statement of Cash Flows 6 Notes to the Financial Statements 7-14 Compliance, Internal Control and Other Matters 15 Schedule of Expenditures of Federal Awards 16 Notes to the Schedule of Expenditures of Federal Awards 17 Independent Auditor's Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards Independent Auditor's Report On Compliance With Requirements Applicable To Each Major Program And On Internal Control Over Compliance In Accordance With 0MB Circular A-133 Financial Statement Audit Schedule of Findings and Questioned Costs Management's Corrective Action Plan For Current Year Audit Findings 24 Management's Status of Prior Year Findings 25

3 RICHARD BULLER CPA SERVICES, LLC CERTIFIED PUBLIC ACCOUNTANTS Richard A. BullerJr, CPA, CPA Ronald W Frederick, CPA Melvin R. Schulthess, CPA 345 EAST ACADEMY AVENUE POST OFFICE DRAWER 1429 JENNINGS, LOUISIANA (337) (337) (337) FAX (337) Members: American Institute of Certified Public Accountants Louisiana Society of Certified Public Accountants Chartered Financial Analyst Institute INDEPENDENT AUDITORS' REPORT The Board of Directors Jefferson Davis Electric Cooperative, Tnc. Gentlemen: We have audited the accompanying balance sheet of the Jefferson Davis Electric Cooperative, Inc., a Louisiana Corporation as of December 31, 2009 and 2008 and the related statements of revenues and patronage capital, and cash flows for the years then ended. These financial statements ai-e the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Governmental Auditing Standards issued by the Comptroller General of the United States, Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the fmancial statements referred to above present fairly, in all material respects, the financial position of the Jefferson Davis Electric Cooperative, Inc., as of December 31, 2009 and 2008, and the results of its operations, changes in patronage capital and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with auditing standards generally accepted in the United States of America, we have also issued a report dated March 12, 2010, on our consideration of the Cooperative's internal control over reporting and our test of it's compliance with certain provisions of laws, contracts, and grants. That report is an integi'al part of an audit performed in accordance with Governmental Auditing Standards, and should be read in conjunction with this report in considering the results of our audit.

4 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Jefferson Davis Electric Cooperative's basic financial statements. The introductory section, combining and individual financial statements, and statistical section are presented for ptirposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of Jefferson Davis Electric Cooperative. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Richard Buller CPA Services, LLC March 12,2010

5 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE. INC. COMPARATIVE BALANCE SHEET As Of December 31, 2009 and 2008 ASSETS UTILITY PT.ANT: ELECTRIC PLANT IN SERVICE - AT COST CONSTRUCTION WORK IN PROGRESS TOTAL ELECTRIC PLANT IN SERVICE LESS: ACCUMULATED DEPRECIATION NET UTILITY PLANT 33,173,090 2,885,073 36,058,163 9,507, S $ 26,550,851 31,648,586 4,536,384 36,184,970 9,135,968 $ 27,049,002 INCREASE (DECREASE ) 1,524,504 (1,651,311 ) (126,807 ) 371,344 (498,151) OTHER PROPERTY AND INVESTMENTS: ASSOCIATED ORGANIZATIONS CAPITAL TERM CERTIFICATES OTHER INVESTMENTS TOTAL OTHER PROPERTY & INVESTMENTS 924, ,317 1,449,912 2,939, , ,317 1,770,233 3,202,779 57,494 0 (320,321 ) (262,827 ) CURRENT ASSETS: CASH - GENERAL ACCOUNTS RECEIVABLE (LESS PROVISION FOR DOUBTFUL ACCOUNTS OF $220,260 IN 2009 AND 5224,532 IN 2008) MATERIALS AND SUPPLIES PREPAYMENTS OTHER CURRENT AND ACCRUED ASSETS TOTAL CURRENT ASSETS 454,925 2,053, ,427 68,136 7, ,965 1,557, ,983 69,076 8,196 94, ,332 (2,556 ) (940 ) (835 ) 3,283,624 2,696, ,961 OTHER ASSETS: DEFERRED CHARGES-HURRICANE RITA DEFERRED CHARGES: TOTAL OTHER ASSETS TOTAL ASSETS 4,294, ,295,090 $ 37,069,517 5,010,425 1,112 5,011,537 $ 37,959,981 s" (715,776 ) (671 ) (716,447 ) (890,464 ) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 3

6 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE. INC. COMPARATIVE BALANCE SHEET As Of December 31, 2009 and 2008 EQUITIES AND LIABILITIES EQUITIES AND MARGINS; MEMBERSHIP PATRONAGE CAPITAL DONATED CAPITAL TOTAL EQUITIES AND MARGINS 30,955 13,915,722 4, $ 13,951,485 28,840 12,692,437 4,808 $ 12,726,085 INCREASE (DECREASE ) 2,115 1,223,285 0_^ LONG TERM DEBT: RUS MORTGAGE NOTES RUS GUARANTEED-FFB COBANK CFC NOTE TOTAL LONG TERM DEBT 4,572,097 4,199,757 1,239,308 4,250,391 14,261,553 4,375,447 4, ,319,736 4,698,611 14,647, ,650 (54,301 ) (80,428 ) (448,220 ) ( ) CURRENT LIABILITIES: ACCOUNTS PAYABLE CONSUMER DEPOSITS RUS GUARANTEED-FFB NOTE PAYABLE-CFC NOTE PAYABLE -COBANK NOTE PAYABLE - LOC COBANK OTHER CURRENT AND ACCRUED TOTAL CURRENT LIABILITIES 1,206, ,692 54, ,220 80, ,351 3, ,171,251 1,555, ,792 68, ,756 77,325 2,500,000 3,424,330 (348,775 ) (14,501 ) 21,464 3,103 (1.699,649 (31,335 ) 8,222,044 ( ) DEFERRED CREDITS AND OTHER: POST RETIREMENT BENEFIT OBLIGATION TOTAL EQUITIES AND LIABILITIES 2,685, ^ ,364,000 S $' 321, ( ) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 4

7 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE. INC. For The Years Ended December 31, 2009 and 2008 INCREASE (DECREASE ) OPERATING REVENUES: $ 18,505,711 S 17,723,589 S 782,122 OPERATING EXPENSES: COST OF POWER ,306 $ 10,921,110 (361,804 ) TRANSMISSION EXPENSE 27,753 2,239 25,514 DISTRIBUTION EXPENSE OPERATIONS 950, ,061 (8,041 ) DISTRIBUTION EXPENSE MAINTENANCE 1,288,629 1,192,050 96,579 MAINTENANCE OF GENERAL PLANT 84,014 77,985 6,029 CONSUMER ACCOUNTS EXPENSE 493, ,085 79,749 SALES EXPENSE 26,425 22,309 4,116 ADMINISTRATIVE AND GENERAL 1,496,977 1,721,772 (224,795 ) DEPRECIATION & AMORTIZATION 1,453,695 1,288, ,340 TAXES 221, ,964 32,882 INTEREST ON LONG TERM DEBT 807, ,588 9,670 TOTAL OPERATING EXPENSE 17,409,757 17,584,518 (174,761 ) NET OPERATING MARGINS 1,095, , ,883 CAPITAL CREDITS: 105,038 76,130 28,908 NON-OPERATING MARGINS: INTEREST INCOME 31,271 90,828 ( ) OTHER NON-OPERATING INCOME 0 60,949 (60,949 ) TOTAL NON-OPERATING INCOME 31, ,777 (120,506 ) NET MARGINS FOR PERIOD: 1,232, , ,285 PATRONAGE CAPITAL - BEGINNING OF YEAR 12,692,437 12,325, ,978 LESS: RETIREMENT OF CAPITAL CREDITS (8,978) 0 (8,978 ) PATRONAGE CAPITAL-END OF YEAR $ 13,915,722 $ 12,692,437 $ 1,223,285 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 5

8 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE. INC. COMPARATIVE STATEMENT OF CASH FLOWS For The Years Ended December 31, 2009 and 2008 OPERATING ACTIYITIES: NET MARGINS FOR PERIOD ADJUSTMENTS TO RECONCILE NET MARGINS TO NET CASH PROVIDED BY OPERATIONS: DEPRECIATION AND AMORTIZATION SALVAGED MATERIAL DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE DECREASE (INCREASE) IN MATERIALS AND SUPPLIES DECREASE (INCREASE) IN PREPAYMENTS DECREASE (INCREASE) IN ACCRUED ASSETS AND OTHER DEFERRED CHARGES INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES INCREASE (DECREASE) IN DEFERRED CREDITS NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES INVESTING ACTIVITIES: PURCHASES OF UTILITY PLANT NET PLANT REMOVAL COSTS INVESTMENTS IN ASSOCIATED ORGANIZATIONS AND LT CONTRACTS OTHER INVESTING ACTIVITIES NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES FINANCING ACTIVITIES; PAYMENTS ON LONG-TERM DEBT FINANCING THROUGH LONG TERM DEBT INCREASE (DECREASE) IN MEMBERSHIP RETIREMENT OF CAPITAL CREDITS NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ,232,263 $ 1,648,924 52,315 (496,332) 2, ,506 (361,210) 321, ,190 (127,833) (162,829) (57,494) 320,321 (27,835) (2,272,532) 0 2,115 (8,978) (2,279,395) 94, , ,978 1,461,620 52, ,141 (38,313) 63,857 11, , ,263 2,892,658 (6,111,164) (228,775) (33,418) 1,415,568) (4,957,789) (659,283) 2,696,649 (2,790) 0 2,034,576 (30, ,520 CASH AND CASH EQUIVALENTS AT END OF YEAR 454,925 S 359, Accounling Policies Note: 2. Debt Note: 3. Income Taxes 4. Acquisitions Cash Equivalents - Die Cooperative considers only cash to be cash and cash equivalents. During 2009 and 2008 respectively, the Cooperative paid interest of $814,264 and $818,419. The Cooperative paid no income taxes in 2009 and The Cooperative had acquisitions in 2009 and 2008 of utility plant. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 6

9 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS For The Years Ended December 31, 2009 and NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS: Jefferson Davis Electric Cooperative, Inc. is a tax exempt electrical cooperative with offices in Jennings, Louisiana and Cameron, Louisiana. The cooperative provides electricity to residential and commercial customers located in Southwestern Louisiana. A. Basis of Accounting - The records of the Cooperative are maintained on the accrual basis of accounting in accordance with the "Uniform System of Accounts Prescribed for Electric Borrowers of the Rural Utilities Service" (RUS Bulletin 181-1). B. Allowance For Uncollectibles - Estimated uncollectible accounts receivable are based on the Cooperative's prior experience with bad debts. C. Inventories - Inventories are valued at average cost. 2 - ELECTRIC PLANT AND DEPRECIATION PROCEDURES: Listed below are the assets comprising the electric plant as ofdecember 31,2009 and Transmission Lines Distribution Plant General Plant Electric Plant in Service Construction Work In Progress ,561,703 25,118, ,173, ,561,368 23,685, ,648, Total Electric Plant Provision has been made for depreciation of transmission lines at a straight-line composite rate of 2.75 percent per annum. Provision has been made for depreciation of distribution plant at straight-line composite rates ranging fi-om 2.3 to 4.15 percent per annum depending on the type of distribution asset. General plant depreciation rates have been applied on a straight-line basis and are as follows: Structures and Improvements Communication Equipment Transportation Equipment Stores Equipment Office Equipment Laboratory Equipment Miscellaneous Equipment 3.00% 8.00% to 25.00% 6.00% 7.00% 6.00% 6.00% Electric Plant-in-Service: Electric plant-in-service is stated on the basis of cost. Depreciation is computed using the straight-line method over the expected useful lives of the related component assets. The cost of units of property replaced or retired, including costs of removal net of any salvage value, is charged to accumulated depreciation. Construction-in-Progress: Construction-in-progress is stated at cost.

10 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cent.) For The Years Ended December 31,2009 and OTHER PROPERTY AND INVESTMENTS: Investments consisted of the following at December 31, 2009 and Held to Maturity: Capital Stock - Nat'I Bank For Cooperatives 269, ,207 Other Total Investments in Associated Organizations Capital Term Certificates of NRUCFC (1) Other Investments: Bank Rate Saving (1) 0 224,181 CFC Daily Cash Fund (1) Total Other Investments Total Other Property and Investments (1) Deposits and investments that are uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the Cooperative's name are considered to have custodial risk. Market value on investments in Associated Organizations was indeterminable because these securities are not ordinarily traded. The market value on the Capital Term Certificates and other cash investments approximates cost at 12/31/09 and 12/31/ DETAILS OF PATRONAGE CAPITAL: Assigned and Assignable $ 13,915,722 $ 12,692,437 Less: Retirements 0 0 Total Assigned and Assignable 13,915,722 12,692,437 Less: Unassigned Losses 0 Q Balance MORTGAGE NOTES: (a) The following are RUS 5 percent mortgage notes payable to the United Stales of America. All assets are pledged as security for this debt. The notes are for 35 year periods each. The principle and interest installments on these notes have been deferred for five years. The note balance at October 2011 will be $ 4,916,233. Note payments will resume beginning October of The 35 year maturity dates have been extended to reflect this deferral. The notes are scheduled to be fully paid at various times from October 2011 to November The long-term debt payable to RUS is summarized below: Five Percent Notes $ 4,572,097 $ 4,375,447 Less: Current Portion 0 0 Total

11 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cont.) For The Years Ended December 31,2009 and 2008 The maturities of the long-tenn debts through December 31, 2028 due to RUS are as follows: , , , , , ,734, ,540, ,371 (b) The Cooperative has drawn $ 1,694,000 and $ 2,806,000 against an RUS loan guarantee commitment in the amount of S4,500,000 for construction and operation of electric facilities. The rate for these loans are 4.691% and % with principle and interest payment due quarterly in equal installments of $ 25,379 and $ $ 45,116, respectively. The long-term debt payable to RUS on Guaranteed FFB loans is summarized below: % Loan $ 1,577,760 $ 1,604, % Loan 2,676,299 2,718,376 Less: Current Portion (54.302) (68.803) Total S S The maturities of the long-term debts through December 31, 2037 due to RUS are as follows: Period $ , , , , , , , , ,125, ,563

12 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cont.) For The Years Ended December 31, 2009 and 2008 (c) Additional loans have been obtained from the National Bank For Cooperatives at variable interest rates. All assets are pledged as security for this debt. These notes mature in 20 years. The principle and interest are due quarterly in equal installments of approximately $ 59,701. The $ 800,351 line of credit matures on June 30, The long-term debt to the National Bank For Cooperatives is summarized below: Loan Number $ 800,351 $ 2,500,000 LoanNumber , ,920 LoanNumber ,226,456 1,257,141 Less: Current Portion f ( S) Total S $ The maturities of the long-term debt through December 31,2025 due to National Bank For Cooperatives are as follows: Period $ , , , , , , ,518 The maturities through 2025 are estimates that have been provided by the National Bank For Cooperatives. Loan commitment available at 12/31/2009 was $ 1,199,649. (d) Additional loans have been obtained from the National Rural Utilities Cooperative Finance Corporation at variable interest rates. All assets are pledged as security for tliis debt. These notes will amortize over 22 years maturing at 5/15/27. The long-tenn debt to the National Rural Utilities Cooperative Finance Corporation is summarized below: Total CFC Loans $ 4,698,611 $ 5,125,367 Less; Current Portion ( ") (426,756) Total $ $

13 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cent.) For The Years Ended December 31, 2009 and 2008 The maturities of the long-term debt through December 31, 2027 due to National Utilities Cooperative Finance Corporation are as follows: Period S , , , , , ,042, , ,000 Line of credit available at 12/31/09 was $ 5,000,000. Other loan commitment available at 12/31/09 was $ 1,748, PENSION PLAN: Plan I: Pension benefits for substantially all employees are provided through participation in the NRECA Retirement Savings and Security Program, which is a multiemployer cost sharing plan whose report can be foimd on line at NRECA.org. The defined benefits pension plan is at a 2.1% benefit level on the number of years of service. All new employees must be employed for one year before becoming eligible. Pension costs to the Cooperative were $ 320,883 in 2009 and $ 277,216 in The plan is approved by the Internal Revenue Service. Plan II: The Cooperative has made available a 401k plan to its employees. Participants are required to contribute 4 % of their wages. The Cooperative matches that 4 %. Any additional contributions by the employee are not matched by the Cooperative. The Cooperative's matching was $ 63,413 in 2009 and $ 63,697 in INCOME TAX STATUS: More than 85 percent of the income is collected from the Cooperative's members. Exemption from federal income taxes has been obtained, and Internal Revenue Service Form 990 is being filed. 8 - COMPENSATED ABSENCES: The Cooperative does not record a provision for accrued sick pay. Vested vacation time is accrued at current pay rates. The amount accrued at December 31, 2009 and 2008 is $ 140,272 and $ 133,621, respectively. 9 - MAJOR VENDOR: Louisiana Generating LLC is Jefferson Davis Electric Cooperative's major power supplier POST RETIREMENT BENEFITS: In addition to providing pension benefits, the Cooperative provides certain medical and dental insurance benefits for retired employees. Effective January 1, 1995 the Cooperative adopted SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions". Reconciliation of tlie funded status of the Plan and amounts recognized in the Cooperative's Balance Sheet at December 31, 2009 and 2008 follows: 11

14 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE. INC. NOTES TO THE FINANCIAL STATEMENTS (cont.) For The Years Ended December 31, 2009 and 2008 Accumulated Postretirement Benefits Obligation: Retirees and dependents Fully eligible active plan participants Other active plan participants Total Plan assets at fair value Accumulated postretirement benefit obligation in excess of plan assets Unrecognized actuarial gain (loss) 2009^'' 2008^'' $ (2,458,200) $ (2,374,200) (743,200) (682,000) ( ) ( ) $ (4,738,500) $ (4,466,900) 0 0 $ (4,738,500) $ (4,466,900) 2,055,972 2,157,200 Prior service cost not yet recognized in net periodic postretirement benefit cost Unrecognized transition obligation Accrued postretirement benefit cost recognized in the Balance Sheet Rounded to nearest hundred (2,700) 0 (54,300) 0 S ( ) A 5.75% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009 and 2008, respectively; the rate was assumed to decrease gradually per year to 5% by 2018 and remain at that level, thereafter. The weighted-average of the assumed discount rate used in determining the Accumulated Postretirement Benefit Obligation was 5.75%. Recognized cost of postretirement benefits: Post retirement benefit cost for the year ended December 31, 2009 Postretirement benefit cost for the year ended December 31, , , CONCENTRATION OF CREDIT RISK: Deposit Risk: Deposits insured by the FDIC or FSLIC Uninsured uncollateralized deposits , , , ,382 The Cooperative extends credit to their electrical customers who are au located in Southwest Louisiana. Accounts receivable become due within a short period after billing and the Cooperative performs on going reviews of balances. Credit losses consistently have been within management's expectation LABOR UNION: During 1998 a voting unit consisting of linemen, groundsmen and staking coordinator voted to become part of IBEW DEFERRED DEBTS: The following is a summary of the amounts recorded as deferred debits as of December 31, 2009 and 2008: NRECA Dues & Annual Meeting Estimated plant loss due to hurricane Rita ,294, ,112 5,010,425 12

15 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cont.) For The Years Ended December 31,2009 and FAIR VALUE OF FINANCIAL INSTRUMENTS: The following summarizes the caitying amounts and estimated fair value of the Cooperative's financial instruments for which it is practicable to estimate the value as of December 31, 2009 and December 31,2008: December Carrying Fair Amount Value December Carrying Fair Amount Value Cash Other Investments Investments in Capital Term Certificates Long Term Debt $ 454,925 $ 454,925 $ 359,965 $ 359,965 2,374,635 2,374,635 2,637,462 2,637, ,317 14,261, ,317 14,261, ,317 14,647, ,317 14,647,852 Investments in associated organizations consist of investments in nonmarketable securities as disclosed in Note 3 above. It is impracticable to measure the fair value of these investments. The following methods were used to estimate the fair value of the financial instruments included above: Cash and Other Investments The carrying amount is assumed to approximate fair value because of the short maturities of those instruments. Investments in Capital Term Certificates The fair value of the Cooperative's investment in CFCs is based on market prices for tliese or like kind investments. Long-Term Debt The fair value of the Cooperative's long-term debt is estimated using the discounted cash flow method based on the quoted market rates and prices for the same or similar issues of the same maturities OTHER BALANCE SHEET RISK: The Cooperative purchases commercial insurance to reduce the risk of loss due to liability claims and loss due to physical damage to fixed assets should they occur USE OF ESTIMATES: The preparation of Jefferson Davis Electric Cooperative, Inc.'s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates LITIGATION: There is one small legal claim against the Cooperative at December 31,

16 Louisiana 19 Jefferson Davis JEFFERSON DAVIS ELECTRIC COOPERATrVE, INC. NOTES TO THE FINANCIAL STATEMENTS (cont.) For The Years Ended December 31, 2009 and Physical Plant and FEMA Reimbursements Jefferson Davis Electrical Cooperative, Inc. has recorded estimated FEMA reimbursements for funds expended as a result of damages sustained due to hurricane Rita on an accrual basis through December 31,2006. The amounts received were recorded as an aid to construction except for advanced fiinds from the State of Louisiana in the amount of $ 3,206,368 and S 3,260,918, which had not been expended as of December 31,2009 and 2008, were recorded as a liability at that date. 19 Deferred Charges - Plant Loss Due to Storm The physical plant loss due to hurricane Rita has been set up as a deferred charge and is being amortized over a ten year period which began January I,

17 COMPLIANCE INTERNAL CONTROL AND OTHER MATTERS 15

18 Jefferson Davis Electric Cooperative, Inc. Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2009 Federal Grantor / Pass-through Grantor / Program or Cluster Title Federal CFDA Number Pass-through Entity Identifying Number Federal Expenditures U.S. Department of Homeland Security Passsed tlirough the Louisana Governor's Office of Homeland Security Disaster Grants-Public Assistance (Presidentially Declared Disasters) UnayaiIable 2,660,157 Total Expenditures of Federal Awards $ 2,

19 Jefferson Davis Electric Cooperative, Inc. Notes to Schedule of Expenditures of Federal Awards For the Year Ended December 31, Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Jefferson Davis Electric Cooperative and is presented on the accrual basis of accounting in accordance with the "Uniform System of Accounts Prescribed for Electric Borrowers of the Rural Utilities Service" (RUS Bulletin 181-1). The information in this schedule is presented in accordance with the requirements of 0MB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. All information is presented for the same fiscal year ending as the accompanying financial statements. 17

20 RICHARD BULLER CPA SERVICES, LLC CERTIFIED PUBLIC ACCOUNTANTS Richard A. BullerJr, CPA, CPA 345 EAST ACADEMY AVENUE POST OFFICE DRAWER 1429 JENNINGS, LOUISIANA (337) (337) (337) FAX (337) Ronald W. Frederick, CPA Melvin R. Schulthess, CPA Members: American Institute of Certified Public Accountants Louisiana Society of Certified Public Accountants Chartered Financial Analyst Institute INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Jefferson Davis Electric Cooperative We have audited tire financial statements of Jefferson Davis Electric Cooperative (a nonprofit organization) as of and for the year ended December 31, 2009, and have issued our report thereon dated March 12, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered Jefferson Davis Electric Cooperative's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Jefferson Davis Electric Cooperative's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing tlieir assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the organization's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of the organization's financial statements tliat is more than inconsequential will not be prevented or detected by the organization's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the organization's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Jefferson Davis Electric Cooperative's financial statements are fi-ee of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contract, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing am opinion on compliance with those provisions was not an objective of our audit, 18

21 and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, others within the entity, the Board of Directors, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. ^ller C^A Services, LLC.U/t March 12,

22 i h.ard CFA SEiViCES^ I i, er ^-v-t -1^5^ RICHARD BULLER CPA SERVICES, LLC CERTIFIED PUBLIC ACCOUNTANTS Richard A. BullerJr., CPA, CFA 345 EAST ACADEMY AVENUE POST OFFICE DRAWER 1429 JENNINGS, LOUISIANA (337) (337) (337) FAX (337) Ronald W Frederick, CPA Melvin R. Schulthess, CPA Members: American Institute of Certified Public Accountants Louisiana Society of Certified Public Accountants Chartered Financial Analyst Institute INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 To the Board of Directors of Jefferson Davis Electric Cooperative, Inc. Compliance We have audited the compliance of Jefferson Davis Electric Cooperative (a nonprofit organization) with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31, Jefferson Davis Electric Cooperative's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance witli the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Jefferson Davis Electric Cooperative's management. Our responsibility is to express an opinion on Jefferson Davis Electric Cooperative's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan'and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Jefferson Davis Electric Cooperative's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Jefferson Davis Electric Cooperative's compliance with those requirements. In our opinion, Jefferson Davis Electric Cooperative complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended December 31,2009. Internal Control Over Compliance The management of Jefferson Davis Electric Cooperative is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Jefferson Davis Electric Cooperative's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Jefferson Davis Electric Cooperative's internal control over compliance. 20

23 A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal conti'ol that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Jefferson Davis Electric Cooperative's response to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Jefferson Davis Electric Cooperative's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, others within the entity, the Board of Directors, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Richard Buller CPA Services, LLC 21

24 I Jefferson Davis Electric Cooperative, Inc. Financial Statement Audit Schedule of Findings And Questioned Costs For the Y ear Ended December 31, 2009 Section I - Summary of Auditor's Results Financial Statements 1. Type of report issued on financial statements - unqualified opinion on the basic financial statements 2. Significant deficiencies relating to the audit of the financial statements reported? - No 3. Noncompliance material to the financial statements disclosed? - No 4. Was a management letter issued? - No Federal Awards 1. Type of report issued on compliance for major programs - unqualified opinion 2. Significant deficiencies relating to the audit of the major federal award program(s) reported? - No 3. Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-I33?-No 4. The program(s) tested as major included: CFDA No. Cluster Title or Program Name Disaster Grants-Public Assistance (Presidentially Declared Disasters) 5. The dollar threshold used for distinguishing between Type A & B programs was: Did the auditee qualify as a low-risk auditee? Yes Section II - Financial Statement Audit Findings Unresolved Prior-Year Findings None Current-Year Findings None Section III - Material Federal Award Programs Audit Findings And Questioned Costs 22

25 Unresolved Prior-Year Findings Not applicable Current-Year Findings None 23

26 Jefferson Davis Electric Cooperative Management's Corrective Action Plan For Current Year Audit Findings For the Year Ended December 31, 2009 Section I - Financial Statement Findings No findings reported. Section II Federal Award Findings And Questioned Costs No findings reported. Section III - Management Letter Findings No findings reported. This corrective action plan has been prepared by management 24

27 Jefferson Davis Electric Cooperative Management's Status of Prior Year Findings For the Year Ended December 31, 2009 Section I - Financial Statement Findings No findings reported. Section H -Federal Award Findings And Questioned Costs No findings reported. Section in - Management Letter Findings No findings reported. This status of prior-year findings has been prepared by management 25