20161013AVU to Staff 4 Attachment A.pdf

Staff_PR_04 Attachment A Page 1 of 9
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DATE:
TO:
FROM:
SUBJECT:
Corp.
Internal Audit Report
September 24, 2009
Scott Morris, Roger Woodworth, Dennis Vermillion,
Pat Lynch, Bruce Folsom
Teresa Cru.ter
Demand Side Management Audit
Internal Auditing recently completed an audit of our Demand Side Management (DSM)
programs. This report summarizes our findings and recommendations for improvements
to existing practices.
Our objectives were to:
• Evaluate the prudency of DSM expenditures and whether they were in
compliance with tariff riders and with specific program guidelines.
• Verify that energy savings calculations, both pre-project and post-project, are
performed consistently.
• Verify that charges to DSM account codes are only for DSM-related projects.
• Determine whether incentive/rebate payments to customers are appropriate and
internal controls over such payments are adequate.
Our audit work covered DSM programs in effect from January 1, 2008 and through May
31, 2009. For expenditure testing, we selected all 32 accounts payable ("A/P")
transactions over $100,000 (totaling $5,082,851) and a statistical sample of 83
transactions (totaling $115,190) under that amount.
Summary Conclusion
Internal controls over DSM expenditures adequately minimize the risk of errors or
irregularities. We found programs to be in compliance with tariff requirements and
incentive rebates to be in compliance with specific program requirements.
With the large volume of site-specific and prescriptive commercial/industrial projects and
residential customer rebate requests, we were impressed that few errors were found
during our audit. Good work DSM team!
While no significant errors were found, the following pages of this report discuss a few
minor errors and improvement opportunities for management's consideration.
Staff_PR_04 Attachment A Page 2 of 9
1. Accounting Errors
Avista Utilities Internal Audit Report
Demand Side Management -2009
Our review of invoices over $100,000 revealed two natural gas-related expenditures
totaling $69,685 that were incorrectly charged to electric project codes.
We also found, in our sample of 83 invoices under $100,000, that one Washington
customer incentive payout was charged to an Idaho project code. While the amount of
this error was small ($1,475), extrapolating the error to the entire population of invoices
under $100,000 indicates that approximately $294,000 in coding errors could have
occurred in the population. Those potential errors would likely have been made in both
directions, resulting in some netting of errors.
Recommendation
DSM accounting records should be corrected to reflect correct kWh 's, therms and dollar
amounts for the transaction in error. In addition, the SalesLogix administrator should
consider creating a query in the program to search for project site states that do not match
up with accounting project state, and should make any corrections as necessary.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. The noted accounting corrections will be made and the SalesLogix administrator
will create a "cross-linked" query to detect future jurisdictional account coding errors.
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Staff_PR_04 Attachment A Page 3 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
2. Allocation of Common Costs Between Jurisdictions
Certain DSM expenses affect multiple jurisdictions. Because of this, special project
numbers have been set up. They are:
Project #09803400 for WA and ID common electric projects
Project #09803401 for WA and ID common gas projects
In 2008 and years prior, Energy Solutions used a manual 70/30 split CW A/ID) for
integrated resource planning purposes. Each year, DSM staff would look retrospectively
at incentive payouts to see if the 70/30 split was accurate. According to DSM staff the
actual incentives were always within a percentage point or two from the estimate.
For 2009, our Rates & Tariffs department determined that DSM costs common to
Washington and Idaho should be split based on the Production/Transmission Ratio (for
electric projects) and on the System Contract Demand Ratio (for gas projects). The
Production/Transmission Ratio is based on load and on capacity used. The System
Contract Demand Ratio is based on peak gas demand.
The Production!fransmission Ratio is 65.788% to Washington and 34.212% to Idaho.
The System Contract Demand Ratio is 70.93% to Washington and 29.07% to Idaho.
When DSM employees code costs to the 0980340X projects, the correct allocations are
made in the accounting system.
All of the 2009 transactions we tested were correctly coded using the 0980340X project
codes. However, we believe errors could occur since we spoke with DSM team members
who were unaware of the 2009 change in allocation percentages, and could potentially
use the manual 70/30 split.
Recommendation
2009, and future, allocation percentages should be communicated to all DSM employees.
Employees should be instructed to use these allocation percentages when manually
splitting expenses between jurisdictions.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. DSM employees will be reminded to use the automatically allocated project
numbers as appropriate.
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Staff_PR_04 Attachment A Page 4 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
3. Service Provider Contracts
A vista contracts with certain third party vendors to administer some of our DSM
programs. Examples are our contracts with Portland Energy Conservation. Inc. (PECI)
and with UCONS, LLC.
The PECI-administered AirCare Plus program, now completed, required PECI to manage
and process customer incentive payments on A vista• s behalf. PECI sent us detailed
spreadsheets showing incentives paid for each month; DSM staff compared incentives
paid per the spreadsheets to those invoiced by PECI, and then paid the invoiced amount.
Without periodically validating incentive payouts, third party program administrators
could invoice A vista for incentives not paid, or could have spreadsheet errors that
continue undetected. Unscrupulous HV AC contractors could likewise create fictitious
customer invoices to receive unearned incentive payments.
Recommendation
We do not believe there is a significant risk of errors or irregularities with our current
service provider-administered programs. However, DSM staff should ensure that
incentive payouts by all current and future vendors are periodically validated. This could
be done by spot-checking a few from each program administrator invoice. or by selecting
a larger sample from invoices each quarter or each year.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. DSM staff considers the type of verification standards required for third party
service provider contracts. DSM staff anticipates potential problems early in its vendor
selection process. Generally, the DSM staff seeks vendors with significant experience
and proven reputation. Due diligence is performed prior to contract finalization and the
resulting agreement provides for quality assurance in verification and reporting. For
those that would benefit, the assigned DSM program manager will develop and document
testing procedures.
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Staff_PR_04 Attachment A Page 5 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
4. Site-Specific Verification Procedures
Under our commercial and industrial energy savings programs (both site-specific and
prescriptive), DSM technical leads or account executives calculate estimated energy
savings, project costs and potential incentive payouts. This is generally done using the
Dual-Fuel Incentive Calculator ("DFIC") with inputs from customers, contractors and/or
A vista field visits. When a project has been completed, calculations are re-run in the
DFIC based on actual costs, actual energy savings, and resulting changes in payback
periods. Incentive payments are then issued based on those final calculations.
When a DSM employee prepares both the initial and final DFIC calculations, there is
potential for clerical errors or for deception. The site-specific program managers (and, in
most cases, the assigned Account Executive) looks at each project from a reasonableness
basis but may not discover irregularities.
No errors were found, but a formal control procedure would reduce the risk that errors or
irregularities are carried through undetected from initial to final incentive calculations.
Recommendation
Implement a policy requiring all commercial and industrial incentive payout final
calculations to be reviewed by a knowledgeable employee other than the one performing
the initial calculations.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. A policy will be formalized establishing a second-person final payout validation
for commercial and industrial projects.
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Staff_PR_04 Attachment A Page 6 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
5. Customer Service Opportunity
During our testing, we noted that a customer (Avista account #1709425) applied for and
received an incentive rebate in January 2009 for a high efficiency natural gas furnace.
That customer failed to also request an allowed $100 rebate for a variable speed motor
which was specifically Listed on the customer's sales invoice.
We understand that it would be time-consuming for DSM employees to ensure that all
qualifying rebates are paid. We also understand that it is A vista's policy to notto grant
rebates after 90 days of project completion, and this project was completed in December.
However, since this unclaimed rebate has come to our attention, we believe that the
customer would appreciate it if A vista would grant an exception to policy and issue the
variable speed motor rebate.
Recommendation
Consider issuing our customer a variable speed motor rebate of $100.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. DSM staff will issue the customer rebate and will do so in the future when
discovered during rebate processing procedure.
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Staff_PR_04 Attachment A Page 7 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
6. Incentive Rebates Paid for Incorrect Amounts
Window incentive rebates are paid based on window square footage. A vista requires that
window square footage, or at least window sizes, be listed on vendor invoices submitted
for rebates.
Our tested sample of rebate payments included two window rebates that were incorrectly
calculated. In both cases, A vista paid the window rebate based on the square footage the
customer wrote on the rebate request form. On one of the rebates we overpaid a
customer $30 and on the other we overpaid $144.
Recommendation
DSM employees responsible for validating incentive rebate requests should be reminded
to recalculate window square footage before approving rebate payments.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. Employees will be reminded of the importance of calculating correct rebate
amounts. Further, we will put on the rebate form a "how to calculate window square
footage" so that customers can better understand and properly present their rebate
request. This, in turn, will allow a new internal control to be established to be responsive
to the recommendation above.
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Staff_PR_04 Attachment A Page 8 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
7. Incentive Payments Based on Vendor Bids/Proposals
DSM policy requires customers to submit vendor invoices to substantiate residential
customer incentive requests. This proves that the customer actually had the work done,
and it allows DSM staff to verify that the appliance purchased does qualify for a rebate.
Occasionally a customer will submit a vendor's proposal sheet instead of an actual
invoice. The reason may be that the vendor does not issue a final invoice, preferring to
have their customer simply pay off the original proposal sheet.
Without a vendor invoice, A vista cannot be sure that the customer purchased the
appliance.
Recommendation
If a customer does not have a vendor invoice to prove they purchased a qualifying
appliance, DSM staff should use alternative procedures to verify the purchase. A phone
call to the vendor would be one method of verification. If an alternative method is used,
DSM staff should note so in the documentation filed for the payment request.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. This is the current policy and the DSM staff performs alternative verification
procedures on rebate requests that are not accompanied by a vendor invoice.
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Staff_PR_04 Attachment A Page 9 of 9
Avista Utilities Internal Audit Report
Demand Side Management -2009
8. CSS Security Access for Oregon Residential Rebates
Oregon residential customer rebates are entered into the Customer Service System (CSS)
by one of two designated Oregon employees. Periodically, a report is run from CSS and
faxed to A/P for rebate check issuances.
That periodic CSS report is not signed by a DSM employee as authorization for payment.
Therefore, the customer rebates paid from the report are not proper I y authorized
according to Company policy. An employee other than those who enter the rebates into
CSS should review the CSS report for reasonableness and sign as authorized before
submitting it to A/P for payment.
Also, we found that four employees other than the two designated rebate entry employees
have security access to enter rebates into CSS. We believe this is not necessary and
could pose the risk that unauthorized rebates could be entered for payment. No incorrect
rebates were identified during our audit.
Recommendation
Only the two employees designated for rebate entry into CSS should have the ability to
make those entries. All others should have their access removed.
CSS reports should be reviewed for reasonableness by a separate DSM employee. That
employee should then sign the report authorizing the rebate payments and submit the
report to A/P.
Management Response: Bruce Folsom, Manager Demand Side Management
Agreed. IT will be notified of the security access changes and DSM will designate
someone other than the CSS rebate entry designees to review and authorize rebate
payments.
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