20161013AVU to Staff 4 Attachment C.pdf

Internal Audit Department
Audit Report

TO: Bruce Folsom, Pat Lynch

CC: Jason Thackston, Dennis Vermillion, Karen Feltes, Scott Morris, Tracy Van Orden

FROM: Lauren Pendergraft

DATE: April 3, 2014

SUBJECT: Wild Rose Review and Demand Side Management Follow-up

Background and Purpose
The Demand Side Management (DSM) group is made up by two teams – the Policy, Planning,
and Analysis (PPA) team and the Implementation team. From an organizational perspective, the
teams report to different directors and executives; but are collectively referred to as the DSM
group. There have been organizational issues between the two groups as the roles,
responsibilities, purpose, and authority of each team are not understood and implemented by all.

In 2013, the PPA team became aware of the Implementation team’s activities associated with the
Wild Rose Church and evaluated the prudency of the time and expenses associated with this
project. The PPA team’s review resulted in a $22K adjustment to move the associated time and
expense below the line. The review of the Wild Rose activities was not conducted in a
transparent manner and was not communicated to Implementation team management in a timely
manner.

The purpose of this review was for Internal Audit to provide an independent assessment of the
Wild Rose activities. Additionally, Internal Audit performed other procedures over DSM
including detail testing of the Top Sheet process, a review of the installation verification dates of
completed projects in 2014, and a review of third-party reports issued about DSM since July
2013.

Scope and Procedures
The following scope and procedures were performed during this review:
1. Wild Rose: Inquired of PPA and Implementation team employees in order to understand
the nature of the Wild Rose Church activities and calculate any necessary adjustments.
2. Top Sheets: The Top Sheet process was implemented in July 2013 to ensure compliance
with policy, procedures, and documentation in site-specific projects. Internal Audit
Staff_PR_04 Attachment C Page 1 of 4

tested a sample of 25 site specific projects for the existence of Top Sheets. Projects were
randomly selected from the population of all site-specific projects with a contract start
date and payment date after July 2013.
3. Installation Verification: Reviewed all completed projects in 2014 within SalesLogix to
determine installation verification rates in both prescriptive and site-specific projects.
4. Third-party Reports: Reviewed third-party reports issued since July 2013 including the
Cadmus 2012 Process Evaluation memo and Idaho Staff Prudency Review Comments
(Case No. AVU-E-13-09 and AVU-G-13-02).

Observations and Recommendations
The following observations and recommendations were made based on the different procedures
performed:
1. Wild Rose: The activity associated with Wild Rose appeared to be more than incidental
and on a recurring basis. As such, an adjustment to move the direct labor hours below
the line is appropriate given Avista’s Regulatory Accounting Guidelines related to
community involvement activities. A range of possible adjustments calculated by
Internal Audit are below:

Direct labor (total hours worked
on project) $ 20,944.59
Net Impact (direct labor less
additional "make-up" hours
worked (ie. weekends, after-
hours,etc.))
$ 12,279.63
Net Impact less 8 hours of team
building $ 7,235.89

The calculations above are loaded at October’s total payroll loading rates of 100.25%.
The actual adjustment made for labor was $21,485.60, but was only loaded at the payroll
benefits rate of 63.5% (had it been loaded at the 100.25% it would have resulted in an
adjustment of $26,314). A $167.88 adjustment for expenses was also made; however,
Internal Audit did not find any needed adjustments for expenses associated with Wild
Rose.

The adjustments made for Wild Rose were conservative and more than covered all of
Internal Audit’s adjustment estimates.

Recommendation: The employee or manager of employees responsible for the initial
charges of time and expense should be included in the evaluation and calculation of any
needed adjustments to ensure the accuracy of adjustments.

Management Response:
Director of PPA Team response: I agree with the recommendation as written. The "in a
transparent manner" (as described in the "Background and Purpose") would benefit from
providing or establishing a policy in this regard.

Staff_PR_04 Attachment C Page 2 of 4

Director of Implementation Team response: I agree with how the issue has been
presented and with the observations and recommendations.

2. Top Sheets: Out of a sample of 25 projects (75 top sheets total as each project should
have a Technical Review Top Sheet, Energy Efficiency Agreement Top Sheet, and an
Incentive Payment Top Sheet), 5 top sheets were missing or unable to be found.
Additionally, 1 other project was missing a Technical Review Top Sheet as the
engineering review was performed by an outside engineering firm. Based on inquiry of
DSM employees, it is unclear if there is a policy that requires Technical Review Top
Sheets for outside engineering analyses. All other Top Sheets were completed and saved
as attachments in SalesLogix.

There is evidence to suggest Top Sheets are implemented and being used on a consistent
basis. The timing and nature of the exceptions are reasonable given the recent
implementation of the Top Sheet process.

Recommendation: Perform an internal review in the next 6 months to test both the
effectiveness and existence of Top Sheets (as Internal Audit’s review was limited only to
existence). Establish, communicate, and document the policy requiring Top sheets for
outside engineering evaluations for site-specific projects. Additionally, remind DSM
engineers that Technical Top Sheets are required for revised engineering evaluations.

Management Response:
We agree with the recommendations as written. The two areas noted could use clearer
guidelines. Any exceptions to current or revised policies should be communicated prior
to implementing those exceptions.

3. Installation Verification (IV): Based on Internal Audit’s review of all projects
completed in 2014 within SalesLogix, the following IV rates in both prescriptive and site-
specific projects were calculated:

Number of
projects
completed
Number of projects
w/ IV date in Sales
Logix IV rate
Site specific 56 54* 96%*
Prescriptive 276 32 12%
*The IV did occur for the two projects missing the IV date in SalesLogix. The account executive has since
updated SalesLogix and input the IV date. The IV rate is now 100% for site specific projects within
SalesLogix.

The IV rate for site-specific projects in 2014 is considerable improvement from the 2012
rate of 66% presented in the 2012 Process Evaluation Memo by Cadmus. Based on
discussion with DSM employees, it is unclear what the policy or established goal of the
IV rate is for prescriptive programs.
Staff_PR_04 Attachment C Page 3 of 4

Recommendation: Develop and document the policy or established goal for an IV rate
for prescriptive programs. Consider developing a specific goal for each prescriptive
program and include that information in the program plans.

Management Response:
We agree with the recommendations as written.

4. Third-party Reports: Internal Audit reviewed both the 2012 Process Evaluation Memo
performed by Cadmus issued on August 2, 2013 and the Idaho Staff Prudency Review
Comments issued on March 6, 2014. Both reports contained observations, areas of
concern, and recommendations. There is not a centralized document utilized by both the
PPA and Implementation team addressing Avista’s response to report findings or
recommendations.

Recommendation: Develop and implement a DSM “Issues Tracker” to document and
track all internal and external report’s findings and recommendations in a centralized
location. The Issues Tracker should list the findings and recommendations, document
Avista’s response to the finding or recommendation, and provide an update on the status
of the remediation efforts of the finding. The Issues Tracker should be owned by both
the PPA and Implementation team and clearly document the responsibility for addressing
the item. On a recurring basis (quarterly, semi-annual etc.) the Issues Tracker should be
presented to a third party, like Internal Audit, to ensure findings and recommendations
are being addressed.

Management Response:
We agree with the recommendations as written.

Staff_PR_04 Attachment C Page 4 of 4
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