Harmon Electric Association Inc

“The cooperative was formed by the members to provide electric service at cost on a cooperative basis.”

“The members of the cooperative vote on the board of trustees. Elections are done on a one member one vote basis.”

“The following acts require approval of the members of the cooperative: 1. Dissolution/liquidation of the cooperative 2. Merger or consolidation of the cooperative with another organization 3. Disposal of a substantial portion of the cooperative's assets 4. Amendment to the articles of incorporation 5. Amendment to the bylaws”

“The cooperative has no committees with authority to act on behalf of the governing body. Therefore, and pursuant to form 990 instructions, the question has been answered "no".”

“Management presented a copy of the form 990 to the board for discussion and review prior to filing.”

“The board of trustees use a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries for general managers from similarly situated cooperatives located in oklahoma and the nation. Other than the general manager, the cooperative did not have any employees meeting the definition of officer or key employee. Therefore, and pursuant to form 990 instructions, line 15b has been answered "no".”

“The cooperative provides a summarized copy of the audited financial statements to the members of the cooperative in the annual report. The cooperative will provide a complete copy of the audited financial statements or governing documents to any member who requests a copy.”

“In order to provide retirement benefits to its employees, the cooperative has established a defined contribution plan under section 401(k) of the internal revenue code. Employer contributions to the plan are made pursuant to the plan document. Additionally, the cooperative participates in a multi-employer defined benefit plan. Contributions to this plan are based on the full funding limitation of such plan. Employer contributions for both plans are available to participating employees, including officers and highly compensated employees, meeting the eligibility requirements of such plans. The cooperative also provides health, dental, vision and life insurance to all eligible employees through a qualified plan. The amounts reported on part vii, column (f) for the officers and highly compensated employees is comprised of actuarial increase in the defined benefit plan, the total amount contributed by the cooperative to the defined contribution plan and insurance paid on behalf of and for their benefit.”

“The board of trustees considers the general manager to be both the top management official and the top financial official. Therefore, only the general manager is listed as an employee officer.”

“Patronage dividends result from the purchase of wholesale power from a generation & transmission cooperative. Patronage dividends also result from the payment of interest from cooperative banks and the purchase of supplies and services from other cooperative organizations. The expenses associated with purchases from and payments to such cooperative organizations are a direct component of cost of the electric service provided by the cooperative to its members.”

“In general, when an electric cooperative bases the patronage dividend calculation on its net book income/(loss), page 1, part i, line 19 - revenue less expenses - will be $0. For the current year, page 1, part i, line 19 reports net income of ($39,378), which is the income statement effect of accrued unbilled revenue. The gaap basis financial statements include an accrual for unbilled revenue because the cooperative's billing cycle does not end on the last day of the month. Therefore, it has revenue in december of each year that it has earned but will not bill until the first billing cycle of the following year. The cooperative estimates this revenue and records it as accrued unbilled revenue in order to match the revenue with the year earned. However, the cooperative allocates the revenue to members in the year it is billed rather than when accrued. This timing difference is fair and equitable because it matches the patronage dividend allocated with the billing records used to allocate the margins. Due to the timing of when the cooperative allocates accrued unbilled revenue, page 1, part i, line 19 annually reports net income equal to the net increase in accrued unbilled revenue or a net loss equal to the net decrease in unbilled revenue. The following schedule is provided to further explain the impact of this transaction: page 1, part i, line 19 - change in unbilled revenues $ (39,378) benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 532,532 total 2022 net margin per financial statements $ 493,154”

“The accounting records of the association are maintained in accordance with the uniform system of accounts (usoa) as prescribed by the federal energy regulatory commission for class a and b electric utilities modified for electric borrowers of the rural utilities service. The usoa does not record expenses in the general expense categories provided on part ix lines 1-23. The cooperative separately reports salaries and wages, employee benefits and payroll taxes that are allocated in accordance with their accounting system, but other expenses that are described in lines 1-23 are reported on line 24 under the expense categories required by the usoa.”

“Salaries and wages are allocated to asset, liability, and expense accounts based on the accounting system described above. The following schedule reconciles amounts reported on lines 5-7 to total wages accrued and/or paid: total per lines 5-7 $ 1,253,459 less: trustee fees reported on forms 1099-nec (26,400) less: employee officer benefits included in line 5 (85,791) plus: salaries & wages allocated to nonoperating margins 10,062 plus: salaries and wages capitalized directly to plant 398,759 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 159,249 total wages accrued and/or paid: $ 1,709,338”

“Administrative and general expense is comprised of the following: administrative & general salaries, benefits, & other $ 257,862 office supplies 58,675 outside services employed 66,855 other insurance 1,454 employee benefits 109,707 trustees 59,095 annual meeting 33,481 dues to associated organizations 17,783 miscellaneous general 429,263 maintenance of general plant 10,444 duplicate charges (credit) (99) total admin & general expense per financial statements $ 1,044,520 less: reclass of trustee fees to part ix, line 5 (26,400) less: reclass of labor to part ix, lines 5 & 7 (347,012) less: reclass of benefits to part ix, lines 8-10 (197,832) total admin & general expense per form 990, part ix $ 473,276”

“Other expenses is comprised of the following: consumer expenses $ 92,329 management contract 31,053 sales 20,245 water division operating expenses 107,037 total other expenses per form 990 line 24e $ 250,664”

“Pursuant to the form 990 instructions, the amount of patronage dividends paid to the members (hereinafter referred to as "patrons") should be reported on part ix, line 4. The phrase "patronage dividends paid" refers to the process, subsequent to year-end, by which the cooperative allocates patronage capital to and, therefore, operates at cost with its patrons. The cooperative's tax exempt purpose is to provide electricity to its patrons and to do so on a cooperative basis. Tax law defines "operating on a cooperative basis" as subordination of capital, democratic control, and operation at cost. The cooperative operates at cost through the allocation of true patronage dividends (also referred to as allocations of patronage capital) to its patrons. Patronage dividends are considered paid if the allocation is made (1) pursuant to a pre-existing obligation, (2) from the margins produced from the transactions done with or for patrons, and (3) in a fair and equitable manner on the basis of patronage (i.e. Purchases). Additionally, the allocation of patronage dividends should be made within a reasonable time period after the close of the cooperative's year-end of december 31. Each one of these requirements for a true patronage dividend is provided for in the non-profit operation article of the bylaws. The amount reported on part ix, line 4 represents the amount of patronage capital that is either allocated or to be allocated to the patrons resulting from their purchase of electricity from the cooperative for the 2022 calendar year. Because patronage dividends are the process by which the cooperative operates at cost with its patrons and thereby a key component to accomplishing its exempt purpose, the cooperative has reported such amounts as an expense for form 990 reporting. Patronage dividends are not an expense for financial statements prepared in accordance with gaap, however.”

“All grants, sponsorships, and/or donations are made to non-profit and civic organizations that are located in the cooperative's service area, and are intended to improve the communities in which our members reside. Each grant, sponsorship, and/or donation made during the year was below the reporting threshold of schedule i, part ii.”

“Patronage capital allocated or to be allocated 532,532. Patronage capital retired net change in memberships 75. Rounding adjustment 1.”

“The board as a whole is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor. Procedural changes did not occur during the year.”