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 directors. 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”

“From time to time the entire board will go into executive session for discussing items of a sensitive and confidential nature. When this occurs management and others in attendance are removed from the meeting room. Items discussed in executive session are not documented. However, actions taken by the board after executive sessions are adjourned are fully documented in the written minutes.”

“Management presented a copy of the form 990 to the board for discussion and review at a regularly scheduled board meeting.”

“The board of directors 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. The board and the general manager use a compensation survey when determining the compensation of the cooperative's other employees meeting the definition of officer and key employees, if any. The survey includes salaries from similarly situated cooperatives located in oklahoma and the nation.”

“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 directors 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.”

“The accounting records of the cooperative are maintained in accordance with the rus uniform system of accounts as prescribed for electric borrowers of the rural utilities services (rus). The uniform system of accounts 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 uniform system of accounts.”

“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 $ 1,057,120 less directors fees reported on 1099-misc (20,963) less employee officer benefits included in line 5 (88,008) plus salaries & wages allocated to nonoperating margins 24,744 plus salaries and wages capitalized directly to plant 299,639 plus salaries and wages capitalized/expensed indirectly through clearing and other accounts 239,962 total wages accrued and/or paid: $ 1,512,494”

“Administrative and general expense is comprised of the following: general advertising expense $ 197 office supplies and expense 97,347 outside service employed 116,671 other insurance 1,284 trustee's expense 32,761 annual meeting expense 24,534 dues to associated organizations 11,149 maintenance of general plant 2,074 miscellaneous general expense 202,160 total administrative and general expense per 990 $ 488,177”

“Other expenses is comprised of the following: water division operating expenses $ 101,245 other deductions 57,988 management contract expenses 56,659 sales expense 16,849 total other expenses per form 990 line 24e $ 232,741”

“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 cooperative's 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 2015 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 generally accepted accounting principles, however.”

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

“The cooperative previously included accrued expenses (comprised of (1) accrued payroll and employee compensated absences and (2) accrued liabilities - other.) as components of other liabilities on line 25 of part x. However, for the 2015 calendar year, the cooperative began reporting these amounts on line 17. To increase consistency, accrued expenses in the amount of $205,412 for the 2014 calendar year have been reclassed from line 25 to line 17.”

“The effect of the prior period adjustment based on rus approval to defer net loss on retirement resulted in a $58,033 decrease in prviously reported 2014 margins.”

“Net change in memberships -55. Increase in donated capital 464. Patronage capital assignable 252,897.”

“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.”