Fayette Electric Cooperative 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”

“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 board for discussion and review prior to filing. The discussion and review was performed at the board meeting immediately before the filing of the form 990.”

“The board must annually disclose, sign and attest to any conflict of interests between such board member and the cooperative. The cooperative's bylaws address how a board member would be in conflict if such board member holds a public office for which a salary is paid or is employed by or financially interested in a competing business or enterprise from which the cooperative buys from or sells to.”

“The board of directors use a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries of such positions from texas 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 will provide a complete copy of its governing documents, conflict of interest policy and audited financial statements to any member who requests a copy of any such document. The cooperative provides annually a copy of the audited balance sheet and income statement to the members of the cooperative in the notice of annual meeting mailed to all members and at the annual meeting. Finally, the bylaws are available on the cooperative's website.”

“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 the plan is available to participating employees, including officers and highly compensated employees, meeting the eligibility requirements of such plans. The amounts reported on part vii, column (f) for the officer and highly compensated employee 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 cooperative also provides health, dental, vision and life insurance to all eligible employees through a qualified plan.”

“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 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 electric service provided by the organization 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 $158,534, 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: add: unbilled revenue 12/31/17 $ 834,218 less: unbilled revenue 12/31/16 (675,684) (a) - net income on page 1, part i, line 19 $ 158,534 (b) - benefits paid to members (i.e. Patronage dividends), part i, line 14 $ 2,557,619 total 2017 net margin (a + b) $ 2,716,153”

“The accounting records of the cooperative are maintained in accordance with the uniform system of accounts (usoa) as prescribed by the federal energy regulatory commission for class a and b utilities modified for electric borrowers of the national rural utilities cooperative finance corporation (cfc). 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 $ 2,095,613 less: director fees reported on form 1099-misc (133,552) less: employee officer benefits included in line 5 (80,277) plus: salaries and wages allocated to nonoperating margin 231 plus: salaries and wages capitalized directly to plant 523,094 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 151,352 total wages accrued and/or paid $ 2,556,461”

“Administrative and general expense is comprised of the following: administrative & general $ 581,863 office supplies 189,273 outside services employed 101,478 worker's comp, general liab. & other insurance 11,608 christmas bonus and svc awards (5,173) regulatory commission 53,600 directors 166,237 miscellaneous general 290,895 dues to associated organizations 54,340 maintenance of general plant 129,896 total admin & general exp per financial statements $ 1,574,017 less: reclass of director fees to part ix, line 5 (133,552) less: reclass of labor to part ix, lines 5 & 7 (505,753) less: reclass of benefits to part ix, lines 8-10 (290,253) total admin & general expense per form 990, part ix $ 644,459”

“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 2017 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.”

“During 2017, the cooperative changed its method of revenue recognition to accrue revenue earned, but not yet billed at the end of each period. The cooperative believes that the new revenue recognition method more accurately reflects periodic results of operations and its accrued revenue position at year end.”

“Patronage capital assignable 2,557,619. Patronage capital retired -1,262,674. Net change in membership equities 7,605.”

“The board of directors have assigned members to an audit committee to oversee the annual financial statement audit and to help select the independent auditor who will perform the audit. Procedural changes did not occur during the year.”