Karnes 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 elections are held at the cooperative's annual meeting.”

“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 mailed a copy of the form 990 to the board of directors prior to filing. The form 990 was reviewed and discussed by the board at the first board meeting occurring subsequent to the date the form 990 was filed.”

“Each member of the board must complete and file with the board president a disclosure report detailing any possible conflicts of interest. The disclosure report must be completed within 30 days of becoming a board member and then annually thereafter. The disclosure report must be kept current by filing a supplemental report showing any change of personal or business relationship within 30 days after such relationship changes.”

“The board as a whole annually reviews the performance of the general manager and adjusts his annual compensation accordingly. The board also signs a written employment contract with the general manager.”

“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 in the texas cooperative magazine that is mailed to each member, along with the notice of the annual meeting. Finally, the cooperative reviews the financial statements for the members of the cooperative at the annual meeting during the treasurer's report.”

“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 single-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 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 consider 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 organization to its members.”

“The loss reported on part i, line 19 differs from the total net margins reported on the cooperative's audited financial statements due to an adjustment required to conform to the irs form 990 instructions. Equity method income of a subsidiary corporation is recorded on the cooperative's books and included in total net margins per accounting principles generally accepted in the u.s. Equity method income is not income, however, for irs form 990 purposes and as such has been reported as an other change in net assets.”

“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 $ 3,356,825 less directors fees reported on 1099-misc (144,058) less employer officer benefits included in line 5 (71,106) plus salaries and wages capitalized directly to plant 2,011,831 plus salaries and wages capitalized/expensed indirectly through clearing and other accounts 315,979 total wages accrued and/or paid $ 5,469,471”

“Administrative and general expense is comprised of the following: office and supplies $ 203,534 outside services 288,567 workmen's comp, general liability and other insurance 172,858 regulatory expense 19,567 director expenses 13,157 advertising 21,649 dues to associated organizations 61,041 annual meeting 46,463 managers expenses 20,837 maintenance of general plant 156,491 total administrative and general expense per 990 $ 1,004,164”

“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 2016 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, sponsorship and/or donation made during the year was below the individual reporting thresholds of schedule i, part ii.”

“Patronage capital assignable 16,429,847. Patronage capital retired - total -1,504,592. Patronage capital retired - discount 1,639. Net change in memberships -3,255. Other comprehensive income - minimum pension liability change -2,116,472. Equity method income from susidiary corporation 198,949.”