Bailey County Electric Cooperative Association

“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. Amendments to the articles of incorporation 2. Disposal of a substantial portion of the cooperative's assets 3. Dissolution/liquidation of the cooperative 4. Merger or consolidation of the cooperative with another organization”

“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.”

“All new employees and directors are required to sign a conflict of interest certification when they begin employment with the cooperative. All employees, directors and officers are required to review and be familiar with the policies outlined in the cooperative's conflict of interest policy and are required to disclose any action or situation that might violate the policy to the full board of directors as soon as possible. The president/ceo regularly monitors and enforces this policy.”

“The board of directors utilize internal resources and conduct an annual review before determining and approving the compensation of the president/ceo. Other than the president/ceo, 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 its financial statements to the members of the cooperative at the annual meeting. A copy of the cooperative bylaws are provided (1) to every new member at the time of their membership and (2) to all members when an admendment is made to the cooperative bylaws. The cooperative will provide a complete copy of the audited financial statements, conflict of interest policy, 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, meeting the eligibility requirements of such plans. The cooperative also provides health and life insurance to all eligible employees, including officers, through a qualified plan. The amounts reported on part vii, column (f) for the officer is comprised of the 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 president/ceo to be both the top management official and the top financial official. Therefore, only the president/ceo 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.”

“Although the company is no longer a rural utilities service (rus) borrower, its accounting records are maintained in accordance with the rus uniform system of accounts (usoa) as prescribed for rus electric borrowers. 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 $ 2,902,207 less: director fees reported on forms 1099-nec (158,950) less: employee officer benefits included in line 5 (80,513) plus: salaries and wages capitalized directly to plant 498,961 plus: salaries and wages capitalized/expensed indirectly through clearing and other accounts 365,611 total wages accrued and/or paid $ 3,527,316”

“Administrative & general expense is comprised of the following: administrative & general salaries, benefits & other $ 826,865 office supplies 132,558 outside services 93,374 directors 211,486 annual meeting 43,867 institutional and goodwill advertising 46,015 member education and youth program 33,032 dues to assoc. Organizations 38,185 miscellaneous general 68,787 regulatory commission 72,985 maintenance of general plant 413,101 total admin & general exp per financial statements $ 1,980,255 less: reclass of director fees to part ix, line 5 (158,950) less: reclass of labor to part ix, lines 5 & 7 (813,773) less: reclass of benefits to part ix, lines 8-10 (427,092) total admin & general expense per form 990, part ix $ 580,440”

“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 calendar tax 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 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 generally accepted accounting principles, however.”

“Other expenses is comprised of the following: transmission $ 50,339 sales expense 2,572 other deductions 1,814 total other expenses per form 990, part ix $ 54,725”

“Patronage capital allocated or to be allocated 974,432. Patronage capital retired -1,359,619. Net change in memberships -60. Net change in other equities -9,123.”

“Audited financial statements were prepared by an independent accountant for the cooperative's financial statement audit year-end of september 30. The tax return has been and continues to be prepared based on a calendar tax year-end of december 31. The board as a whole is responsible for overseeing the financial statement audit and selecting the independent financial statement auditor.”