Lamar County Electric Cooperative Association

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

“Election of the governing body - the members of the cooperative vote to elect the board of directors. Elections are held on a one member one vote basis.”

“Decisions reserved for members - the following decisions 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.”

“Review of form 990 - management presented a copy of the form 990 to the board of directors for review prior to filing.”

“Conflict of interest policy - officers, directors, and all cooperative employees are required to review and be familiar with the cooperative's conflict of interest policies. Officers, directors, and all employees are required to disclose any action or situation which might violate the policy to their supervisor, the general manager, or the full board of directors as soon as possible. Additionally, the officers and directors review annually the duties and standards of conduct, including conflict of interest, in the presence of the cooperative's legal counsel and discuss any personal liability implications resulting from violations.”

“Whistleblower policy - the cooperative has a policy in place for handling complaints by employees about policies, accounting, internal accounting controls, auditing matters, or illegal or unetihcal conduct by other lamar electric employees or directors. The policy provides for protection against disciplinary or retaliatory action for such reporting when the employee reasonably believes conduct constitutes illegal or unethical behavior.”

“Document retention and destruction - the cooperative does not have a formal written document retention and destruction policy in place, but it does follow a set of guidelines regarding document retention and destruction.”

“Comparability of compensation - the board of directors uses a compensation survey when determining the compensation of the general manager. The survey shows comparative salaries for general managers from cooperatives located in texas 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 employee, if any. The survey includes salaries from similar cooperatives throughout texas and the nation. The cooperative obtains an updated survey each year.”

“Public availability of documents - the cooperative provides a summarized copy of the financial statements to the members of the cooperative at the annual membership meeting. 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.”

“General manager's responsibilities - 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. Column (f) - estimated other compensation from the organization - 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. As part of the plan document, the cooperative provides a matching contribution up to 4% of a participating employee's salary if the employee contributes 3%. Employees are fully vested in the 401(k) plan beginning the day they become eligible to participate. Additonally, the cooperative participates in a multi-employer defined benefit plan. Contributions to the plan are based on the full funding limitations of such plans. Employees are vested in the plan based on years of service and become fully vested at five years. Employer contributions for both plans are available to employees, including officers, meeting the eligibility requirements of such plans. The cooperative also provides health and life insurance to all employees, including officers, through a qualified plan. The amount reported in part vii, column (f) are comprised of the actuarial increase in the defined benefit plan for the individual, the total amount contributed to the 401(k) pension plan, and the insurance premiums paid for the benefit of the individual. In addition to the above pension plans, the cooperative also provides post-retirement health insurance benefits through an unfunded welfare plan. The value of these benefits has not been included in part vii of the form 990.”

“Patronage dividends - partonage dividends revenues result from the payment of interest from cooperative banks and from 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 the cost of electric service provided by the organization to its members.”

“Benefits paid to members - the cooperative has a pre-existing obligation to allocate, and does allocate, patronage dividends to its members for each year. The amount of patronage dividends paid and/or allocated to the cooperative's members for the calendar year 2022 is $928,208.”

“Accounting system - the accounting records of the cooperative are maintained in accordance with generally accepted accounting principles (us gaap) adapted in accordance with the uniform system of accounts as prescribed by the federal energy regulatory commission for class a and b electric utilities modified for electric borrowers of the national rural utilities cooperative finance corporation (cfc). The uniform system of accounts does not record expenses in the general expense categories provided on part ix lines 1-23. The cooperative will break out salaries and wages, employee benefits and payroll taxes which are allocated in accordance with their accounting system, but other expenses described in lines 1-23 will be reported on line 24 under the expense categories required by the uniform system of accounts.”

“Grants and other assistance to individuals in the us - the cooperative operates a scholarship program which is funded by unclaimed property in accordance with texas property code section 74.3013. The cooperative records the scholarship fund balance and expenses on the balance sheet as deferred credits in accordance with generally accepted accounting principles (us gaap). Scholarship payments are an expense for form 990 reporting. For 2022, scholarship payments of $5,000 are reported on part ix, line 2.”

“Benefits paid to members - the form 990 instructions indicate partonage dividends paid to members 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 members. The cooperative's tax-exempt purpose is to provide electricity to its members on a cooperative basis. Tax law defines "operating on a cooperative basis" as subordination of capital, democratic control, and operating at cost. The cooperative operates at cost through the allocation of true patronage dividends (also referred to as allocation of patronage capital) to its members. 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 the members, and (3) in order to induce patronage and insure the coopertive will operate on a non-profit basis. The cooperative is obligated to account on a patronage basis to all of its members for all amounts received and receivable from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against such services (i.e. Margins from the provision of electric energy); (b) the margins from the provision of electric energy are received on the understanding they are furnished by the members as capital; (c) the cooperative is obligated to pay by credits to a capital account for each member for all such margins; and (d) such amount credited to the capital account of any member shall have the same status as though they had been paid to the member in cash in pursuance of a legal obligation to do so and the member had then furnished to the cooperative corresponding amounts of capital. The amount reported on part ix, line 4 represents the amount of patronage capital either allocated or to be allocated to the members resulting from their purchase of electricity from the cooperative for the 2022 calendar year. As noted above, such amounts are allocated subsequent to year-end in a fair and equitable manner on the basis of patronage (i.e. Purchases). The amounts allocated are representative of the margins from the provision of electric energy to the members and are done pursuant to the obligation which existed in the bylaws prior to the cooperative providing electricity to its members; therefore, these amounts meet the definition of patronage dividends paid. Please note, however, because patronage dividends is the process by which the cooperative operates at cost with its members and thereby a key component of accomplishing its tax-exempt purpose, the cooperative has reported the amount of its 2022 margin which has been or is to be allocated to the members subsequent to year-end. Such amounts are an expense for form 990 reporting and are not an expense for financial statements prepared in accordance with generally accepted accounting principles (us gaap). As a result, the difference between the cooperative's us gaap basis financial statements and the revenue less expenses reported on part 1, line 19 includes the amount of patronage dividends reported as benefits paid to members.”

“Reconciliation of wages to form w-3 - salaries and wages are allocated to asset, liability and expense accounts based on the cooperative's accounting system as described above (see form 990, part ix, line 1 note). In an effort to explain why the amounts reported on lines 5-7 do not agree with the form w-3, the following reconciliation is provided: total per lines 5-7 $ 2,446,285, plus capitalized labor in line 5 $149,248, less directors fees reported on form 1099-misc $ 36,300, less adjustment of benefits on part vii, section a, column f to actual cost $402,355, plus salaries and wages allocated to asset accounts $919,871, less pretax benefits $59,815, plus taxable benefits $27,800= $3,044,734 from form w-3 box 5.”

“Breakdown of expenses included in administrative and general - the following is a breakdown of the expenses reported as administrative and general expense on form 990, part ix, lines 24a-24d: office supplies and expense $169,194; outside services employed $93,502; directors' expense $ 5,127; associated dues $ 46,449; utility commission related expense $ 46,090; maintenance of general plant $142,397; miscellaneous general expense $158,765. Total administrative and general expense per form 990 = $ 661,524.”

“Other changes in net assets - patronage capital assignable $ 928,208; less patronage capital retired $712,907; unclaimed/abandoned capital credits $243,979; increase in memberships $ 6,015; change in other comprehensive income/provision for pension benefits $51,804; deferred credits for scholarships/scholarships awarded and paid $5,000 = $ 522,099. Patronage capital assignable - audited financial statements are prepared in accordance with generally accepted accounting principles (us gaap) adapted in accordance with the uniform system of accounts as prescribed by the federal energy regulatory commission for class a and b electric utilities modified for electric borrowers of the national rural utilities cooperative finance corporation (cfc). The amount of patronage dividends paid or allocated to the members is reported as an increase in equity on the audited financial statements while it is reported as expense on the form 990, part ix, line 4. Scholarships paid/awarded - the amount of scholarships paid/awarded is reported as a decrease in other deferred credits on the audited financial statements while it is reported as expense on the form 990, part ix, line 2.”

“Audited financial statements - the board of directors appoints an independent certified public accountant to make a full and complete audit of the accounts, books, and financial condition of the cooperative at the end of each fiscal year. The audit firm presents a report of the audit findings to the full board of directors. The cooperative also provides a summarized copy of the financial statements to the members of the cooperative at the annual membership meeting.”