Jones: MWD audit raises legitimate questions

Pike County Judge-Executive Ray Jones speaks during Tuesday’s meeting of the Pike Fiscal Court. Jones addressed concerns he has and findings he has made regarding Mountain Water District’s audit of its 2018 finances.

During Tuesday’s regular meeting of the Pike County Fiscal Court, Judge-Executive Ray Jones aired his concerns and revealed findings regarding the 2018 audit for the Mountain Water District.

“I’ve had the opportunity to look at a couple of the audits for the Mountain Water District,” Jones said. “And, first and foremost, the one thing that struck me is the fact that, in the 2018 audit, revenues continue to decline for the district.”

According to Jones, the audit reports the district saw a 1 percent loss in customers, which helped lead to a loss of revenue of more than $150,000.

Jones said there has been a lot of controversy regarding Utility Management Group’s management and operations contract with MWD. According to Jones, while under contract with UMG, all district employees participated in a 401k retirement system. However, Jones said, when the MWD board voted to take back day-to-day operations from UMG they also elected to change the district’s retirement system.

“They made a decision to go from a 401k system to put the employees back into the county employee retirement system,” Jones said. “And that was done at a time when the condition of the county employee retirement system was getting worse year by year.”

According to Jones, the unfunded liability was continuing to increase and “a lot” of quasi governmental entities were wanting out of the state pension system.

“At the time the decision was made to put UMG’s former employees back into the pension system, there were about 11 employees that had time in the state retirement system and another 40 plus that did not,” he said.

Jones said that, for the year ending in Dec. 21 2018, the district had pension expenses of more than $1.7 million. He added that he doesn’t believe that is money “out-of-pocket”

According to Jones, by looking at the wages paid in 2018 and multiplying that by the pension contribution for the 2019-20 fiscal year (24.06), the number equates to more than $550,000.

“There’s a legitimate question as to why the MWD board voted to put these employees back into a pension system, at a time when the district had inadequate cash reserves to address their line loss, as well as replacing aging infrastructure. And now because they’re back into the system, the cost to get those employees back out of the system would be millions of dollars,” Jones said.

Jones said he’s had two different accountants review the district’s 2018 audit, but neither of them are able to explain to him accurately the methodology that was used. However, he said the retirement expenses for 2017, which are more than $230,000, jump all the way to over $1.9 million for 2018. That, Jones said, is not “an actual out-of-pocket” number, but a contingent liability.

“In reality, if they would have made the decision to keep these employees in a 401k retirement system, which is what they were all in, except for the Super Intendant of the district,” Jones said. “This district would not have been looking at between $4 million and $6 million in liabilities.”

That money, Jones said, could have been used to prop up the infrastructure, replace the infrastructure and the lines that are resulting in a 32 percent loss. Instead he said the district has taken on millions in pension liability only to benefit a very small number of employees.

Jones said it’s important to keep in mind HB 362, which was passed in 2018 session, allows for the state pension rate to go up 12 percent per year. He added that Pike County Treasurer Frankie Stacy said he may cap out at 30 percent. According to Jones, he doesn’t recall a cap but there may, “very well could be.”

“Between prior period adjustments, their change in accounting standards and deferred inflows and outflows, to get a solid number of what you can actually say is their pension liability for that year is kind of murky,” Stacy said.

He added that he only recently got to review the audit and that he will continue to look at it and will hopefully be able to “digest it” a little bit better.

Jones said the audit merits a “more in-depth look” and added that hopefully Stacy can sit down with recently appointed board member Johnny Denison, who is also a CPA, to help better understand it. He even alluded to the possibility of Richard Paulman, the CPA who ran the audit report, paying the court visit to better explain his methodology.

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