Auditors give Concord Municipal Light Plant clean opinion but flag material weakness in cash reconciliations

Auditors presented a clean, unmodified opinion on the Concord Municipal Light Plant's (CMLP) 2024 financial statements but warned that controls over cash reconciliations broke down during the year, creating an unreconciled variance management estimated at about $170,000. Scott McIntyre, the auditor presenting to the Financial Audit Advisory Committee on Feb. 26, said the variance arose because the town holds pooled cash and the CMLP’s standalone ledger did not always reconcile with the town general ledger and bank reconciliations throughout calendar 2024.

The audit shows the light plant in generally strong financial shape: auditors reported an unrestricted net position of about $7,700,000 as of the year end, an increase of roughly $600,000 from the prior year, and a total net-position increase near $3,100,000. McIntyre emphasized the statement of cash flows as the key metric for enterprise funds and said that, for calendar 2024, net cash provided by operations covered debt service, the town payment-in-lieu-of-taxes and capital costs.

But the auditors also issued a management letter noting a material weakness tied to cash reconciliations. McIntyre explained that the reconciliations failed to keep the CMLP ledger, the town’s general ledger and the cash book aligned on a timely basis — a control ‘‘triangle’’ that auditors expect to be reconciled regularly. That lapse, together with turnover in the CMLP finance staff, led auditors to classify the issue as a material weakness for the year.

Jason Belcher, introduced in the meeting as director of the light plant, described management’s response. He said staff engaged an external contractor referenced in the meeting as "CLA" to perform month-by-month reconciliations going back to January 2023 and through April 2024; the contractor has completed work through April 2024 and will map remaining variances and propose adjusting journal entries. Belcher said the variance could shrink as items are posted and explained that some differences reflect timing and posting to different town accounts rather than missing cash.

Committee members and staff discussed technical causes. The town posts aggregated cash receipts on its side while the CMLP ledger records many individual bills; differences in systems (NISC for utility billing versus Munis for town accounting) make one-to-many matching more complex. Belcher said the town has committed to a routine 45-day monthly cash reconciliation cycle that should reduce future discrepancies and that staffing stabilization is expected to help sustain reconciliations going forward.

The auditors also reviewed pension and OPEB information. McIntyre said the Concord contributory retirement system is roughly 90% funded using a 6.5% discount rate and the OPEB plan (including CMLP participation) is about 68% funded using a 7% discount rate, with actuarial projections showing full funding by 2039. He flagged upcoming accounting changes — GASB 101 and GASB 103 — and said GASB 101 (compensated absences) may materially affect non-school departments' liabilities in fiscal 2025.

Committee members asked about regulatory filings and rate oversight. Staff clarified that municipal light plants set their own rates locally and file financial information with the state Department of Public Utilities (DPU) for transparency; the DPU uses a return-on-net-assets metric (an 8% reference) in its reviews, and CMLP remained within the applicable thresholds in the audit period.

Belcher also explained why the utility selected a new audit firm after timing and staffing problems with the prior auditor delayed recent audits. The newly engaged auditor completed inventory work in January and plans site visits and other procedures on a schedule intended to restore timeliness in future years.

Next steps included finishing the contractor reconciliation, issuing any required adjusting entries, implementing routine 45-day reconciliations with town staff, and scheduling a follow-up audit-committee meeting to review progress. The committee discussed possible meeting dates and adjourned after confirming follow-up items.

"After following all those standards and completing our test work, our opinion on your financial statements is what is known as an unmodified or clean opinion," McIntyre said during the presentation. "The starting point was a variance of about $170,000," Belcher added about the unreconciled difference the contractor is tracing.