Cleaning Utility Balance Sheets Deloitte

8/3/2019 Cleaning Utility Balance Sheets Deloitte

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Theme 1 Cities and Water: Solutions for Efficienc

Cleaning Utility Balance Sheets:



Mechanics of Balance Sheet Cleanu

Prepare

Collect“ ”

AnalyseBalance Sheet

Finalise



Pre are

• “ ”

• Some issues are “NOT UNIVERSAL” Bank ReconciliationStatement was not an issue in one water utility

• Initial diagnostic is the key for the cleanup process

• Identify all probable issues, prioritize them; wherever

Government support is required, “COMMUNICATE EARLY”

• Plan the data collection based on the issues identified.



Collect

• Design formats based on the issues identified; “NEVER USESTANDARDISED FORMS”

• Initially focus on “low hanging fruits”; Demonstrate thatcleanu is in fact ossible !

• In one transition to accrual accounting, the balance sheetteam identified more than 20 inoperative bank accounts. The

result – involvement at levels - ensures results

• Have a timeframe. Data collection is a never ending task !



Anal ze

• All information collected cannot be used; Analyze them

• Communicate the issues identified to Government; Revisit.

• Categorize the issues into

– Government Su ort re ulator

– Systemic issue – information not captured at all – Non-availability of information – information is captured but it is not

.



Finalize

• Communicate to Government the nature of “intervention”required to cleanup the balance sheet.

identified

• Draw u roadma for unaddressed issues, for e. ., fixed

assets. The cleanup of fixed assets and reconciliation ofcapital work in progress will need a minimum period of 3 -5

.



Common Issues : Assetsccoun s ece va e

• Accrued income for water supplied or sewage servicesprovided not billed

• Allowance for doubtful accounts

– Past due accounts

– Penalty/Interest charged on past due accounts – Government sector accounts

• Unidentified collections and their effect on the allowance fordoubtful accounts.



Common Issues : Assetsxe sse s roper y an an qu pmen

• Valuation of fixed assets

– Lack of historical cost information

–

– Recently, fixed asset valuation methodology manual has been launchedin India for assisting the local bodies in valuation of fixed assets.

,

continues to be a challenge.

• Capital Work in Progress

– Abandoned construction

– Date of completion – Lack of information at accounts department hasled to huge pileup of capital work in progress. This also impactscapitalization of finance costs.



Common Issues : Assetsxe sse s roper y an an qu pmen

• Repair, Maintenance and Replacement Costs

– Improper capitalization of fixed assets because of no pre-audit system

in many utilities

– Unreported retirements of fixed assets

– Retirements recorded at cost and at their appraised values.

• Depreciation

– Determination of useful lives. Valuation methodolo manual has beenable to address this issue to a great extent

– Assets fully depreciated but still in service.



Common Issues : Liabilities

• Accounting of retirement benefits – Actuarial valuation is notfeasible in many cases. The pension liabilities are invariably

• Contin ent liabilities – Identification of contin ent liabilities

continues to be a challenge especially in utilities that aremigrating from cash to accrual basis of accounting.



Cleanin Balance Sheet

The window available to introduce reforms is short. Is the risk ofquick launch worth taking?

• Plan for the exercise; Identify the risks and have a mitigationlan

• Prepare a roadmap to address the outstanding issues and thetimeframe, methodology to address them

• qu c aunc w s ow t e way.

Cleaning Utility Balance Sheets Deloitte

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