Download - Cleaning Utility Balance Sheets Deloitte
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 1/11
Theme 1 Cities and Water: Solutions for Efficienc
Cleaning Utility Balance Sheets:
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 2/11
Mechanics of Balance Sheet Cleanu
Prepare
Collect“ ”
AnalyseBalance Sheet
Finalise
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 3/11
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.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 4/11
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 !
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 5/11
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
.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 6/11
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
.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 7/11
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.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 8/11
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.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 9/11
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.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 10/11
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.
8/3/2019 Cleaning Utility Balance Sheets Deloitte
http://slidepdf.com/reader/full/cleaning-utility-balance-sheets-deloitte 11/11
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.