Financial Management Evaluation:
Handbook for Wastewater Utility
August 1989
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United States
Environmental Protection
Agency
1969
Office of Water (WH-546)
Financial Management
Evaluation
Handbook For
Wastewater Utility
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Table of Contents
Page
^
Introduction 2
Financial Evaluation Questions .... 4
1. 5 Year Budget Costs- ....... 6
2. Budget Comparison 8
3. Budget Process ....*• 10
"^«-
4. Budget Increase "12
5. Equipment Replacement 14
6. Energy Costs 16
7. Total Debt 18
8. Debt Retirement 20
9. Revenue Review 22
£0. Residential Hater Usage ... 24
i
11. CoMercial/lndustrial Users 26
• *»
12. Miniaua Billing 28
13. Cash Flow 30
14. Rate Increase 32
15.• Delinquent Accounts 34
Glossary .... 36
Appendices 43
References 48
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Wastewater Utility
FINANCIAL
MANAGEMENT
EVALUATION
HANDBOOK
December 30, 1988
Prepared for
U.S. Environmental Protection Agency
Office of Municipal Pollution Control
Washington, DC
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This document was prepared after a
series of one-day Financial Management Work-
shops were conducted in the various regions of
the U.S. Environmental Protection Agency.
The author wishes to thank John H.
Samson, U.S. EPA, Office of Municipal Pollu-
tion Control, Washington, DC; Dr. William T.
Engel, Jr., Director, South Carolina Environ-
mental Training Center, Sumter, SC; and
Richard I. Phillips, P.E., and Gary Champy,
Vermont Department of Environmental Conserva-
tion, Naterbury, VT, for their assistance in
preparation of this document.
This document was developed under EPA
Grant No. CT 901659-1-0 and South Carolina
Contract No. 7-793-92139-12/27/87.
Larry A. Parker
December 30, 1988
Larry A. Parker, P.E., GET
Larry A. Parker t Associates, Inc.
6 Lee Drive
Wheeling, WV 26003
(304) 242-9600
Consultant for:
South Carolina
Environmental Training Center
Sumter Area Technical College
Sumter, SC 29150
(803) 778-1961
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FINANCIAL MANAGEMENT
Evaluation Handbook
WASTEWATER UTILITIES
Introduction
Hastewater facilities -are capital
intensive and highly complex systems
involving management techniques that ace
not . typical of normal government
operations. The United States Congress
expects these wastewater utilities to
have sophisticated management procedures,
since these facilities are governed by
the laws and regulations of the country.
Many systems were built using funds
appropriated by the Congress requiring
that they be managed properly for the
benefit of the people.
The U.S. Environmental Protection
Agency and most state agencies have found
in their inspections and contacts that
many wastewater • facilities do not have
the necessary staff, skills, operation
and maintenance budgets, and overall
management plans to operate their systems
as they were intended. Sometimes at
great expense to the communities, the
xisting management concept has had to be
reevaluated and completely reorganized
since the utilities were constantly in
trouble. This has caused a poor image,
the loss of needed new commerce and
industry to the community, and increased
user fees for the customers' wastewater
treatment service. The community often
has to pay higher rates because of past
mistakes and overdue improvements.
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During the last few years, the U.S.
EPA, state agencies, and many state
training centers have become more
involved with training in basic
management concepts needed to operate
these facilities. Many communities have
participated in some of these training
efforts and several positive changes have
been made to improve the management of
these systems. This handbook is based
upon the findings and actions that have
been taken by the author and several of
the state agencies in conducting
investigations of wastewater facilities.
This handbook has been specifically
designed for on-site inspectors to use in
evaluating the financial management
capability of wastewater utility systems
that have been funded by federal
construction grants. It has been
specifically designed for small systems
treating less than 5 mgd of wastewater
per day.
When the term management is used, it
refers to a municipal sanitary board,
commission of public works, mayor and
council, or any other appointed or
elected body responsible for the overall
management of the wastewater utility.
Day-to-day operations are usually
supervised by a superintendent or chief
operator at a middle management level.
This financial management evaluation
is based on answering a series of yes or
no questions about the utility and
determining basic information on its
status. This evaluation also requires
the use of Appendices dated December 30,
1988, and the attendance at a one-day
Financial Management Workshop.
3
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Wastewater Utility
Financial Management
Evaluation
(Facility)
Date:
Follow the accompanying Response
Outline to aid in answering the following
questions:
1. Are the last 5 years of budget
information available? Y or N
2. Are actual vs. budget comparisons
made at least quarterly? Y or N
3. Are officials and operators involved
in the budget process? Y or N
4. Has the budget increased > 5%/year
for the last 5 years? Y or N
5. Is there an equipment replacement and
rehabilitation budget item? Y or N
6. Are total energy costs < 10%
of the 0 & M budget? Y or N
7. Is the debt paid by billing
< 25% of the total budget? Y or N
8. Will present debts be retired
within 20 years of issuance? Y or N
9. Do revenues cover OM & R and
debt service at all times? Y or N
10. Are revenues based on metered
or estimated water use? Y or N
4
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11. Do commercial and industrial
'isers pay on volume/strength? Y or N
12. Is the minimum residential billing
> $6.00/rao. or $72/yr.? Y or N
13. Is there always sufficient cash
for all "accounts payable"? Y or N
14. Has there been a rate increase
within the last 24 months? Y or N
15. Are delinquent accounts < 3%
of the total budget? Y or N
Count the number of questions
answered "Yes."
Rate the "Yes" answers according to
the following:
14 - 15 * No major problems
12 .- 13 f Some problems exist in
areas answered "Mo"
10 - 11 = Significant problems
exist in "No" areas
< 10 = Major financial
management problems
exist
The on-site inspector should use
information in this booklet, the
Appendices, and the references to help
resolve any financial management
problems.
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FINANCIAL MANAGEMENT
EVALUATION
Response Outline
This response action outline
corresponds to each question asked in the
evaluation form on Pages 4-5 and provides
further information on how to obtain
necessary financial information on the
wastewater collection and treatment
utility. The Appendices dated December
30, 1988, must be used to aid in
obtaining the necessary financial
information.
All questions answered "No" on the
evaluation indicate areas of concern in
the utility's financial management.
These areas must be further investigated
using the outline below.
1. 5-Year Budget Costs
It is important to obtain as much
historical financial information as
possible from the utility to aid in the
evaluation. This should include actual
cost figures, rate schedules, annual
audits, and other financial reports.
a. Try to obtain the last 5 years of
budget and actual expense data.
b. Place the information into an
annual wastewater budget format.
(Appendix B-96)
c. Compare the annual cost
information over the years of
record to determine significant
cost areas.
d. Recommend.future budget line items
for any costs that currently do
not have their own budget line.
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TYPICAL BUDGET OUTLINE
Collection Treatment
PersonnelServices
Salaries/wages§ ?
F.I.C.A.
Unemploy. ins.
Worker's corop.
Health insurance
Retirement
Subtotal: $ $
0 & M Expenses
Office supplies $ $
Postage
Telephone
Electricity
Natural gas
Water
Veh. gas & oil
Chemicals
Operating sup.
Equipment rep.
Training
Travel
Subtotal: $ $
capital Outlay
Replacement ace. $ $
Improvement ace.
Expansion account
Depreciation ace. $
Subtotal: $ $
Debt Service
Debt & interest $ $
Cushion fund
Contingency fund
Subtotal: $ $
TOTAL: $ $
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2. Budget Comparison
The last 5 years of budget
information can provide some valuable
information of the financial condition of
the utility. The wastewater utility's
budget must be completely separate from
any other activities. Actual
expenditures must be used instead of the
forecast budget figures .for all previous
years.
a. Tabulate the budget and actual
cost information.
(Appendix B-97.)
b. Compare the budget vs. actual
expenses to determine if past
budgets have been within 5% of
actual costs.
c. Determine if consistent
differences occurred with any
specific expense items. '
d. Recommend that the utility perform
this review at least quarterly and
make adjustments as required.
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BUDGET vs. ACTUAL
EXPENDITURES
(Period of Record}1
% of
Budget Budget. Actual + or
Per. Serv.
Wages % $ $
F.I.C.A.
Benefits
Subtotal: $ $
0 t H Exp.
Office % $
Chemicals
Supplies
Energy
Vehicles
Repairs
Operation
Haint.
Subtotal: $
Capital Outlay
Replace. % $ $
Improve.
Deprec.
Subtotal: $ $"
Debt Service
Debt & int. % $ $
Cont. funds
Subtotal: $ $"
TOTAL: $ $
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3. Budget Process
it ia Important that budgets be
prepared based on actual need and not
what management feels that customers will
pay without complaining. Budgets should
have exact reasons foe every expenditure
and include a companion section .to
discuss the budget document. The
operation of the utility is budget
driven. This is the primary course of
operation.
The budget process includes the
operator, superintendent, clerk, and
officials working together. The operator
and superintendent must present the needs
for the coming year to the officials for
a realistic budget preparation.
a. Discuss the budget process with
officials, clerks, and operators.
(Appendix B 94).
b. Discuss any specific information
found in item 1 on Page 6 that
is appropriate for any problem
areas.
c. Recommend that future budgets be
developed using all leading
staff members, if they are not
currently involved.
10
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BUDGET PROCESS STEPS
Estimate Operating
Expenses and
Capital Improvement
Requests.
Rank and Prioritize
Budget Requests
Develop a Budget
Framework and
Structure by:
* Item
* Activity
Identify Revenue
Sources
Prepare Budget
Document
Approve and
Adopt Budget
Implement
Budget
11
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4. Budget increase
Budgets should increase yearly at
least by toe national inflation rate of 4
to 7%. Every part of" the wastewater
utility operations Bust be evaluated to
determine the areas that will require
additional increases.
a. Calculate the percent of budget
change for the decrease or
increase for each line item for
each year of record.
(Appendix B-97).
b. List any budget line item that has
not increased more than 5% for any
year.
c. Determine if there are any
significant reasons why these
items have not had any increases.
d. If necessary, recommend budget
increases in areas where a
deficiency could be causing
problems with OH i R.
12
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BUDGET INCREASE
198 198 198
Personnel Services
Wages %
F.I.C.A.
Unemploy. ins.
Worker's Comp.
Health Insurance
Retirement
Subtotal: %
0 & M Expenses
Office supplies %
Postage
Telephone
Electricity
Natural gas
Water
Veh. gas & oil
Chemicals
Operating sup.
Equipment rep.
Training
Travel
Subtotal: %
Capital Outlay
Replacement ace. %
Improvement ace.
Expansion account
Depreciation ace.
Subtotal: %
Debt Service
Debt & interest %
Cushion.fund
Contingency fund
Subtotal: %
TOTAL:
13
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5. Equipment Replacement and
Major Rehabilitation Line Item
An equipment replacement budget
should include all pumps, motors,
vehicles, and any other equipment that
has a useful life less than the life of
the total facility. The listed equipment
should show date placed -into service,
useful life, and expected replacement
cost. All equipment expected to be
replaced within the next 5 years should
be itemized by year. Set aside costs can
be prorated throughout the life of the
equipment.
a. Obtain a list of all equipment and
major rehabilitation that costs
more than $1,000.
b. List year each equipment piece was
placed into service.
c. Project the remaining service life
of each equipment piece.
d. Estimate current replacement cost.
e. summarize this information.
(Appendix B-105).
f. Determine the current set aside
budget cost to replace
equipment using appropriate
Sinking Fund factors.
(Appendix B-110).
g. Recommend this line item in
B-96 be recalculated each year
and included- in the budget.
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EQUIPMENT REPLACEMENT
INVENTORY
Equip. Ocig. . Year Remain. Replac.
& Reh. Cost Ser. . Life Cost
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
15
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6. Energy Costs
Energy costs are often the largest
single expenditure. Electrical and fuel
costs have been steadily rising every
year. These must be adequately forecast.
a. List electrical equipment
nameplate voltage and amperage for
all motors.
b. Include energy requirements for
lighting, heating, air
conditioning, and major laboratory
equipment.
c. Estimate current yearly operating
time for all units and determine
percent in-use time.
d. Calculate estimated KWH for each
unit and determine daily average.
e. Summarize the information.
(Appendix 'B-101).
f. Review any equipment class that
exceeds usage > 10% of the total
energy used.
g. Recommend, if possible, that these
high energy use items be
investigated for possible energy
reduction without losing operation
efficiency. Reduce power use
during peak periods.
h. If necessary, recommend a detailed
energy audit.
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ELECTRICAL ENERGY
Lift Sba.
% of Cost/ Total
KWH Total KWH Cost
A
B
C
Total:
Treatment
Plant
Raw Sew.Pump,
Pretreat.
Primacy
Secondary
Sludge
Other
Total:
Summary;
Cost/KWH
Peak Demand
Total KWH
Total Cost
Cost/day
Total flow/mo
Cost/MG
17
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7. Total Debt
The total debt owed by the wastewater
utility is extremely important. The
total debt service should be less than
25% of the total budget paid by customer
billing. Debts that exceed this amount
place a severe burden on the customer Cor
past capital costs.
a. Determine the percentage that the
total debt service payment
represents of the total budget.
(Appendix B-97).
b. If the debt service payment is
> 25% of the total budget,
recommend review by a financial
consultant.
c. If short-term debts are not being
paid off on time, adjust the
budget to pay off these short-term
debts.
it
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TOTAL DEBT SERVICE
% of
Budget Budget Actual
Per. Set.
Subtotal:
0 & M:
Subtotal:
Cap. Out.:
Subtotal
Debt
Interest
Cushion
Contingency
Subtotal: % $
TOTAL:
19
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8. Debt Retirement
A wastewater treatment plant often
lasts only about 20 to 25 years with good
maintenance. If the years of the debt
exceed this amount, an extreme financial
burden will be placed on the customers
for ' a facility that has outlived its
usefulness.
a. List all outstanding short-term
and long-term debts, interest
rates, issuance years, and year of
retirement.
(Appendix C-135)
b. Determine if any debts will not be
retired within 20 years of
issuance.
c. Determine from officials if
facility will need any equipment
replacement or major
rehabilitation before debt
retirement that is not being
funded from'current set-aside
funds.
d. If major improvements are required
before debt retirement, recommend
that a consultant be used to
evaluate and determine
future costs.
20
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CURRENT DEBT SUMMARY
Type of Year Int. End
Debt Amount Start Rate Yr.
1.
2.
3.
4.
5.
21
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9. Revenue Review
The revenue must meet all budgeted
financial requirements of the facility.
It is important that all utility revenues
remain in the system and are never used
for any other purpose. Revenues must be
based on actual need of the. utility to
meet its responsibility for providing a
service to the customers and meeting both
short-term and long-term regulatory
commitments.
a. Determine if annual revenues were
sufficient to meet expense budget
requirements for each record
period.
(Appendix B-96 and B-99)
b. List any period that had deficient
revenues.
c. Determine reason for revenue
shortages.
d. Recommend changes that would help
increase revenue required for
critical areas.
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REVENUE BUDGET
The annual revenue budget reflects
how much money the utility will receive
from customers and other revenue sources
to spend on the operation of the utility.
Estimated billing: $
Penalties & Int.: •
Connection fees:
Other:
TOTAL:
0 & M Budget
The revenue budget must reflect the
needs of the operation, maintenance, and
replacement budget, which include at
least these important factors:
Administration
Billing & collection
Operations
Maintenance
Replacement
Support services
Debt services
Dedicated funds
Capital Budget
The . capital budget reflects long-term
objectives resulting from capital
projects and generally relies on specific
financing.
23
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10. Residential Water Usage
It is important that water usage
figures used for wastewater charges be
accurately measured or estimated, so that
proper billing will be provided.
Customers must pay their fair share of
actual services used.
a. Obtain copy of residential rate
structure document.
b» Review billing records to
determine if charges are based on
usage data.
(Appendix C-127)
c. If flat rates are used, recommend
that all wastewater billing be
performed on actual or estimated
wastewater volumes discharged to
sewer a.
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USER CHARGE
METHODOLOGY
The users must be divided into proper
classes, so that it is knows bow many
users are la each class and their
respective volumes.
Managene.pt must determine;
classes of users
Factors that determine classes
Characteristics of all users
Individual user volumes
Appropriate rate
User classes:
Residential
Commercial
Industrial
Institutional
Residential rates:
1. Equivalent dwelling unit -
Used for unmet ered water
Determined from best estimates
2. Volume measurements -
Actual mete red usage
Similar waste concentration
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11. Commercial and Industrial Users
It is important that all*commercial
and industrial customers pay for the
services they are provided. Volume
discounts are usually not justified.
Some wastewater discharges from these
sources nay require extra treatment that
should not be -passed on to residential
users. Instead, they must have
surcharges depending on the strength and
type of waste.
a. Interview the superintendent and
chief operator to determine if
there are high strength wastes
from industries that exceed
concentrations of > 300 mg/L BOD
or TSS.
b. Obtain commercial and industrial
rate structure documents to
determine if surcharges are
Included for hlgtfe strength wastes.
c. Review the surcharge information
to determine, if it is adequate for
all commercial and industrial
users.
d. Recommend that appropriate
surcharges be used where
applicable and that commercial and
industrial volume discounts not be
used. '
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COMMERCIAL &
INDUSTRIAL USERS
It must be known if the wastewater
treatment plant has had any changes in
the average and peak influent BOO,
suspended solids, and other important
characteristics. If these data are above
normal values, it indicates that the user
charges must be reevaluated.
User Charge Rates:
1. Surcharge -
Use for any wastewater that has a
concentration over set values, such
as 250 - 300 mg/L BOO or suspended
solids.
2. Quality/Quantity -
Determine costs for unusual wastes
Incorporate minimum and/or maximum
volumes charges
3. Establish Pretteatment Ordinance
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12. Minimum Billing
The •iniBtiB.bill should pay for fixed
coats . that are not dependent on the
volume of vastewater discharged. Tbis
should include such factors as normal
salaries, office expenditures, lighting,
Beating, and debt service. Any customer
cost less than about $72 per year usually
indicates trouble.
a. Obtain minimum residential,
commercial, and industrial rates.
b. If minimum billing does not cover
routine fixed expenses, recommend
a financial consultant review of
the1 minimum billing structure to
cover such expenses.
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TYPICAL MINIMUM
BILLING
No. of
Cust.
155
450
500
600
800
1,000
1,100
1,100
1,100
1,500
1,600
2,000
2, COO
Hin.
Bill
$ 6.00
6.50
8.31
5.50
4.50
3.00
1.25
6.00
6.33
2.10
3.72
2.35
3.15
Rate per
1000 gal
$ 1.00
2.50
1.70
0.50
1.25.
0.85
1.43
1.20
1.42
0.95
1.24
1.29
1.12
3000 gal
Example
$ 8.00
14.00
8.31
5,50
5.75
3.00
5.54
6.00
6.33
4.95
3.72
6.22
4.27
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13. Cash Plow
A utility that has an adequate rate
structure and collects all bills in «.
timely manner usually does not have a
cash flow problem. Factors that
contribute' to lack of proper cash flow
are usually poor revenue estimates and
unplanned expenditures not properly
forecast in the budget.
a. Interview clerk and review records
to determine if there* has alway
bee* sufficient cash flow fgr
"accounts payable."
b. Determine if the billing cycle is
too long for proper cash flow,
such as 30 days or longer.
c. Compare current billing cycle with
any state laws or regulations to
determine if cycle may be
shortened.
d. List periods where cash flow was a
problem.
e. Determine if cash problems may be
caused by poor budgeting.
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CASH MANAGEMENT
Cash management is a system used to
control the following items of the
wastewater utility:
Receipts
Deposits
Surpluses
The elements of a cash flow system
should include the establishment of
cash information systems
timely billing
short-term payment period
proper disbursement procedures
Excess funds should obtain the best
interest rate for the time the funds are
available. Some of these funds may only
be available for short-term benefits,
while others may be available for
long-term investments.
Short-term funds:
excess monthly cash
Uncommitted accounts
Operating accounts
Long-term funds:
Deposit fees
Improvement reserves
Replacement set-a-sides
31
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14. Rate Increase
A we11-maintained facility is one in
which all necessary costs will be
recovered through proper user charges
that are increased as needed. The rate
structure should be reviewed at least
yearly.
It is important that • there is an
official policy stated in writing that
the wastewater utility will be operated
on a self-supporting basis.
a. Obtain the date of the last rate
increase.
b. Determine why there has not been a
rate increase for more than 24
months.
c. Recommend a rate increase if the
current rate does not adequately
support the budget. An
independent consultant may have to
be used to* provide adequate rates,
if budget and rate structure are
unknown.
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WASTEWATER
TREATMENT RATE
(Gallons treated/month:
Per. Expenses:
Salaries $
F.I.C.A.
Benefits
Utilities:
Electric $
Telephone
Supplies:
Chemicals $
.
Repairs:
$
Maintenance:
$
Capital Exp.:
Replacement $
Expansion
Debt Service:
Debt & Int. $
Cont. Fund
Total Expenses:
Gals, treat.:
«*-$
X 1,000)
$
$
$
$
$
$
$
$
X 1,000
33
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15. Delinquent Accounts
Proper procedures must be enacted
that provide for a termination of
services for any customer that does not
pay in a timely manner. An adequate
advanced deposit system will also aid in
providing the payment when termination
does not produce a payment.
If termination of services is not
feasible, other procedures such as
property sale may be considered.
a. Obtain delinquent account policies
and procedures.
b. Compare policies with appropriate
state statutes.
c. Determine the average number of
delinquent accounts for each of
the last 5 years or period of
record.
d. Determine the delinquent dollar
amount for the last several
billing periods.
e. Calculate the percentage of the
total budget that represents
delinquent accounts.
f. Recommend strong implementation of
the collection of delinquent
accounts.
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DELINQUENT ACCOUNT
PROCEDURES
The U.S. Supreme Court stated in 1978
in the Memphis Light, Gas, and Water vs.
Willey S. Craft that there roust be "DUB
PROCESS1* in any action against a
delinquent utility customer. To help
provide proper "DUE.PROCESS," there must
be proper procedures guided by legal
council. Some of the items for these
procedures include the following:
1. Bills must be submitted on a
routine schedule.
2. Statements must show amount due
and when payment is due.
3. A "Past Due Notice" must be
mailed when account is
delinquent.
4. A "Turn-off" notice must be
mailed within stated time.
5. An attempt must be made to
contact the head of the
household by telephone or in
person.
6. If customers have illness or some
unusual conditions, time must be
given for them to move in with
friends or relatives or into
public assistance shelters.
7. Services can be terminated only
during normal business hours
Monday to Friday.
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GLOSSARY
ACCOUNTING: The procedure that tracks
all financial transactions and generates
status reports.
ACCOUNTS RECEIVABLE: An amount that is
owed to the utility by its customers that
has not yet been received.
ACCRUAL BASIS: The method of accounting
under which revenues are recorded when
they are earned (whether* or not cash is
received at that time) and expenditures
are recorded when goods and services are
received (whether cash disbursements are
made at that time or not).
AMORTISATION; The process of allocating
an asset* a liability, or an amount over
future accounting periods. It is the
gradual reduction or liquidation of an
account according to a specified schedule
of tines and amounts.
ANNUITY;/ A series of equal money
payments made at equal intervals during a
designated period of time.
ASSESSMENT; (1) The process of making the
official valuation of property for tax
purposes.
(2) The valuation placed on property.
(3) The charge placed against property
for the. purpose of constructing
improvements such as water and sewer.
36
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ASSETS (Capital); Property of a permanent
nature or intended for long continued use
or possession, such as pumps, motors,
trucks, and meters.
ASSETS (Fixed): Permanent property such
as land, buildings, sewer collection
pipes, and tanks.
ASSETS (Intangible); Any element of value
applied to permanent property of a
non-physical nature such as cost of
organisation and development.
ASSETS (Tangible); Permanent property of
aphysical nature such as lands,
buildings, wells, plant equipment, and
permanent improvements.
AUTHORITY; A government or public agency
created to perform a single function such
as a sewer authority, usually such'units
are financed from service charges or
fees.
BALANCE SHEET; A statement showing 'the
financial position of an enterprise at a
specific date, prepared from records to
show assets, liabilities, and equities.
BETTERMENT; An addition or change made to
a fixed or capital asset which is
expected to prolong its life, expand its
capacity, or increase its efficiency
beyond initial design parameters, and
over and above that arising from
maintenance. The cost is added to the
book value of the asset.
BILLING CYCLE: The time from date of
bill to end of payment period, usually
about 20 days.
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BONDS; A written promise to pay a debt by
specified suns of money at ''specified
future dates. Bonds are typically used
for long-tern debt.
BONDS, GENERAL OBLIGATION: When a
governmentpledgesitsfull faith and
credit to the repayment of bonds which it
issues through various means rincluding
taxes or other revenues in some cases.
BUDGETING: Identifies needs for spending
and allocates resources among needs.
CAPITAL BUDGET; A plan of proposed
capital expenditures that is
usually part of the complete annual
budget, which includes both operating and
capital outlays.
CAPITAL COSTS; Costs of major
rehabilitation/betterments, expansion or
upgrading.
CAPITAL OUTLAYS! Expenditures which
result inEEe acquisition of or
addition to fixed, assets.
CASH BASISi The method of accounting
under which revenues are recorded when
received in cash and expenditures are
recorded when paid.
CASH MANAGEMENT: forecasting, tracking,
and investing of temporary surplus funds.
COMMERCIAL USER! All retail stores,
restaurants,office buildings, laundries,
and other private establishments.
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COST RECOVERY; The system that defines
the need for revenue and determines how
it will be met.
DEBT MANAGEMENT; Includes locating funds
for capital construction and the
repayment of borrowed funds.
DEBT SERVICE: Payment of interest and
repayment of principal to holders of a
debt instrument.
DIRECT EXPENSES; Those expenses which can
be charged directly as a part of the cost
of materials or service, or charged
directly to a department or operating
unit, as distinguished from overhead and
other indirect costs which must be
prorated through many activities.
ENCUMBRANCES; Obligations in the'form of
purchase orders, contracts or salary
commitments which are chargeable to an
account that is reserved.
ENTERPRISE FUND; A fund established to
account for water and sewer operations
that are financed and operated in' a
manner similar to private business
enterprises. The intent of the governing
body is that all costs of providing
services be financed or recovered through
user charges.
EQUITY; The difference between assets
and liabilities.
FLAT RATE; A rate that is not based on
water usage, but is usually based on a
fixed price.
GRANTEE; A municipality that has executed
a federal grant agreement.
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GENERAL ACCEPTED ACCOUNTING PRINCIPLES
(GAAP);Uniform minimum standards of
guidelines foe financial accounting and
reporting.
INDIRECT COST; A cost necessary for the
functioningof the organization as whole,
but which cannot be directly assigned to
one activity.
INFILTRATION; Hater other than wastewater
that enters a sewer system from the
ground through such means as defective
pipes, connections, or manholes.
INFLOW;• Water other than wastewater that
enters a sewer system from such areas as
roof leaders, yard drains, cooling
towers, storm water, and surface
drainage.
INSTITUTIONAL; Includes schools,
churches, hospitals, nursing homes, penal
facilities and other similar users.
JOURNAL; A record in which entries are
recorded in chronological order..
LIABILITIES; Amounts the utility owes to
others.
LIABILITIES (current); Amounts due in
the near future such as payroll earned,
but not paid, and upcoming payments to
vendors for goods received.
LIABILITIES (long-term); Items due
beyond ' the end of the current fiscal
year. This is almost always the amount
of outstanding debt that is not due until
the following years.
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LIABILITIES (restricted); This would
consistofanyamounts due from other
current assets such as bond payments.
MINIMUM BILLING; A fee charged even when
services are not used.
MODIFIED ACCRUAL BASIS; The basis of
accounting under which expenditures and
liabilities are recorded when services
are incurred, and revenues are recorded
when received or when both measurable
and/or available.
OPERATION & MAINTENANCE; Functions that
result in expenditures during the useful
life of the treatment works for
materials, labor, utilities, and other
items necessary for managing and
maintaining the facility.
OVERHEAD; Those elements of cost
necessary to. perform the activity which
cannot be determined readily, such as
management services.
PURCHASING; The system that allows the
utility to procure and store needed goods
and services.
REHABILITATION/REPLACEMENT; Expenditures
forobtainingand installing replacement
or rehabilitated equipment, accessories,
or appurtenances, which are necessary
during the useful life of the treatment
works to maintain the performance for
which the works were designed.
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REHABILITATION/REPLACEMENT COST; The cost
ofmajor rehabilitation or replacement of
property as of a certain date, which can
render similar service as originally
intended. Major rehabilitation and
replacement are incremental elements of
operating costs. They are variable,
depending upon levels of expenditures for
maintenance. These are the expenditures
to maintain the capacity and performance
for which the works were designed. It is
not a capital cost and does not increase
the book value of an asset.
SERVICE CHARGE; A charge levied on a user
of the treatment works which includes a
user charge, a charge for capital reserve
and debt service.
SOLVENCY; The ability to meet long-term
obligations.
SURCHARGE; An additional or premium
charge for services beyond the normal
charges.
TRANSACTION; A business event that is
recorded in the accounting records.
USER CHARGE; A charge levied on users of
a treatment works for the costs of
operation, maintenance, and replacement.
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APPENDICES to HANDBOOK
This is a separate document entitled,
FINANCIAL MANAGEMENT EVALUATION
APPENDICES, December 30, 1988.
Introduction 5
Basic Management Considerations .... 7
Use of Appendices 8
Facility Review Outline 9
I. Management 11
A. Financial Management Program 13
B. Program Objectives ' 14
C. Organizational Structure .... 15
D. Staffing ' 16
E. Personnel Policies 17
F. Employee Relations 18
G. Office Procedures .'.. 19
H. Operation Plans 20
I. Regulation Review 21
J. Treatment Facilities' 22
K. Safety Program 23
L. Financial Documents 24
M. Management Summary 25
II. Budgeting 27
A. Second Visit 29
B. Remaining Financial Data .... 30
C. Budget Review 31
D. Overall Budgets 32
E.'Revenue Budget 33
F. Operations Budget 34
G. Maintenance Budget 35
H. Budget Control 36
I. Equipment Replacement Budget 37
J. Capital Improvement Budget .. 38
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Ill. Cost Recovery 39
A. Accounting Issues 41
B. Cash Plow 42
C. Purchasing Control 43
D. Sewer Use Ordinances 44
B. Rate Structure 45
P. Cost Recovery Procedures 46
G. Cost Recovery Status 47
H. Billing & Collection 48
I. Delinquent Accounts 49
J. Hastewater Collection 50
K. Equipment Reserve Fund 51
IV. Planning ....-, 53
A. Past Planning 55
B. Planning Policy 56
C. Operations Planning 57
D. Capital Improvement Plans .... 58
B. Capital Improvement Schedule . 59
V. Pinancing 61
A. Current Pinancing 63
B. Puture Pinancing Needs ....... 64
C. Pinancing Options 65
VI. Pinancial Reporting 67
A. Current Pinancial Reports .... 69
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Appendix A - Management 71
Introduction 73
Management Responsibilities 74
Problem Solving Outline 75
Organizational Chart 76
Typical Staffing 77
Brief Job Description 78
Employee Appraisal 79
Benefit items 80
Office Procedures .*. '.... 81
Purchasing Policy 82
Wastewater Utility Description .. 83
Management Audit 84
Key Management Issues 85
Appendix B - Budgeting 89
Financial Documents 91
Budgeting Procedures .'.. 92
Direct & Indirect Cost's 93
Budget Process Steps 94
Ranking Budget Requests 95
Typical Budget Outline 96
Budget vs. Actual 97
Cost of Service 98
Revenue Budget 99
Revenue Requirements 100
Electrical Energy 101
Typical Operating Costs 102
Training Expenditures 102
Identifying High Cost Areas 103
Replacement Reserve 104
Replacement Inventory 105
List Major Items 106
Typical Future Expansion Costs .. 107
Major Expenditure Example 108
Sinking Fund Example 109
Sinking Fund Factors 110
Loan Example Ill
Capital Recovery Factor 112
Borrowing vs. Savings 113
Sinking.Fund Work Sheet 114
Typical Sinking Fund Policy 115
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Appendix C - Cost Recovery 117
Accounting Systems 119
Accounting Files 122
Cash Management 123
Purchasing System 124
User Charge System 125
Cost Recovery Concepts 128
Cost Recovery Outline 129
User Pee Projection 131
User Charge Summary .' 132
User Charge Distribution 133
User Charge Comparison 134
Current Debt Summary 135
Financial Condition Summary .... 135
Cost Recovery Summary .......... 136
Customer Billing 138
Connection Fee Computation 139
Repair Computation 140
Collection Procedure 141
Collection Policy 142
Delinquent Account Policy 143
Water Disconnect 144
Tax Sale 145
Appendix D - Planning 147
Utility Planning 149
Basis for Planning 150
Operations Planning ............ 151
Capital Planning Steps 152
Financing an Expansion Project . 153
Capital Project Schedule 154
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Dendix E - Financing 155
Debt Management 157
Types of Financing 158
Financing 159
Debt Secvice Factor Table ...... 160
Inflation Factor Table 161
Financing Indicators'... 162
Balance Sheet Analysis 163
Financing Sources 166
Types of Bonds 166
.ppendix F - Record Keeping ........ 167
1. Record Keeping Concept ..... 169
2. Types of Reports 169
3. Report Information 170
4. Operating Reports .......... 170
5. Maintenance Reports 171
6. Plant Performance Reports .. 171
7. Performance Records 172
8. Financial Reports 172
9. Balance Sheets 173
10. Purchase Orders 174
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REFERENCES
1. Government Financial Research
Center, Financial Capability
Guidebook. May 1978.
2. Government Financial Research
Center, Wastewater Utility
Management Manual, July 1981.
3. Maine Training Institute, The
Financial Management Process.
4. U.S. Environmental Protection
Agency, A Guide to the Selection
of Cost-Effective Wastewater
Treatment Systems, Technical Report
430/9-75-002, July 1975.
5. U.S. Environmental Protectibn
Agency, Analysis of Operations &
Maintenance Costs for Municipal
Wastewater Treatment Systems,
430/9-77-015, May 1978.
I. U.S. Environmental Protection
Agency, An Instructional Delivery
System for Manpower Management, A
Report for Water Pollution Control
Agencies, April 1979.
7. U.S. Environmental Protection
Agency, Construction Costs for
Municipal Wastewater Conveyance
Systems: 1973-1977, 430/9-77-015,
May 1978.
48
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8. U.S. Environmental Protection
Agency, Construction Costs for
Municipal Wastewater Treatment
PlalTEs! 1973-1977, 430/9-77^0l3,
MCD-37, January 1978.
9. U.S. Environmental Protection
Agency, Costs of Wastewater
Treatment by Land Application,
Technical Report 430/9-75-003,
June 1976.
10. U.S. Environmental Protection
Agency, Estimating Water Treatment
Costs, Volume 1 Summary,
600/2-79-162a, August 1979.
11. U.S. Environmental Protection
Agency, Estimating Water Treatment
Costs, Volume 2, Cost Curves
Applicable to 1 to 200 mqd
Treatment Plants, 600/2-79-162b,
August 1979.
12. U.S. Environmental Protection
Agency, Estimating Water Treatment
Costs, Volume 3, Cost Curves
Applicable to 2,500 gpd to 1 mqd
Treatment Plants, 600/2-79-162c,
August 1979.
13. U.S. Environmental Protection
Agency, Estimating Water Treatment
Costs, Volume 4, Computer User's
Manual for Retrieving and
Updating Cost Data, 600/2-79-162d,
August 1979.
14. U.S. Environmental Protection
Agency, Financial Management
System for Publicly-Owned Treatment
Works (Accounting Options),
430/9-84-005, June 1984.
49
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15. U.S. Environmental Protection
Agency, Innovative and Alternative
Technology Assessment Manual,
430/9-78-009, February 1980.
16. U.S. Environmental Protection
Agency, Looking at User Charges, A
State Survey and Report,
430/09-87-0008, September 1987.
17. U.S. Environmental Protection
Agency, Management of Small-to-
Medium Sized Municipal Wastewater
Treatment Plants, 430/9-79-013
June 1979.
18. U.S. Environmental Protection
Agency, Maintenance Management
Systems for Municipal Wastewater
Facilities, 430/9-74-004,
October 1973.
19. U.S. Environmental Protection
Agency, Municipal Wastewater
Facility Financial Management Work
Book, 1986.
20. U.S. Environmental Protection
Agency, Package Water Treatment
Plants, Volume 2, A Cost
Evaluation, 600/2-80-008b,
July 1980.
U.S. Environmental Protection
Agency, Touching All The Bases, A
Financial Management Handbook for
Your Wastewater Treatment
Project, 430/9-86-001,
September 1986.
50
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22. U.S. Environmental Protection
Agency, Wastewatec Utility
Recordkeeping, Reporting and
Management Information Systems,
430-9-82-006, July 1982.
23. Virginia Tech Center for Urban and
Regional Studies, Costing and
Rate-Setting Workshop for Virginia
Water and Sewer Utilities, Draft -
July 1987.
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