METROPOLITAN EDISON COMPANY - Pennsylvania Public Utility ...

V. FINANCIAL MANAGEMENTBackground - The Stratified Management and Operations Audit of Metropolitan EdisonCompany (Met-Ed), Pennsylvania Electric Company (Penelec), and PennsylvaniaPower Company (Penn Power) (collectively referred to as the FirstEnergy PennsylvaniaCompanies or FE-PA Companies) conducted by the consulting firmBarrington-Wellesley Group, Inc. (BWG or Consultant), released by the PennsylvaniaPublic Utility Commission (PUC or Commission) on March 1, 2007, at D-05MGT002,D-05MGT003 and D-05MGT004, contained three recommendations in the FinancialManagement chapter. BWG rated this functional area as needing moderateimprovement. In this chapter, two prior recommendations and prior situations arereviewed and two follow-up findings are presented.Prior Recommendation – Finalize the analysis of the Federal Energy RegulatoryCommission (FERC) account mapping verification processes for Administrative andGeneral (A&G) to provide assurance that the FirstEnergy (FE) account mappingprocesses are appropriate and related systems of internal controls are effective. Notifythe PAPUC Audit Staff when these efforts are complete.Prior Situation – BWG found that the FirstEnergy Corp. (FirstEnergy) FERC Form No.1 reports for its electric distribution companies (EDCs) had significant variances duringthe period 2000 through 2005 which could not all be explained by changes in businesspractices or economic events. The quarterly and annual FERC Form No. 1 reports,which are used by federal and state regulatory agencies to oversee the electric utilitiesfor which they have oversight responsibilities, were based on financial informationprovided by the FERC accounting module of the SAP, AG (SAP) business softwareused by FirstEnergy.Time and expenses were mapped (i.e., transferred) from the accounts used forFirstEnergy’s financial and management reporting (i.e., the Securities & ExchangeCommission or SEC accounts) into the FERC Uniform System of Accounts. There wasa preponderance of significant fluctuations (i.e., 20% or more) from year to year byFERC account. FirstEnergy had completed studies to identify and correct issuesassociated with the mapping of transmission and distribution (T&D) costs, but thesesame studies had not been performed for non-T&D (i.e., A&G) accounts. Also,FirstEnergy Service Company’s Internal Audit Department (IAD) had not evaluatedcontrols over the mapping processes as part of its Sarbanes-Oxley (i.e., corporategovernance) compliance work because Operations and Maintenance (O&M) expenseswere reported as a single income statement line item for external financial reportingpurposes.BWG suggested that FirstEnergy Service Company’s General AccountingDepartment (GAD) reduce the threshold for reviewing variances in A&G FERC accountsfrom $1,000,000 to $500,000. The Consultant also suggested that IAD include an auditof FERC Form No. 1 report mapping in its next annual audit plan, and that subsequentaudits should be conducted, as necessary, based on the initial audit’s findings.- 28 -