Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27833

—Procedure performed with respect to the

requirement to submit RUS Form 479 to the

RUS:

1. Agreed amounts reported in Form 479 to

Center County Telecommunications Systems,

Inc.’s records.

The results of our tests indicate that, with

respect to the items tested, Center County

Telecommunications Systems, Inc. complied,

except as noted below, in all material

respects, with the specific RUS loan and

security instrument provisions referred to

below. The specific provisions tested, as well

as any exceptions noted, include the

requirements that:

—The borrower has obtained written

approval of the RUS [and other mortgagees]

to enter into any contract agreement or

lease with an affiliate as defined in

§ 1773.33(e)(2)(i) [list all exceptions]; and

—The borrower has submitted its Form 479

to the RUS and the Form 479, Financial

and Statistical Report, as of December 31,

2001, represented by the borrower as

having been submitted to RUS is in

agreement with the Center County

Telecommunications Systems, Inc.’s

audited records in all material respects [list

all exceptions] [or if the audit year end is

other than December 31], appears

reasonable based upon the audit

procedures performed [list all exceptions].

Comments on Other Additional Matters

In connection with our audit of the

financial statements of Center County

Telecommunications Systems, Inc., nothing

came to our attention that caused us to

believe that Center County

Telecommunications Systems, Inc. failed to

comply with respect to:

—The reconciliation of continuing property

records to the controlling general ledger

plant accounts addressed at § 1773.33(c)(1)

[list all exceptions];

—The clearing of the construction accounts

and the accrual of depreciation on

completed construction addressed at

§ 1773.33(c)(2) [list all exceptions];

—The retirement of plant addressed at

§ 1773.33(c)(3) and (4) [list all exceptions];

—The approval of the sale, lease, or transfer

of capital assets and disposition of

proceeds for the sale of lease of plant,

material, or scrap addressed at

§ 1773.33(c)(5) [list all exceptions]; The

disclosure of material related party

transactions, in accordance with Statement

of Financial Accounting Standards No. 57,

Related Party Transactions, for the year

ended December 31, 2001, in the financial

statements referenced in the first paragraph

of this report addressed at § 1773.33(f) [list

all exceptions]; and

—The detailed schedule of investments.

Our audit was made for the purpose of

forming an opinion on the basic financial

statements taken as a whole. The detailed

schedule of investments required by

§ 1773.33(i) and provided below is presented

for purposes of additional analysis and is not

a required part of the basic financial

statements. This information has been

subjected to the auditing procedures applied

in our audit of the basic financial statements

and, in our opinion, is fairly stated in all

material respects in relation to the basic

financial statements taken as a whole.

[The detailed schedule of investments

would be included here. The total of the

investment in each company reported must

agree with the detail investment subsidiary

accounts.]

This report is intended solely for the

information and use of the board of directors,

management, and the RUS and supplemental

lenders and is not intended to be and should

not be used by anyone other than these

specified parties. However, this report is a

matter of public record and its distribution is

not limited.

Certified Public Accountants

[FR Doc. 01–12129 Filed 5–18–01; 8:45 am]

BILLING CODE 3410–15–P

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1773

RIN 0572–AB62

Policy on Audits of RUS Borrowers;

Generally Accepted Government

Auditing Standards (GAGAS)

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

SUMMARY: The Rural Utilities Service

(RUS) is amending its regulations to

include in its audit requirements for

electric and telecommunications

borrowers recent amendments to the

Generally Accepted Government

Auditing Standards (GAGAS) issued by

the Government Accounting Office

(GAO) and to make other minor changes

and corrections.

DATES: This rule will become effective

July 5, 2001 unless we receive written

adverse comments or written notice of

intent to submit adverse comments on

or before June 20, 2001. If we receive

such comments or notice, we will

publish a timely document in the

Federal Register withdrawing the rule.

A second public comment period will

not be held. Parties interested in

commenting on this action should do so

at this time.

ADDRESSES: Submit adverse comments

or notice of intent to submit adverse

comments to F. Lamont Heppe, Jr.,

Director, Program Development and

Regulatory Analysis, Rural Utilities

Service, U.S. Department of Agriculture,

1400 Independence Ave., SW., STOP

1522, Washington, DC 20250–1522. RUS

requests a signed original and three

copies of all comments (7 CFR 1700.4).

All comments received will be made

available for public inspection at room

4030, South Building, Washington, DC,

between 8 a.m. and 4 p.m. (7 CFR

1.27(b)).

FOR FURTHER INFORMATION CONTACT:

Richard Annan, Chief, Technical

Accounting and Auditing Staff, Program

Accounting Services Division, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1523, Washington, DC

20250–1523. Telephone: 202–720–5227.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be

not significant for the purposes of

Executive Order 12866 and, therefore,

has not been reviewed by the Office of

Management and Budget (OMB).

Executive Order 12372

This rule is excluded from the scope

of Executive Order 12372,

Intergovernmental Consultation, which

may require consultation with state and

local offices. See the final rule related

notice entitled ‘‘Department Programs

and Activities Excluded from Executive

Order 12372,’’ (50 FR 47034).

Executive Order 12988

This rule has been reviewed under

Executive Order 12988, Civil Justice

Reform. RUS has determined that this

rule meets the applicable standards

provided in section 3 of the Executive

Order. In addition, all State and local

laws and regulations that are in conflict

with this rule will be preempted; no

retroactive effect will be given to this

rule; and, in accordance with section

212(e) of the Department of Agriculture

Reorganization Act of 1994 (7 U.S.C.

6912(e)) administrative appeal

procedures, if any are required, must be

exhausted before an action against the

Department or its agencies.

Regulatory Flexibility Act Certification

The Administrator of RUS has

determined that this rule will not have

significant impact on a substantial

number of small entities defined in the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.). The RUS loan programs provide

borrowers with loans at interest rates

and terms that are more favorable than

those generally available from the

private sector. Borrowers, as a result of

obtaining federal financing, receive

economic benefits that exceed any

direct cost associated with RUS

regulations and requirements.

National Environmental Policy Act

Certification

The Administrator of RUS has

determined that this rule will not

significantly affect the quality of the

human environment as defined by the

27834 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

National Environmental Policy Act of

1969 (42 U.S.C. 4321 et seq.). Therefore,

this action does not require an

environmental impact statement or

assessment.

Catalog of Federal Domestic Assistance

The program described by this rule is

listed in the Catalog of Federal Domestic

Assistance programs under Nos. 10.850,

Rural Electrification Loans and Loan

Guarantees, 10.851, Rural Telephone

Loans and Loan Guarantees, and 10.852,

Rural Telephone Bank Loans. This

catalog is available on a subscription

basis from the Superintendent of

Documents, the United States

Government Printing Office,

Washington, DC 20402–9325, telephone

number (202) 512–1800.

Information Collection and

Recordkeeping Requirements

The reporting and recordkeeping

requirements contained in this rule has

been approved by the Office of

Management and Budget (OMB) under

OMB Control Number 0572–0095,

pursuant to the Paperwork Reduction

Act of 1995 (44 U.S.C chapter 35).

Send questions or comments

regarding this burden or any other

aspect of these collections of

information, including suggestions for

reducing the burden, to F. Lamont

Heppe, Jr., Director, Program

Development and Regulatory Analysis,

Rural Utilities Service, USDA, 1400

Independence Ave., SW, Stop 1522,

Washington, DC 20250–1522.

Unfunded Mandates

This rule contains no Federal

mandates (under the regulatory

provision of title II of the Unfunded

Mandates Reform Act) for State, local,

and tribal governments or the private

sector. Thus, this rule is not subject to

the requirements of sections 202 and

205 of the Unfunded Mandates Reform

Act.

Background

Title 7 part 1773 implements the

standard RUS security instrument

provision requiring RUS electric and

telecommunications borrowers to

prepare and furnish to RUS, at least

once during each 12-month period, a

full and complete report of their

financial condition, operations, and

cash flows, in form and substance

satisfactory to RUS; audited and

certified by an independent Certified

Public Accountant (CPA), satisfactory to

RUS, and accompanied by a report of

such audit, in form and substance

satisfactory to RUS.

This rule amends part 1773 to reflect

two amendments to Generally Accepted

Government Auditing Standards

(GAGAS) adopted in 1999 by the

General Accounting Office (GAO):

Amendment No. 1 to GAGAS, dated

May 13, 1999, and Amendment No. 2 to

GAGAS, dated July 30, 1999.

Amendment No. 1 to GAGAS

established a new field work standard

that requires auditors to document in

the working papers the basis for

assessing control risk at the maximum

level for assertions related to material

accounts balances, transaction classes,

and disclosure components of financial

statements when such assertions are

significantly dependent on

computerized information systems. The

new standard also requires the auditors

to document their consideration that the

planned audit procedures are designed

to achieve audit objectives and to

reduce audit risk to an acceptable level.

These new requirements are achieved

through compliance with §§ 1773.7(a)

and 1773.7(b).

Amendment No. 2 to GAGAS created

a new fieldwork standard for planning

titled ‘‘Auditor Communication’’ by

moving and expanding an existing

standard from the reporting standards.

This rule revises § 1773.6 to comply

with this new standard. Amendment

No. 2 also changed the term

‘‘irregularities’’ to ‘‘fraud’’ in regards to

the requirements for reporting on

compliance with laws and regulations

and internal control over financial

reporting. This rule revises § 1773.9 to

incorporate this change in terminology.

Finally, GAGAS requires the auditor to

emphasize in the auditor’s report the

importance of the report on compliance

and on internal control over financial

reporting when this report is issued

separately from the report on the

financial statements. This rule revises

§ 1773.31, to incorporate this

requirement into the auditor’s report.

On July 17, 1998, RUS issued, as a

final rule, 7 CFR part 1773 (63 FR

38720) which incorporated the 1994

revisions of GAGAS. Those 1994

GAGAS revisions, as well as the 1999

amendments noted above, revised and

updated some of the standard

terminology used to describe the

requirements for performing audits in

conformance with GAGAS. This rule

updates the appropriate sections of this

part to conform to the GAGAS

requirements.

The 1998 revisions to part 1773

combined the separate report on

compliance and report on internal

control into a single report titled

‘‘Reports on Compliance and on Internal

Control Over Financial Reporting’’. In

making the changes to substitute the

combined report in the appropriate

sections of part 1773, the references to

the separate report on compliance were

not removed thus leading the reader to

conclude that the separate report on

compliance was still required. This rule

eliminates all the references to the

report on compliance. In addition, the

1998 revision references to the

telephone program were changed to

telecommunications program. Not all of

the references were changed and this

rule will serve to make those additional

corrections. The 1998 revision also

reduced, from 42 months to 36 months,

the period of time required in which the

CPA must undergo the issuance of a

new peer review. Two references to the

42-month requirement in § 1773.5(c)

that were missed in the 1998 final rule

are revised with this rule.

This rule adds, changes, and deletes

definitions to reflect the GAGAS

amendments noted above as well as the

changing structure of the RUS

organization and its policies and

procedures. A definition is added for

Assistant Administrator, Program

Accounting and Regulatory Analysis, to

replace the Director, Program

Accounting Services Division. The

name of the Borrower Accounting

Division was changed to Program

Accounting Services Division in the

1998 rule, but the definition was not

removed from § 1773.2, Definitions. The

definition of ‘‘irregularity’’ is replaced

with the definition of ‘‘fraud’’ to

conform to the changes made in

Amendment No. 2 to GAGAS. The

definition of the Private Companies

Practice Section (PCPS) is removed. The

peer review program conducted by this

group was combined with the American

Institute of Certified Public

Accountants’ (AICPA) quality review

program in 1995, thus the reference to

the PCPS is removed. The definition of

REA is eliminated, as it is no longer

necessary. The definition of Uniform

System of Accounts for Electric

Borrowers is revised to include the

complete citation of the requirement to

maintain a uniform system of accounts

prescribed by RUS (7 CFR Part 1767,

Accounting Requirements for RUS

Electric Borrowers, Subpart B, Uniform

System of Accounts). This rule amends

§ 1773.2, to reflect these changes.

Section 1773.1(d)(6) provides that a

report described in the Statement on

Auditing Standards (SAS) No. 35 does

not meet the audit requirement of RUS.

This SAS was superseded and retitled

with the issuance of SAS No. 75.

In previous versions of part 1773 the

sample reports, financial statements,

and management letters were contained

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27835

in four appendices, two for electric

borrowers and two for

telecommunications borrowers.

Beginning with this revision of part

1773, the appendices will no longer be

codified in the Code of Federal

Regulations. The appendices are

attached to this notice for information

only. The appendices are sample

formats to be used as a reference guide

to assist CPAs in completing their

reports. The appendices will be

available in new RUS Bulletin 1773–1,

which will contain all of 7 CFR part

1773 and the appendices. Appendix A

will contain the sample reports,

financial statements and management

letter for electric borrowers while

Appendix B will contain similar

samples for telecommunications

borrowers. Publishing part 1773 in

bulletin form will provide the RUS

audit policy in a user-friendly format. A

single copy of this publication will be

provided to all RUS borrowers and

certified public accountants approved to

perform audits of RUS borrowers and

will be available at http://

www.usda.gov/rus/ruswide.htm.

List of Subjects in 7 CFR Part 1773

Accounting, Electric power, Loan

programs—communications, Loan

programs—energy, Reporting and

recordkeeping requirements, Rural

areas, Telephone.

For the reasons set forth in the

preamble, RUS amends 7 CFR Chapter

XVII as follows:

PART 1773—POLICY ON AUDITS OF

RUS BORROWERS

1. The authority citation for Part 1773

is revised to read as follows:

Authority: 7 U.S.C. 901 et seq., 1921 et

seq., 6941 et seq.

§§ 1773.1 through 1773.7, 1773.20, 1773.21,

1773.30, and 1773.38 [Amended]

2. For each section listed below

remove the word, phrase, or date

indicated in the remove column, and

replace it with that indicated in the add

column.

Section Remove Add

§ 1773.1(a), two occurrences § 1773.2, under definition for

RUS.

telephone ............................................... telecommunications.

§ 1773.1(d); § 1773.3(c); §§ 1773.4 (f), (f)(1), and (g);

§§ 1773.6 (a)(1) and (a)(4); §§ 1773.20, (a), (b), and (c)(6);

§ 1773.21, (a), and (b); § 1773.30(b); § 1773.38(b).

report on compliance, report on compliance and on internal controls over financial reporting.report on compliance and on internal

control over financial reporting.

§ 1773.8(a)(2) and (c) .............................................................. 19X1 ...................................................... 20X1.

§ 1773.8(a)(2) and (c) .............................................................. 19X3 ...................................................... 20X3.

§ 1773.6(a)(7) ........................................................................... irregularities ........................................... fraud.

3. Section 1773.1(c) and (d)(6) are

revised to read as follows:

§ 1773.1 General.

* * * * *

(c) This complies with the 1994

revision of Government Auditing

Standards, issued by the Comptroller

General of the United States, United

States General Accounting Office,

including amendments dated May 13,

1999, and July 30, 1999.

(d) * * *

(6) A report, as described in Statement

on Auditing Standards (SAS) No. 62,

entitled ‘‘Special Reports’’, or in SAS

No. 75, entitled ‘‘Engagements to Apply

Agreed-upon Procedures to Specified

Elements, Accounts, or Items of a

Financial Statement’’, does not satisfy

the RUS loan security instrument

requirements.

* * * * *

4. Section 1773.2 is amended by:

A. Removing the definitions for

‘‘BAD’’, ‘‘Irregularity’’, ‘‘PCPS’’, and

‘‘REA’’

B. Revising the definition for

‘‘Uniform System of Accounts’’ and

C. Adding new definitions for ‘‘AA–

PARA’’, ‘‘Fraud’’, and ‘‘RUS Bulletin

1773–1’’.

The new and revised definitions to

read as follows:

§ 1773.2 Definitions.

* * * * *

AA–PARA means Assistant

Administrator, Program Accounting and

Regulatory Analysis.

* * * * *

Fraud has the same meaning

prescribed in SAS No. 82 entitled

‘‘Consideration of Fraud in Financial

Statements’’.

* * * * *

RUS Bulletin 1773–1, Policy on

Audits of RUS Borrowers, is a

publication prepared by RUS that

contains the RUS regulation 7 CFR part

1773 and exhibits of sample audit

reports, financial statements, and a

management letter used in preparing

audit of RUS borrowers. This bulletin is

available from USDA, Rural Utilities

Service, Program Development and

Regulatory Analysis, 1400

Independence Ave., SW., Stop 1522,

Washington, DC 20250, or available on

the internet at http://www.usda.gov/

rus/.

* * * * *

Uniform System of Accounts means,

for telecommunications borrowers, the

Uniform System of Accounts for

Telecommunications Companies,

prescribed by the Federal

Communications Commission and

published at 47 CFR Part 32, as

supplemented by RUS pursuant to 7

CFR Part 1770, Accounting

Requirements for RUS Telephone

Borrowers, subpart B, Uniform System

of Accounts, and for electric borrowers,

as contained in 7 CFR Part 1767,

Accounting Requirements for RUS

Electric Borrowers, subpart B, Uniform

System of Accounts.

5. Revise § 1773.3(b) to read as

follows:

§ 1773.3 Annual audit.

* * * * *

(b) Each borrower must establish an

annual as of audit date within twelve

months of the date of receipt of the first

advance of funds from grants and

insured and guaranteed loans approved

by RUS and RTB and must prepare

financial statements as of the date

established.

* * * * *

6. Revise § 1773.4(d) to read as

follows:

§ 1773.4 Borrower responsibilities.

* * * * *

(d) Audit engagement letter. The

borrower must enter into an audit

engagement letter with the CPA that

complies with § 1773.6.

* * * * *

§ 1773.5 [amended]

7. Amend § 1773.5 by:

A. Removing paragraphs (c)(5) and

(d);

B. Redesignating paragraphs (c)(6) and

(c)(7) to (c)(5) and (c)(6), respectively;

C. In paragraph (c)(4)(iii)(C) and

redesignated (c)(5)(ii), revising the

27836 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

reference ‘‘42 months’’ to read ‘‘36

months’’, and

D. In redesignated paragraph (c)(6)(ii),

revising the reference from ‘‘Director,

Borrower Accounting Division’’ to read

‘‘Assistant Administrator, Program

Accounting and Regulatory Analysis’.

8. Amend § 1773.6 by revising the

title and paragraph (a) introductory text

to read as follows:

§ 1773.6 Auditor communication.

(a) During the planning stages of a

financial statement audit, GAGAS and

AICPA standards require the auditor to

communicate certain information

regarding the nature and extent of

testing and reporting on compliance

with laws and regulations and internal

control over financial reporting. The

communication must include the nature

of any additional testing of compliance

and internal control required by laws

and regulations or otherwise requested,

and whether the auditors are planning

to provide opinions on compliance with

laws and regulations and internal

control over financial reporting. This

communication must take the form of an

audit engagement letter prepared by the

CPA and formally accepted by the board

of directors or an audit committee

representing the board of directors. The

engagement letter must also encompass

those items prescribed in SAS 83,

entitled ‘‘Establishing an Understanding

with the Client’’. It must also include

the following:

* * * * *

9. In § 1773.7, paragraphs (b) and

(c)(4) are revised to read as follows:

§ 1773.7 Audit standards.

* * * * *

(b) The audit must include such tests

of the accounting records and such

other auditing procedures that are

sufficient to enable the CPA to express

an opinion on the financial statements

and to issue the required report on

compliance and on internal control over

financial reporting and the management

letter.

(c) * * *

(4) After informing the borrower’s

management, if the scope limitation is

not adequately resolved, the CPA

should immediately contact the AA–

PARA, RUS, U.S. Department of

Agriculture, Washington, DC 20250–

1523. The AA–PARA will endeavor to

resolve the matter with the borrower.

10. In § 1773.8, paragraphs (a)(1) and

the table following paragraph (c) are

revised to read as follows:

§ 1773.8 Audit date.

(a) * * *

(1) A borrower may request a change

in the as of audit date by writing to the

AA–PARA at least 60 days prior to the

newly requested as of audit date.

* * * * *

(c) * * *

Previously issued

statements

Statements prepared

as of new audit date

12/31/20X1; 12/31/

20X0 (Statement

need not be reissued).

6/30/20X3; 6/30/

20X2.

11. Amend § 1773.9 by revising the

title and paragraphs (a), (b), and (c)

introductory text, to read as follows:

§ 1773.9 Disclosure of fraud, illegal acts,

and other noncompliance.

(a) In accordance with GAGAS, the

auditor must design the audit to provide

reasonable assurance of detecting fraud

that is material to the financial

statements and material misstatements

resulting from direct and material illegal

acts, and noncompliance with the

provisions of contracts or grant

agreements that could have a direct and

material effect on financial statements

amounts.

(b) If specific information comes to

the auditor’s attention that provides

evidence concerning the existence of

possible illegal acts that could have a

material indirect effect on the financial

statements or material noncompliance

with the provisions of contracts or grant

agreements that could have a material

indirect effect on the financial

statements, auditors should apply audit

procedures specifically directed to

ascertaining whether an illegal act or

noncompliance with provisions of

contract or grant agreements has

occurred.

(c) Pursuant to the terms of its audit

engagement letter with the borrower, the

CPA must immediately report, in

writing, all instances of fraud and all

indications or instances of illegal acts,

whether material or not, to:

* * * * *

12. Revise the title to subpart C to part

1773, to read as follows:

Subpart C—RUS Requirements for the

Submission and Review of the

Auditor’s Report, Report on

Compliance and on Internal Control

Over Financial Reporting, and

Management Letter

13. In § 1773.21, revise the title and

add a new paragraph (e) to read as

follows:

§ 1773.21 Borrower’s review and

submission of the auditor’s report, report

on compliance and on internal control over

financial reporting, and management letter.

* * * * *

(e) All required submissions to RUS

described in paragraphs (a) through (d)

of this section should be sent to:

Assistant Administrator, Program

Accounting and Regulatory Analysis,

Stop 1523, 1400 Independence Ave.,

SW, Washington, DC 20250–1523.

14. Section 1773.30 paragraph (a) is

revised to read as follows:

§ 1773.30 General.

(a) The CPA must prepare the

following (examples of which are set

forth in RUS Bulletin 1773–1):

(1) An auditor’s report;

(2) A report on compliance and on

internal control over financial reporting;

and

(3) A management letter.

* * * * *

15. Section 1773.31 is revised to read

as follows:

§ 1773.31 Auditor’s report.

The CPA must prepare a written

report on comparative balance sheets,

statements of revenue and patronage

capital (or income and retained

earnings, depending upon the structure

of the borrower) and statements of cash

flows. This report must be signed by the

CPA, cover all statements presented,

and refer to the separate report on

compliance and on internal control over

financial reporting issued in

conjunction with the auditor’s report.

The auditor’s report should also state

that the report on compliance and on

internal control over financial reporting

is an integral part of a GAGAS audit,

and in considering the results of the

audit, this report should be read along

with the auditor’s report on the

financial statements.

16. Amend § 1773.32 by revising the

introductory text, paragraphs (a)

through (d), and the ‘‘note’’ at the end

of paragraph (f) to read as follows:

§ 1773.32 Report on compliance and on

internal control over financial reporting.

As required by GAGAS, the CPA must

prepare a written report describing the

auditors testing of compliance with

applicable laws, regulations, contracts,

and grants, and on internal control over

financial reporting and present the

results of those tests. This report must

be signed by the CPA and must include,

as a minimum:

(a) The scope of the CPA’s testing of

compliance with laws and regulations

and internal control over financial

reporting including whether or not the

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27837

tests performed provided sufficient

evidence to support an opinion on

compliance or internal control over

financial reporting and whether the CPA

is providing such opinions;

(b) If conditions believed to be

material weaknesses considered to be

reportable conditions are disclosed, the

report should identify the material

weaknesses that have come to the CPA’s

attention;

(c) If no reportable instances of noncompliance and no reportable

conditions were found, the CPA must

issue a report as illustrated in RUS

Bulletin 1773–1.

(d) If material instances of noncompliance and reportable conditions

are identified, the CPA must issue a

report as illustrated in RUS Bulletin

1773–1.

* * * * *

(f) * * *

We noted certain immaterial instances of

noncompliance, which we have reported to

the management of (borrower’s name) in a

separate letter dated (month, day, year).

* * * * *

17. Remove Appendices A through D

to part 1773.

Dated: May 8, 2001.

Blaine D. Stockton,

Acting Administrator, Rural Utilities Service.

Appendix A to RUS Bulletin 1773–1—

Sample Auditor’s Report for an Electric

Cooperative

Appendix A includes an example of an

auditor’s report, report on compliance and on

internal control over financial reporting,

financial statements and accompanying

notes, and management letter for an electric

distribution cooperative. The sample

auditor’s report is intended as a guide only

and, while it is recommended that the format

be followed, each auditor’s report should be

prepared to adequately cover the

circumstances. To the extent possible, it

should be used as a guide in preparing

auditors’ reports for other types of electric

borrowers. For power supply borrowers and

for distribution borrowers with production or

transmission plant, the same general format

should be followed. However, the Statement

of Revenue and Patronage Capital must be

expanded to show separate totals for

operations expenses and maintenance

expenses for each class of production plant

and for transmission plant.

Exhibit 1—Sample Auditor’s Report

Certified Public Accountants, 1600 Main

Street, City, State 24105

The Board of Directors, Center County

Electric Energy Association, Inc.:

Independent Auditor’s Report

We have audited the accompanying

balance sheets of Center County Electric

Energy Association, Inc. as of December 31,

20X1 and 20X0, and the related statements of

revenue and patronage capital, and cash

flows for the years then ended. These

financial statements are the responsibility of

Center County Electric Energy Association,

Inc.’s management. Our responsibility is to

express an opinion on these financial

statements based on our audit.

We conducted our audits in accordance

with generally accepted auditing standards

and the standards applicable to financial

audits contained in Government Auditing

Standards, issued by the Comptroller General

of the United States. Those standards require

that we plan and perform the audit to obtain

reasonable assurance about whether the

financial statements are free of material

misstatement. An audit includes examining,

on a test basis, evidence supporting the

amounts and disclosures in the financial

statements. An audit also includes assessing

the accounting principles used and

significant estimates made by management,

as well as evaluating the overall financial

statement presentation. We believe that our

audit provides a reasonable basis for our

opinion.

In our opinion, the financial statements

referred to above present fairly, in all

material respects, the financial position of

Center County Electric Energy Association,

Inc. as of December 31, 20X1 and 20X0, and

the results of its operations and its cash flows

for the years then ended in conformity with

generally accepted accounting principles.

In accordance with Government Auditing

Standards, we have also issued our report

dated March 2, 2002, on our consideration of

Center County Electric Energy Association,

Inc.’s internal control over financial reporting

and our tests of its compliance with certain

provisions of laws, regulations, contracts,

and grants. That report is an integral part of

an audit performed in accordance with

Government Auditing Standards and should

be read in conjunction with this report in

considering the results of our audit.

Certified Public Accountants

March 2, 20X2

Exhibit 2—Sample Report on Compliance

and on Internal Control Over Financial

Reporting, the CPA Found No Reportable

Instances of Noncompliance and No Material

Weaknesses (No Reportable Conditions

Identified)

Certified Public Accountants, 1600 Main

Street, City, State 24105

The Board of Directors, Center County

Electric Energy Association, Inc.:

We have audited the financial statements

of Center County Electric Energy Association,

Inc. as of and for the years ended December

31, 20X1 and 20X0, and have issued our

report thereon dated March 2, 20X2. We

conducted our audit in accordance with

generally accepted auditing standards and

the standards applicable to financial audits

contained in Government Auditing

Standards, issued by the Comptroller General

of the United States.

Compliance

As part of obtaining reasonable assurance

about whether Center County Electric Energy

Association, Inc.’s financial statements are

free of material misstatement, we performed

tests of its compliance with certain

provisions of laws, regulations, contracts,

and grants, noncompliance with which could

have a direct and material effect on the

determination of financial statement

amounts. However, providing an opinion on

compliance with those provisions was not an

objective of our audit, and accordingly, we

do not express such an opinion. The results

of our tests disclosed no instances of

noncompliance that are required to be

reported under Government Auditing

Standards. [If the CPA has issued a separate

letter to the management detailing immaterial

instances of noncompliance, modify this

paragraph to include a statement such as the

following: However, we noted certain

immaterial instances of noncompliance

which we have reported to the management

of Center County Electric Energy Association,

Inc. in a separate letter dated March 2, 20X2.]

Internal Control Over Financial Reporting

In planning and performing our audit, we

considered Center County Electric Energy

Association, Inc.’s internal control over

financial reporting in order to determine our

auditing procedures for the purpose of

expressing our opinion on the financial

statements and not to provide assurance on

the internal control over financial reporting.

Our consideration of the internal control over

financial reporting would not necessarily

disclose all matters in the internal control

over financial reporting that might be

material weaknesses. A material weakness is

a condition in which the design or operation

of one or more of the internal control

components does not reduce to a relatively

low level the risk that misstatements in

amounts that would be material in relation to

the financial statements being audited may

occur and not be detected within a timely

period by employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting and its

operation that we consider to be material

weaknesses. [If the CPA has issued a separate

letter to management to communicate other

matters involving the design and operation of

the internal control over financial reporting,

modify this paragraph to include a statement

such as the following: However, we noted

other matters involving the internal control

over financial reporting which we have

reported to the management of Center County

Electric Energy Association, Inc. in a separate

letter dated March 2, 20X2.]

This report is intended solely for the

information and use of the audit committee,

management, the Rural Utilities Service, and

supplemental lenders and is not intended to

be and should not be used by anyone other

than these specified parties. However, this

report is a matter of public record and its

distribution is not limited.

Certified Public Accountants

March 2, 20X2

Exhibit 3—Sample Report on Compliance

and on Internal Control over Financial

Reporting, the CPA Found Reportable

Instances of Noncompliance and Reportable

Conditions Identified

Certified Public Accountants, 1600 Main

Street, City, State 24105

27838 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

The Board of Directors, Center County

Electric Energy Association, Inc.:

We have audited the financial statements

of Center County Electric Energy Association,

Inc. as of and for the years ended December

31, 20X1 and 20X0, and have issued our

report thereon dated March 2, 20X2. We

conducted our audit in accordance with

generally accepted auditing standards and

the standards applicable to financial audits

contained in Government Auditing

Standards, issued by the Comptroller General

of the United States.

Compliance

As part of obtaining reasonable assurance

about whether Center County Electric Energy

Association, Inc.’s financial statements are

free of material misstatement, we performed

tests of its compliance with certain

provisions of laws, regulations, contracts,

and grants, noncompliance with which could

have a direct and material effect on the

determination of financial statement

amounts. However, providing an opinion on

compliance with those provisions was not an

objective of our audit, and accordingly, we

do not express such an opinion. The results

of our tests disclosed instances of

noncompliance that are required to be

reported under Government Auditing

Standards. [A description of the findings

should be included in the report.] [If the CPA

has issued a separate letter to the

management detailing immaterial instances

of noncompliance, modify this paragraph to

include a statement such as the following:

We also noted certain immaterial instances of

noncompliance which we have reported to

the management of Center County Electric

Energy Association, Inc. in a separate letter

dated March 2, 20X2.]

Internal Control Over Financial Reporting

In planning and performing our audit, we

considered Center County Electric Energy

Association, Inc.’s internal control over

financial reporting in order to determine our

auditing procedures for the purpose of

expressing our opinion on the financial

statements and not to provide assurance on

the internal control over financial reporting.

However, we noted certain matters involving

the internal control over financial reporting

and its operation that we consider to be

reportable conditions. Reportable conditions

involve matters coming to our attention

relating to significant deficiencies in the

design or operation of the internal control

over financial reporting that, in our

judgment, could adversely affect Center

County Electric Energy Association, Inc.’s

ability to record, process, summarize, and

report financial data consistent with the

assertions of management in the financial

statements. [A description of the reportable

conditions should be included in the report.]

A material weakness is a condition in

which the design or operation of one or more

of the internal control components does not

reduce to a relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. Our

consideration of the internal control over

financial reporting would not necessarily

disclose all matters in the internal control

that might be reportable conditions and,

accordingly, would not necessarily disclose

all reportable conditions that are also

considered to be material weaknesses.

However, we believe none of the reportable

conditions described above is a material

weakness. [If conditions believed to be

material weaknesses are disclosed, the last

sentence should be deleted and instead the

report should identify which of the

reportable conditions described above are

considered to be material weaknesses.] [If the

CPA has issued a separate letter to

management to communicate other matters

involving the design and operation of the

internal control over financial reporting,

modify this paragraph to include a statement

such as the following: We also noted other

matters involving the internal control over

financial reporting which we have reported

to the management of Center County Electric

Energy Association, Inc. in a separate letter

dated March 2, 2002.]

This report is intended solely for the

information and use of the audit committee,

management, the Rural Utilities Service, and

supplemental lenders and is not intended to

be and should not be used by anyone other

that these specified parties. However, this

report is a matter of public record and its

distribution is not limited.

Certified Public Accountants

March 2, 2002

Exhibit 4—Sample Financial Statements

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. BALANCE SHEETS DECEMBER 31, 20X1 AND 20X0 ASSETS

[Notes 1 and 2]

2001 2000

Utility Plant (Note 3):

Electric Plant in Service ....................................................................................................................................... $48,382,000 $46,826,000

Construction Work in Progress ............................................................................................................................ 2,040,000 1,586,000

Total Utility Plant ........................................................................................................................................... 50,422,000 48,412,000

Accumulated Provision for Depreciation .............................................................................................................. 15,588,000 14,586,000

Net Utility Plant ..................................................................................................................................................... 34,834,000 33,826,000

Investments (Note 4):

Investments in Associated Organizations ............................................................................................................ 4,493,000 4,048,000

Other ..................................................................................................................................................................... 1,040,000 1,410,000

Total Investments .......................................................................................................................................... 5,533,000 5,458,000

Current Assets:

Cash and Cash Equivalents ................................................................................................................................. 359,000 359,000

Short-Term Investments (Note 4) ......................................................................................................................... 8,000 8,000

Accounts Receivable, less allowance for doubtful accounts of $11,000 in 2001 and $10,000 in 2000 ............. 183,000 176,000

Materials and supplies .......................................................................................................................................... 418,000 404,000

Prepayments ......................................................................................................................................................... 43,000 43,000

Total current assets ....................................................................................................................................... 1,011,000 990,000

Deferred Charges (Note 5) .......................................................................................................................................... 28,000 9,000

Total assets ................................................................................................................................................... $41,406,000 $40,283,000

The accompanying notes are an integral part of these statements.

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27839

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. BALANCE SHEETS DECEMBER 31, 20X1 AND 20X0

[Equities and Liabilities] [Note 1]

20X1 20X0

Equities:

Memberships ........................................................................................................................................................ $60,000 $59,000

Patronage Capital (Note 6) .................................................................................................................................. 16,683,000 15,343,000

Other Equities (Note 7) ........................................................................................................................................ 268,000 180,000

Net Unrealized Gain on Investments (Note 4) ..................................................................................................... 15,000 8,000

Total Equities ................................................................................................................................................. 17,026,000 15,590,000

Long-term liabilities:

RUS Mortgage Notes, less current portion (Note 8) ............................................................................................ 16,956,000 17,532,000

CFC Mortgage Notes, less current portion (Note 8) ............................................................................................ 4,333,000 4,482,000

Post-retirement benefit obligation (Note 9) .......................................................................................................... 1,004,000 841,000

Total Long-term liabilities .............................................................................................................................. 22,293,000 22,855,000

Current Liabilities:

Line of credit note payable ................................................................................................................................... 425,000 300,000

Current portion of long-term debt (Note 8) .......................................................................................................... 725,000 700,000

Accounts Payable—Purchased Power ................................................................................................................. 245,000 203,000

Accounts Payable—Other .................................................................................................................................... 109,000 91,000

Consumer Deposits .............................................................................................................................................. 408,000 413,000

Other Current and Accrued Liabilities .................................................................................................................. 116,000 78,000

Total Current Liabilities ................................................................................................................................. 2,028,000 1,785,000

Deferred Credits (Note 10) .......................................................................................................................................... 59,000 53,000

Total Equities and Liabilities ......................................................................................................................... $41,406,000 $40,283,000

The accompanying notes are an integral part of these statements.

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. STATEMENTS OF REVENUE AND PATRONAGE CAPITAL

[For the years ended December 31, 20X1 and 20X0]

20X1 20X0

Operating Revenues .................................................................................................................................................... $12,899,000 $12,042,000

Operating Expenses:

Cost of Power ....................................................................................................................................................... 4,408,000 4,095,000

Distribution Operations ......................................................................................................................................... 833,000 913,000

Distribution Maintenance ...................................................................................................................................... 1,553,000 1,236,000

Consumer Accounts ............................................................................................................................................. 575,000 547,000

Consumer Service and Information ...................................................................................................................... 288,000 306,000

Administrative and General .................................................................................................................................. 710,000 653,000

Depreciation and Amortization ............................................................................................................................. 2,163,000 2,098,000

Other ..................................................................................................................................................................... 262,000 258,000

Total Operating Expenses ............................................................................................................................. 10,792,000 10,106,000

Operating Margins Before Interest Expense ............................................................................................................... 2,107,000 1,936,000

Interest Expense .......................................................................................................................................................... 1,137,000 1,151,000

Operating Margins After Interest Expense .................................................................................................................. 970,000 785,000

Nonoperating Margins:

Interest Income ..................................................................................................................................................... 50,000 30,000

Other Nonoperating Income ................................................................................................................................. 6,000 6,000

Total Nonoperating Margins .......................................................................................................................... 56,000 36,000

Generation and Transmission Cooperative Capital Credits ........................................................................................ 361,000 283,000

Net Margins ................................................................................................................................................................. 1,387,000 1,104,000

Patronage Capital at Beginning of Year ...................................................................................................................... 15,343,000 14,345,000

Less: Retirements of Capital Credits ........................................................................................................................... 47,000 106,000

Patronage Capital at End of Year ............................................................................................................................... $16,683,000 $15,343,000

The accompanying notes are an integral part of these statements.

27840 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS

ENDED DECEMBER 31, 20X1 AND 20X0

20X1 20X0

Net Margins ................................................................................................................................................................. $1,387,000 $1,104,000

Other Comprehensive Income:

Unrealized holding gains (losses) arising during the year ................................................................................... 7,000 8,000

Comprehensive Income ................................................................................................................................ $1,394,000 $1,112,000

The accompanying notes are an integral part of these statements.

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED

DECEMBER 31, 20X1 AND 20X0

20X1 20X0

Cash Flows From Operating Activities:

Cash Received from Consumers ................................................................................................................. $12,882,000 $12,017,000

Cash Paid to Suppliers and Employees ...................................................................................................... (8,335,000) (7,784,000)

Interest Received .......................................................................................................................................... 50,000 30,000

Interest Paid ................................................................................................................................................. (1,137,000) (1,151,000)

Net Cash Provided by Operating Activities ........................................................................................... 3,460,000 3,112,000

Cash Flows From Investing Activities:

Construction and Acquisition of Plant .......................................................................................................... (2,010,000) (3,285,000)

Plant Removal Costs .................................................................................................................................... (1,378,000) (270,000)

Materials Salvaged from Retirements .......................................................................................................... 217,000 197,000

(Increase) Decrease In:

Materials Inventory ................................................................................................................................ (14,000) 10,000

Deferred Charges-Preliminary Surveys and Investigations .................................................................. (19,000) 24,000

Investments in Associated Organizations ............................................................................................. (76,000) (56,000)

Other Investments ................................................................................................................................. 370,000 323,000

Inventory Adjustment-Deferred Credit Decrease ......................................................................................... (12,000) (5,000)

Net Cash Used in Investing Activities ................................................................................................... (2,922,000) (3,062,000)

Cash Flows From Financing Activities:

Retirements of Patronage Capital Credits ................................................................................................... (47,000) (106,000)

Retired Capital Credits-Gain ........................................................................................................................ 6,000 6,000

Donated Capital ............................................................................................................................................ 82,000 31,000

RUS Loan Advances .................................................................................................................................... .......................... 1,025,000

Payments on RUS Debt ............................................................................................................................... (540,000) (502,000)

Payments on CFC Debt ............................................................................................................................... (160,000) (149,000)

Line of Credit ................................................................................................................................................ 125,000 (225,000)

Increase/(Decrease) In:

Consumer Deposits ............................................................................................................................... (5,000) (1,000)

Memberships Issued .................................................................................................................................... 1,000 1,000

Net Cash Used in Financing Activities .................................................................................................. (538,000) 80,000

Net Increase/(Decrease) in Cash ................................................................................................................. $0 $130,000

Cash—Beginning of Year ............................................................................................................................. 359,000 229,000

Cash—End of Year ...................................................................................................................................... $359,000 $359,000

RECONCILIATION OF NET MARGINS TO NET CASH PROVIDED BY OPERATING ACTIVITIES

20X1 20X0

Net Margins ......................................................................................................................................................... $1,387,000 $1,104,000

Adjustments to Reconcile Net Margins to Net Cash Provided by Operating Activities:

Depreciation and Amortization ..................................................................................................................... 2,163,000 2,098,000

G&T and Other Capital Credits (Non-Cash) ................................................................................................ (362,000) (283,000)

Provision for Uncollectible Accounts Receivable ......................................................................................... 1,000 (3,000)

Accumulated Provision for Pensions and Benefits ...................................................................................... 163,000 150,000

(Increase)/Decrease In:

Customer and Other Accounts Receivable ........................................................................................... (8,000) 13,000

Current and Accrued Assets—Other .................................................................................................... .......................... 1,000

Increase/(Decrease) In:

Accounts Payable .................................................................................................................................. 60,000 26,000

Deferred Energy Prepayments .............................................................................................................. 18,000 11,000

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27841

RECONCILIATION OF NET MARGINS TO NET CASH PROVIDED BY OPERATING ACTIVITIES—Continued

20X1 20X0

Current and Accrued Liabilities—Other ................................................................................................ 38,000 (5,000)

Total Adjustments ......................................................................................................................................... 2,073,000 2,008,000

Net Cash Provided by Operating Activities ......................................................................................................... $3,460,000 $3,112,000

The accompanying notes are an integral part of these statements.

CENTER COUNTY ELECTRIC ENERGY ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 20X1 AND

20X0

1. Summary of Significant Accounting Policies:

Include a brief description of the reporting entity’s significant accounting policies in accordance with Accounting Principles Board Opinion No. 22, Disclosure of Accounting Policies.

Disclosure of accounting policies should identify and describe the accounting principles followed by the borrower and the methods of

applying those principles that materially affect the determination of financial position, cash flow, and results of operations.

Disclosures of accounting policies do not have to be duplicated in this section if presented elsewhere as an integral part of the financial

statements.

2. Assets Pledged:

Substantially all assets are pledged as security for long-term debt to RUS and NRUCFC.

3. Electric Plant and Depreciation Rates and Procedures:

Listed below are the major classes of the electric plant as of December 31, 20X1 and 20X0:

20X1 20X0

Intangible Plant ........................................................................................................................................................ $11,000 $11,000

Distribution Plant ...................................................................................................................................................... 45,753,000 44,370,000

General Plant ........................................................................................................................................................... 2,618,000 2,445,000

Electric Plant in Service ........................................................................................................................................... $48,382,000 $46,826,000

Construction Work in Progress ................................................................................................................................ 2,040,000 1,586,000

Total Utility Plant .............................................................................................................................................. $50,422,000 $48,412,000

Provision has been made for depreciation of distribution plant at a straight-line composite rate of 3.00 percent per annum. General Plant depreciation rates have been applied on a straight-line basis as follows:

Structures and Improvements ........................................................................................................................................................... 2.5%

Office Furniture and Equipment ........................................................................................................................................................ 10.0%

Transportation Equipment ................................................................................................................................................................. 14.0%

Power Operated Equipment .............................................................................................................................................................. 12.0%

Other General Plant .......................................................................................................................................................................... 4.0%

Communications Equipment ............................................................................................................................................................. 6.0%

4. Investments in Associated Organizations:

Investments in associated organizations consisted of the following at December 20X1 and 20X0:

20X1 20X0

National Rural Utilities Cooperative Finance Corporation:

Membership Fee ............................................................................................................................................... $1,000 $1,000

Capital Term Certificates .................................................................................................................................. 839,000 839,000

Patronage Capital ............................................................................................................................................. 288,000 276,000

Fall River Power Cooperative .......................................................................................................................... 3,019,000 2,898,000

Other ................................................................................................................................................................. 346,000 34,000

$4,493,000 $ 4,048,000

Center County Electric Energy Association, Inc. has adopted SFAS No. 115, ‘‘Accounting for Certain Investments in Debt and Equity Securities.’’ In accordance with SFAS No. 115, the Association has classified all the Other Investments as available-for-sale. Available-for-sale investments are stated at fair value with unrealized gains and losses included in members’ equities. The cost of investments sold is based on the

specific identification method.

Long-term and short-term investments classified as available-for-sale were as follows at December 31, 20X1 and 20X0:

Description

20X1

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

U.S. Treasury notes, bills and bonds .............................................................. $222,000 $14,000 $1,000 235,000

Other U.S. Government agency securities ...................................................... 380,000 6,000 4,000 382,000

27842 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

Description

20X1

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

Other debt securities ....................................................................................... 431,000 3,000 3,000 431,000

$1,033,000 $23,000 $8,000 $1,048,000

Description

20X0

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

U.S. Treasury notes, bills and bonds .............................................................. $397,000 $5,000 $1,000 $401,000

Other U.S. Government agency securities ...................................................... 410,000 2,000 ........................ 412,000

Other debt securities ....................................................................................... 604,000 1,000 ........................ 605,000

$1,411,000 $8,000 $1,000 $1,418,000

At December 31, 20X1, maturities of investments classified as available-for-sale were as follows:

Amortized cost Fair value

Less than One Year ................................................................................................................................................ $8,000 $8,000

One through Five Years .......................................................................................................................................... 958,000 961,000

After Five Years ....................................................................................................................................................... 67,000 79,000

Total .................................................................................................................................................................. $1,033,000 $1,048,000

5. Deferred Charges:

Following is a summary of amounts recorded as deferred charges as of December 31, 20X1 and 20X0:

20X1 20X0

Preliminary Surveys and Investigations .................................................................................................................. $28,000 $9,000

6. Patronage Capital:

At December 31, 20X1 and 20X0, patronage capital consisted of:

20X1 20X0

Assignable ............................................................................................................................................................... $1,387,000 $1,104,000

Assigned to date ...................................................................................................................................................... 15,955,000 14,851,000

$17,342,000 $15,955,000

Less: Retirements to Date ....................................................................................................................................... 659,000 612,000

$16,683,000 $15,343,000

Under the provisions of the Mortgage Agreement, until the equities and margins equal or exceed thirty percent of the total assets of the cooperative, the return to patrons of contributed capital is generally limited to twenty-five percent of the patronage capital or margins received by the

cooperative in the prior calendar year. The equities and margins of the cooperative represent 41 percent of the total assets at balance sheet

date. Capital credit retirements in the amount of $47,000 were paid in 20X1.

7. Other Equities:

At December 31, 20X1 and 20X0, other equities consisted of:

20X1 20X0

Retired Capital Credits-Gain .................................................................................................................................... $181,000 $175,000

Donated Capital ....................................................................................................................................................... 87,000 5,000

$268,000 $180,000

8. Mortgage Notes:

Long-term debt is primarily represented by mortgage notes payable to the United States of America and to the National Rural Utilities

Cooperative Finance Corporation. Following is a summary of outstanding long-term debt as of December 31, 20X1 and 20X0:

20X1 20X0

RUS, 2% Notes due March 31, 2007 ...................................................................................................................... $544,000 $562,000

RUS, 5% Notes due December 31, 2033 ............................................................................................................... 16,971,000 17,510,000

$17,515,000 $18,072,000

Less: Current Maturities .......................................................................................................................................... 559,000 540,000

$16,956,000 $17,532,000

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27843

20X1 20X0

CFC, 5.75% Notes due March 31, 2013 ................................................................................................................. $166,000 $171,000

CFC, 6.95% Notes due July 31, 2018 .................................................................................................................... 1,453,000 1,499,000

CFC, 7.00% Notes due September 30, 2009 ......................................................................................................... 443,000 457,000

CFC, 6.40% Notes due October 31, 2026 .............................................................................................................. 2,437,000 2,515,000

$4,499,000 $4,642,000

Less: Current Maturities .......................................................................................................................................... 166,000 160,000

$4,333,000 $4,482,000

Unadvanced loan funds of $286,000 and $2,500,000 are available to the cooperative on loan commitments from RUS and CFC as of

December 31, 20X1. As of December 31, 20X1, annual maturities of long-term debt outstanding for the next five years are as follows:

RUS CFC Total

20X2 ............................................................................................................................................. $559,000 $166,000 $725,000

20X3 ............................................................................................................................................. 563,000 167,000 730,000

20X4 ............................................................................................................................................. 565,000 167,000 732,000

20X5 ............................................................................................................................................. 568,000 168,000 736,000

20X6 ............................................................................................................................................. 570,000 169,000 739,000

9. Employee Benefits:

Substantially all of the employees of the Association are covered by the ABC Retirement and Security Program, a defined benefit pension plan.

In addition to pension contributions the Association provides health care benefits for substantially all retired employees and dependents

until they reach age 65.

The following illustrates the pension and postretirement benefits plans for the year ended December 31, 20X1 and 20X0.

Pension benefits Other benefits

20X1 20X0 20X1 20X0

Benefit obligation at December 31 .......................................................... $1,762,000 $2,080,000 $1,899,000 $1,800,000

Fair value of plan assets at December 31 .............................................. 715,000 513,000 0 0

Funded status .......................................................................................... $(1,047,000) $(1,567,000) $(1,899,000) $(1,800,000)

Prepaid (Accrued) benefit cost ................................................................ $(243,000) $(365,000) $(1,004,000) $(841,000)

Weighted-average assumptions as of December 31:

Discount rate .................................................................................... 6.75% 5.50% 8.00% 8.00%

Expected return on plan assets ....................................................... 6.50% 6.00%

Rate of compensation increase ........................................................ 5.00% 5.50% 6.00% 6.00%

For measurement purposes, a 10 percent annual rate of increase in the per capita cost of covered health benefits was assumed for

20X2. The rate was assumed to decrease gradually to 5 percent and remain at that level thereafter.

Pension benefits Other benefits

20X1 20X0 20X1 20X0

Benefit cost .............................................................................................. $253,000 $232,000 $220,000 $220,000

Employer Contribution ............................................................................. 160,000 225,000 57,000 55,000

Benefits Paid ............................................................................................ (7,000) (48,000) (57,000) (55,000)

10. Deferred Credits:

Following is a summary of the amounts recorded as deferred credits as of December 31, 20X1 and 20X0:

20X1 20X0

Customer Energy Prepayments .............................................................................................................................. $33,000 $15,000

Inventory Adjustment ............................................................................................................................................... 26,000 38,000

$59,000 $53,000

11. Litigation:

The association is a defendant in an action in which the plaintiff claims damages totaling $200,000 for personal injuries sustained. The

action has been dismissed by the District Court, but is on appeal before the State Supreme Court. Management is of the opinion that

no liability will be incurred by the association as a result of this action.

12. Commitments:

Under its wholesale power agreement, the association is committed to purchase its electric power and energy requirements from Fall

River Power Cooperative, Inc., until December 31, 20X7. The rates paid for such purchases are subject to review annually.

27844 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

Exhibit 5—Illustrative Independent Auditor’s

Management Letter for Electric Borrowers

RUS requires that CPAs auditing RUS

borrowers provide a management letter in

accordance with § 1773.33. This letter must

be signed by the CPA, bear the same date as

the auditor’s report, and be addressed to the

borrower’s board of directors.

Illustrative Independent Auditors’

Management Letter for Electric Borrowers

March 2, 20X2

Board of Directors

Center County Electric Energy Association,

Inc.

[City, State]

We have audited the financial statements

of Center County Electric Energy Association,

Inc. for the year ended December 31, 20X1,

and have issued our report thereon dated

March 2, 20X2. We conducted our audit in

accordance with generally accepted auditing

standards, the standards applicable to

financial audits contained in Government

Auditing Standards issued by the

Comptroller General of the United States, and

7 CFR Part 1773, Policy on Audits of Rural

Utilities Service (RUS) Borrowers. Those

standards require that we plan and perform

the audit to obtain reasonable assurance

about whether the financial statements are

free of material misstatement.

In planning and performing our audit of

the financial statements of Center County

Electric Energy Association, Inc. for the year

ended December 31, 20X1, we considered its

internal control over financial reporting in

order to determine our auditing procedures

for the purpose of expressing an opinion on

the financial statements and not to provide

assurance on the internal control over

financial reporting.

Our consideration of the internal control

over financial reporting would not

necessarily disclose all matters in the

internal control over financial reporting that

might be material weaknesses. A material

weakness is a condition in which the design

or operation of one or more of the internal

control components does not reduce to a

relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting that we

consider to be material weaknesses. [If a

material weakness was noted, refer the reader

to the independent auditors’ report on

compliance and on internal control over

financial reporting.]

Section 1773.33 requires comments on

specific aspects of the internal control over

financial reporting, compliance with specific

RUS loan and security instrument provisions,

and other additional matters. We have

grouped our comments accordingly. In

addition to obtaining reasonable assurance

about whether the financial statements are

free from material misstatements, at your

request, we performed tests of specific

aspects of the internal control over financial

reporting, of compliance with specific RUS

loan and security instrument provisions, and

of additional matters. The specific aspects of

the internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and

additional matters tested include, among

other things, the accounting procedures and

records, materials control, compliance with

specific RUS loan and security instrument

provisions set forth in § 1773.33(e)(1), related

party transactions, depreciation rates, a

schedule of deferred debits and credits, and

a schedule of investments upon which we

express an opinion. In addition, our audit of

the financial statements also included the

procedures specified in § 1773.38 through

1773.45. Our objective was not to provide an

opinion on these specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, or additional

matters, and accordingly, we express no

opinion thereon.

No reports other than our independent

auditors’ report and our independent

auditors’ report on compliance and on

internal control over financial reporting, all

dated March 2, 2002 or summary of

recommendations related to our audit have

been furnished to management.

Our comments on specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and other

additional matters as required by § 1773.33

are presented below.

Comments on Certain Specific Aspects of the

Internal Control Over Financial Reporting

We noted no matters regarding Center

County Electric Energy Association, Inc.’s

internal control over financial reporting and

its operation that we consider to be a material

weakness as previously defined with respect

to:

—The accounting procedures and records

[list other comments];

—The process for accumulating and

recording labor, material, and overhead

costs, and the distribution of these costs to

construction, retirement, and maintenance

or other expense accounts [list other

comments]; and

—The materials control [list other

comments].

Comments on Compliance With Specific RUS

Loan and Security Instrument Provisions

At your request, we have performed the

procedures enumerated below with respect to

compliance with certain provisions of laws,

regulations, contracts, and grants. The

procedures we performed are summarized as

follows:

—Procedures performed with respect to the

requirement for a borrower to obtain

written approval of the mortgagee to enter

into any contract for the operation or

maintenance of property, or for the use of

mortgaged property by others for the year

ended December 31, 20X1:

1. Obtained and read a borrower-prepared

schedule of new written contracts entered

into during the year for the operation or

maintenance of its property, or for the use of

its property by others as defined in

§ 1773.33(e)(1)(i).

2. Reviewed Board of Director minutes to

ascertain whether board-approved written

contracts are included in the borrowerprepared schedule.

3. Noted the existence of written RUS [and

other mortgagee] approval of each contract

listed by the borrower.

—Procedure performed with respect to the

requirement to submit RUS Form 7 or

Form 12 to the RUS:

1. Agreed amounts reported in Form 7 or

Form 12 to Center County Electric Energy

Association, Inc.’s records.

The results of our tests indicate that, with

respect to the items tested, Center County

Electric Energy Association, Inc. complied,

except as noted below, in all material

respects, with the specific RUS loan and

security instrument provisions referred to

below. The specific provisions tested, as well

as any exceptions noted, include the

requirements that:

—The borrower has obtained written

approval of the RUS [and other mortgagees]

to enter into any contract for the operation

or maintenance of property, or for the use

of mortgaged property by others as defined

in § 1773.33(e)(1)(i) [list all exceptions];

and

—The borrower has submitted its Form 7 or

Form 12 to the RUS and the Form 7 or

Form 12, Financial and Statistical Report,

as of December 31, 20X1, represented by

the borrower as having been submitted to

RUS is in agreement with the Center

County Electric Energy Association, Inc.’s

audited records in all material respects [list

all exceptions] [or if the audit year end is

other than December 31], appears

reasonable based upon the audit

procedures performed [list all exceptions].

Comments on Other Additional Matters

In connection with our audit of the

financial statements of Center County

Electric Energy Association, Inc., nothing

came to our attention that caused us to

believe that Center County Electric Energy

Association, Inc. failed to comply with

respect to:

—The reconciliation of continuing property

records to the controlling general ledger

plant accounts addressed at § 1773.33(c)(1)

[list all exceptions];

—The clearing of the construction accounts

and the accrual of depreciation on

completed construction addressed at

§ 1773.33(c)(2) [list all exceptions];

—The retirement of plant addressed at

§ 1773.33(c)(3) and (4) [list all exceptions];

—Approval of the sale, lease, or transfer of

capital assets and disposition of proceeds

for the sale or lease of plant, material, or

scrap addressed at § 1773.33(c)(5) [list all

exceptions];

—The disclosure of material related party

transactions, in accordance with Statement

of Financial Accounting Standards No. 57,

Related Party Transactions, for the year

ended December 31, 2001, in the financial

statements referenced in the first paragraph

of this report addressed at § 1773.33(f) [list

all exceptions];

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27845

—The depreciation rates addressed at

§ 1773.33(g) [list all exceptions];

—The detailed schedule of deferred debits

and deferred credits; and

—The detailed schedule of investments.

Our audit was made for the purpose of

forming an opinion on the basic financial

statements taken as a whole. The detailed

schedule of deferred debits and deferred

credits required by § 1773.33(h) and the

detailed schedule of investments required by

§ 1773.33(i), and provided below, are

presented for purposes of additional analysis

and are not a required part of the basic

financial statements. This information has

been subjected to the auditing procedures

applied in our audit of the basic financial

statements and, in our opinion, is fairly

stated in all material respects in relation to

the basic financial statements taken as a

whole.

[The detailed schedule of deferred debits

and deferred credits would be included here.

The total amount of deferred debits and

deferred credits as reported in the schedule

must agree with the totals reported on the

Balance Sheet under the specific captions of

‘‘Deferred Debits’’ and ‘‘Deferred Credits’’.

Those items that have been approved, in

writing, by RUS should be clearly indicated.]

[The detailed schedule of investments

would be included here. The total of the

investment in each company reported must

agree with the detail investment subsidiary

account(s).]

This report is intended solely for the

information and use of the board of directors,

management, and the RUS and supplemental

lenders and is not intended to be and should

not be used by anyone other than these

specified parties. However, this report is a

matter of public record and its distribution is

not limited.

Certified Public Accountants

Appendix B to RUS Bulletin 1773–1—

Sample Auditor’s Report for a Class A

or B Commercial Telecommunications

Company

Appendix B includes an example of a

short-form auditor’s report, report on

compliance and on internal control over

financial reporting, financial statements and

accompanying notes for a commercial

telecommunications company. The sample

auditor’s report is intended as a guide only

and, while it is recommended that the format

be followed, each auditor’s report should be

prepared to adequately cover the

circumstances. To the extent possible, it

should be used as a guide in preparing

auditors’ reports for other types of

telecommunications borrowers.

Exhibit 1—Sample Auditor’s Report

Certified Public Accountants, 1600 Main

Street, City, State 24105

The Board of Directors, Center County

Telecommunications Systems, Inc.:

Independent Auditor’s Report

We have audited the accompanying

balance sheets of Center County

Telecommunications Systems, Inc., as of

December 31, 20X1 and 20X0, and the related

statements of revenue and patronage capital,

and cash flows for the years then ended.

These financial statements are the

responsibility of Center County

Telecommunications Systems Inc.’s

management. Our responsibility is to express

an opinion on these financial statements

based on our audit.

We conducted our audit in accordance

with generally accepted auditing standards

and the standards applicable to financial

audits contained in Government Auditing

Standards, issued by the Comptroller General

of the United States. Those standards require

that we plan and perform the audit to obtain

reasonable assurance about whether the

financial statements are free of material

misstatement. An audit includes examining,

on a test basis, evidence supporting the

amounts and disclosures in the financial

statements. An audit also includes assessing

the accounting principles used and

significant estimates made by management,

as well as evaluating the overall financial

statement presentation. We believe that our

audits provide a reasonable basis for our

audit.

In our opinion, the financial statements

referred to above present fairly, in all

material respects, the financial position of

Center County Telecommunications Systems,

Inc. as of December 31, 20X1 and 20X0, and

the results of its operations and its cash flows

for the years then ended in conformity with

general accepted accounting principles.

In accordance with Government Auditing

Standards, we have also issued our report

dated March 2, 20X2, on our consideration of

Center County Telecommunications Systems,

Inc.’s internal control over financial reporting

and our tests of its compliance with certain

provisions of laws, regulations, contracts,

and grants. That report is an integral part of

an audit performed in accordance with

Government Auditing Standards and should

be read in conjunction with this report in

considering the results of our audit.

Certified Public Accountants

March 2, 20X2

Exhibit 2—Sample Report on Compliance

and on Internal Control Over Financial

Reporting, the CPA Found No Reportable

Instances of Noncompliance and No Material

Weaknesses (No Reportable Conditions

Identified)

Certified Public Accountants, 1600 Main

Street, City, State 24105

The Board of Directors, Center County

Telecommunications Systems, Inc.:

We have audited the financial statements

of Center County Telecommunications

Systems, Inc. as of and for the years ended

December 31, 20X1 and 20X0, and have

issued our report thereon dated March 2,

20X2. We conducted our audit in accordance

with generally accepted auditing standards

and the standards applicable to financial

audits contained in Government Auditing

Standards, issued by the Comptroller General

of the United States.

Compliance

As part of obtaining reasonable assurance

about whether Center County

Telecommunications Systems, Inc.’s

financial statements are free of material

misstatement, we performed tests of its

compliance with certain provisions of laws,

regulations, contracts, and grants,

noncompliance with which could have a

direct and material effect on the

determination of financial statement

amounts. However, providing an opinion on

compliance with those provisions was not an

objective of our audit, and accordingly, we

do not express such an opinion. The results

of our tests disclosed no instances of

noncompliance that are required to be

reported under Government Auditing

Standards. [If the CPA has issued a separate

letter to the management detailing immaterial

instances of noncompliance, modify this

paragraph to include a statement such as the

following: However, we noted certain

immaterial instances of noncompliance

which we have reported to the management

of Center County Telecommunications

Systems, Inc. in a separate letter dated March

2, 20X1.]

Internal Control Over Financial Reporting

In planning and performing our audit, we

considered Center County

Telecommunications Systems, Inc.’s internal

control over financial reporting in order to

determine our auditing procedures for the

purpose of expressing our opinion on the

financial statements and not to provide

assurance on the internal control over

financial reporting. Our consideration of the

internal control over financial reporting

would not necessarily disclose all matters in

the internal control over financial reporting

that might be material weaknesses. A

material weakness is a condition in which

the design or operation of one or more of the

internal control components does not reduce

to a relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting and its

operation that we consider to be material

weaknesses. [If the CPA has issued a separate

letter to management to communicate other

matters involving the design and operation of

the internal control over financial reporting,

modify this paragraph to include a statement

such as the following: However, we noted

other matters involving the internal control

over financial reporting which we have

reported to the management of Center County

Telecommunications Systems Inc., in a

separate letter dated March 2, 20X2.]

This report is intended solely for the

information and use of the audit committee,

management, the Rural Utilities Service, and

supplemental lenders and is not intended to

be and should not be used by anyone other

than these specified parties. However, this

report is a matter of public record and its

distribution is not limited.

Certified Public Accountants

March 2, 20X2

27846 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

Exhibit 3—Sample Report on Compliance

and on Internal Control Over Financial

Reporting, the CPA Found Reportable

Instances of Noncompliance and Reportable

Conditions Were Identified

Certified Public Accountants, 1600 Main

Street, City, State 24105

The Board of Directors, Center County

Telecommunications Systems Inc.

We have audited the financial statements

of Center County Telecommunications

Systems Inc., as of and for the years ended

December 31, 20X1 and 20X0, and have

issued our report thereon dated March 2,

20X2. We conducted our audit in accordance

with generally accepted auditing standards

and the standards applicable to financial

audits contained in Government Auditing

Standards, issued by the Comptroller General

of the United States.

Compliance

As part of obtaining reasonable assurance

about whether Center County

Telecommunications Systems’ financial

statements are free of material misstatement,

we performed tests of its compliance with

certain provisions of laws, regulations,

contracts, and grants, noncompliance with

which could have a direct and material effect

on the determination of financial statement

amounts. However, providing an opinion on

compliance with those provisions was not an

objective of our audit, and accordingly, we

do not express such an opinion. The results

of our tests disclosed instances of

noncompliance that are required to be

reported under Government Auditing

Standards. [A description of the findings

should be included in the report.] [If the CPA

has issued a separate letter to the

management detailing immaterial instances

of noncompliance, modify this paragraph to

include a statement such as the following:

We also noted certain immaterial instances of

noncompliance which we have reported to

the management of Center County

Telecommunications Systems, Inc. in a

separate letter dated March 2, 20X2.]

Internal Control Over Financial Reporting

In planning and performing our audit, we

considered Center County

Telecommunications Systems, Inc.’s internal

control over financial reporting in order to

determine our auditing procedures for the

purpose of expressing our opinion on the

financial statements and not to provide

assurance on the internal control over

financial reporting. However, we noted

certain matters involving the internal control

over financial reporting and its operation that

we consider to be reportable conditions.

Reportable conditions involve matters

coming to our attention relating to significant

deficiencies in the design or operation of the

internal control over financial reporting that,

in our judgment, could adversely affect

Center County Telecommunications Systems,

Inc.’s ability to record, process, summarize

and report financial data consistent with the

assertions of management in the financial

statements. [A description of the findings

pertaining to reportable conditions should be

included in the report.]

A material weakness is a condition in

which the design or operation of one or more

of the internal control components does not

reduce to a relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. Our

consideration of the internal control over

financial reporting would not necessarily

disclose all matters in the internal control

that might be reportable conditions and,

accordingly, would not necessarily disclose

all reportable conditions that are also

considered to be material weaknesses.

However, we believe none of the reportable

conditions described above is a material

weakness. [If conditions believed to be

material weaknesses are disclosed, the last

sentence should be deleted and instead the

report should identify which of the

reportable conditions described above are

considered to be material weaknesses.] [If the

CPA has issued a separate letter to

management to communicate other matters

involving the design and operation of the

internal control over financial reporting,

modify this paragraph to include a statement

such as the following: We also noted other

matters involving the internal control over

financial reporting which we have reported

to the management of Center County

Telecommunications Systems, Inc., in a

separate letter dated March 2, 20X2.]

This report is intended solely for the

information and use of the audit committee,

management, the Rural Utilities Service, and

supplemental lenders and is not intended to

be and should not be used by anyone other

than these specified parties. However, this

report is a matter of public record and its

distribution is not limited.

Certified Public Accountants

March 2, 20X2

Exhibit 4—Sample Financial Statement

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 20X1 AND 20X0 ASSETS

[Notes 1 and 2]

20X1 20X0

Current Assets:

Cash—Construction Funds .............................................................................................................................. $500 $300

Cash—General Funds ...................................................................................................................................... 60,000 32,000

Temporary Investments .................................................................................................................................... 26,000 24,000

Accounts Receivable, less accumulated provision of $35,000 in 20X1 and $34,000 in 20X0. ...................... 740,000 667,000

Materials and Supplies ..................................................................................................................................... 250,000 210,000

Prepayments (Note 3) ...................................................................................................................................... 50,000 31,700

Other Current Assets ........................................................................................................................................ 25,000 30,000

Total Current Assets ................................................................................................................................. 1,151,500 995,000

Noncurrent Assets:

Investments (Note 4):

Marketable Securities ................................................................................................................................ 741,500 705,000

Nonregulated ............................................................................................................................................. 1,550,000 1,450,000

Other deferred charges .................................................................................................................................... 39,000 12,000

Total Noncurrent Assets ............................................................................................................................ 2,330,500 2,167,000

Property, Plant and Equipment:

Telecommunications Plant in Service (Note 5) ................................................................................................ 22,800,000 20,100,000

Telecommunications Plant Under Construction ............................................................................................... 1,200,000 1,100,000

24,000,000 21,200,000

Accumulated Provision for Depreciation .......................................................................................................... 8,500,000 7,200,000

Total Property, Plant and Equipment ........................................................................................................ 15,500,000 14,000,000

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27847

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 20X1 AND 20X0 ASSETS—

Continued

[Notes 1 and 2]

20X1 20X0

Total Assets ............................................................................................................................................................. $18,982,000 $17,162,000

The accompanying notes are an integral part of these statements.

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 20X1 AND 20X0 LIABILITIES

AND RETAINED EARNINGS

[Note 2]

20X1 20X0

Current Liabilities:

Accounts Payable ............................................................................................................................................. $320,000 $324,000

Customer Deposits ........................................................................................................................................... 33,000 30,000

Current portion of long-term debt ..................................................................................................................... 579,000 449,000

Accrued Taxes .................................................................................................................................................. 500 49,800

Other Current Liabilities .................................................................................................................................... 22,000 15,000

Total Current Liabilities ............................................................................................................................. 954,500 867,800

Long-term debt:

RUS Mortgage Notes, less current portion (Note 6) ........................................................................................ 8,900,000 8,100,000

Accrued Postretirement benefits (Note 7) ........................................................................................................ 664,000 503,000

Total Long-term liabilities .......................................................................................................................... 9,564,000 8,603,000

Other Liabilities and Deferred Credits:

Deferred Income Taxes (Note 8) ..................................................................................................................... 190,000 176,000

Other ................................................................................................................................................................. 110,000 98,000

Total Other Liabilities and Deferred Credits ............................................................................................. 300,000 274,000

Stockholder’s Equities:

Capital Stock—Common $100 par value—5,000 shares authorized; 3,500 outstanding 20X1 and 20X0 ..... 350,000 350,000

Additional Paid-in Capital ................................................................................................................................. 250,000 250,000

Retained Earnings ............................................................................................................................................ 7,560,500 6,814,800

Accumulated Other Comprehensive Income (Loss) ........................................................................................ 3,000 2,400

Total Stockholder’s Equities ...................................................................................................................... 8,163,500 7,417,200

Total Equities and Liabilities .................................................................................................................................... $18,982,000 $17,162,000

The accompanying notes are an integral part of these statements.

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE

YEARS ENDED DECEMBER 31, 20X1 AND 20X0

20X1 20X0

Operating Revenues:

Local Network Services ................................................................................................................................ $1,481,000 $924,000

Network Access Services ............................................................................................................................. 3,706,700 3,023,800

Billing and Collection Services ..................................................................................................................... 306,000 279,000

Miscellaneous ............................................................................................................................................... 206,000 139,000

Less: Uncollectible Revenues ...................................................................................................................... (26,000) (22,000)

Total Operating Revenues .................................................................................................................... 5,673,700 4,343,800

Operating Expenses:

Plant Specific Operations ............................................................................................................................. 976,000 676,000

Plant Nonspecific Operations ....................................................................................................................... 222,000 174,000

Depreciation and Amortization ..................................................................................................................... 1,341,000 855,000

Customer Operations ................................................................................................................................... 737,000 544,000

Corporate Operations ................................................................................................................................... 1,034,000 809,000

Other Taxes .................................................................................................................................................. 26,000 36,000

Total Operating Expenses ..................................................................................................................... 4,336,000 3,094,000

Operating Income ................................................................................................................................................ 1,337,700 1,249,800

Other Income (Expense):

27848 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE

YEARS ENDED DECEMBER 31, 20X1 AND 20X0—Continued

20X1 20X0

Interest and dividend income ....................................................................................................................... 238,000 236,000

Interest expense ........................................................................................................................................... (489,000) (429,000)

Interest during construction .......................................................................................................................... 53,000 28,000

Net Other Income and Expenses .......................................................................................................... (198,000) (165,000)

Income Before Income Taxes ............................................................................................................................. 1,139,700 1,084,800

Income Taxes ...................................................................................................................................................... 126,000 81,000

Net Income Before Nonregulated Income ........................................................................................................... 1,013,700 1,003,800

Nonregulated Income .......................................................................................................................................... 33,000 27,000

Net Income for the Period ................................................................................................................................... 1,046,700 1,030,800

Retained Earnings at Beginning of Year ............................................................................................................. 6,814,800 6,053,000

Dividends Paid ..................................................................................................................................................... 301,000 269,000

Retained Earnings at End of Year ...................................................................................................................... $7,560,500 $6,814,800

The accompanying notes are an integral part of these statements.

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS

ENDED DECEMBER 31, 20X1 AND 20X0

20X1 20X0

Net Income .............................................................................................................................................................. $1,046,700 $1,030,800

Other Comprehensive Income:

Unrealized holding gains (losses) arising during the year ............................................................................... 600 1,500

Comprehensive Income ........................................................................................................................................... $1,047,300 $1,032,30

The accompanying notes are an integral part of these statements.

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED

DECEMBER 31, 20X1 AND 20X0

20X1 20X0

Cash Flows From Operating Activities:

Cash Received from Consumers ................................................................................................................. $5,382,000 $4,276,000

Cash Paid to Suppliers and Employees ...................................................................................................... (2,580,400) (2,026,200)

Interest Received .......................................................................................................................................... 238,000 236,000

Interest Paid ................................................................................................................................................. (489,000) (429,000)

Taxes Paid .................................................................................................................................................... (141,500) (94,000)

Net Cash Provided by Operating Activities ........................................................................................... 2,409,100 1,962,800

Cash Flows From Investing Activities:

Construction and Acquisition of Plant .......................................................................................................... (2,612,000) (2,523,000)

Plant Removal Costs .................................................................................................................................... (229,000) (82,000)

(Increase) Decrease In:

Materials Inventory ................................................................................................................................ (40,000) (58,000)

Investments in Marketable Securities ................................................................................................... (37,900) (34,500)

Other Investments ................................................................................................................................. (100,000) (135,000)

Deferred Charges .................................................................................................................................. (27,000) 23,000

Nonregulated Income ............................................................................................................................ 33,000 27,000

Net Cash Used in Investing Activities ............................................................................................ (3,012,900) (2,782,500)

Cash Flows From Financing Activities:

Dividends Paid .............................................................................................................................................. (301,000) (269,000)

Debt Proceeds .............................................................................................................................................. 1,379,000 1,158,000

Payments on Long-Term Debt ..................................................................................................................... (449,000) (444,000)

Increase/(Decrease) In:

Consumer Deposits and Advance Payments ....................................................................................... 3,000 13,000

Net Cash Provided by Financing Activities .................................................................................... 632,000 458,000

Net Increase/(Decrease) in Cash .................................................................................................. 28,200 (361,700)

Cash—Beginning of Year .............................................................................................................. 32,300 394,000

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27849

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED

DECEMBER 31, 20X1 AND 20X0—Continued

20X1 20X0

Cash—End of Year ........................................................................................................................ 60,500 32,300

RECONCILIATION OF NET MARGINS TO NET CASH PROVIDED BY OPERATING ACTIVITIES

20X1 20X0

Net Margins ......................................................................................................................................................... $1,046,700 $1,030,800

Less: Nonregulated Income ......................................................................................................................... 33,000 27,000

Net Income from Regulated Operations ............................................................................................... 1,013,700 1,003,800

Adjustments to Reconcile Net Margins to Net Cash Provided by Operating Activities:

Depreciation and Amortization ....................................................................................................... 1,341,000 855,000

Provision for Uncollectible Accounts Receivable ........................................................................... 1,000 1,000

Accumulated Provision for Pensions and Benefits ........................................................................ 161,000 133,000

(Increase)/Decrease In:

Customer and Other Accounts Receivable ................................................................................... (74,000) (69,000)

Current and Accrued Assets—Other ............................................................................................. 5,000 15,000

Prepayments .................................................................................................................................. (18,300) 15,000

Increase/(Decrease) In:

Accounts Payable .......................................................................................................................... (4,000) 29,000

Accrued Taxes ............................................................................................................................... (49,300) (13,000)

Other Current and Accrued Liabilities ............................................................................................ 7,000 (2,000)

Deferred Credits ............................................................................................................................. 26,000 (5,000)

Total Adjustments ................................................................................................................... 959,000 1,395,400

Net Cash Provided by Operating Activities ......................................................................................................... $2,409,100 $1,962,800

(The accompanying notes are an integral part of these statements.)

CENTER COUNTY TELECOMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 20X1 AND

20X0

1. Summary of Significant Accounting Policies:

Include a brief description of the reporting entity’s significant accounting policies in accordance with Accounting Principles Board Opinion No. 22, Disclosure of Accounting Policies.

Disclosure of accounting policies should identify and describe the accounting principles followed by the borrower and the methods of

applying those principles that materially affect the determination of financial position, cash flow, and results of operations.

Disclosures of accounting policies do not have to be duplicated in this section if presented elsewhere as an integral part of the financial

statements.

2. Assets Pledged:

Substantially all assets are pledged as security for long-term debt to RUS.

3. Prepaid Expenses:

Following is a summary of the amounts recorded as prepaid items as of December 31, 20X1 and 20X0:

20X1 20X0

Prepaid Taxes .......................................................................................................................................................... $10,000 $10,000

Prepaid Insurance .................................................................................................................................................... 3,000 1,700

Prepaid Rent ............................................................................................................................................................ 37,000 20,000

$50,000 $31,700

4. Investments:

Marketable Debt and Equity Securities:

Center County Telecommunications System, Inc., has adopted SFAS No. 115, ‘‘Accounting for Certain Investments in Debt and Equity

Securities.’’ In accordance with SFAS No. 115, the company has classified all the Other Investments as available-for-sale. Availablefor-sale investments are stated at fair value with unrealized gains and losses included in stockholder’s equities. The cost of investments sold is based on the specific identification method.

The cost and fair values of marketable securities available-for-sale at December 31, 20X1 and 20X0 were:

Description

20X1

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

U.S. Government Treasury securities ............................................................. $62,500 $2,900 $900 $64,500

Certificate of Deposit ....................................................................................... 420,000 ........................ ........................ 420,000

Debt Securities ................................................................................................ 280,000 6,000 3,000 283,000

27850 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

Description

20X1

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

$762,500 $8,900 $3,900 $767,500

Description

20X0

Amortized cost Gross unrealized gain

Gross unrealized loss Fair value

U.S. Government Treasury securities ............................................................. $68,000 $1,200 $200 $69,000

Certificate of Deposit ....................................................................................... 408,000 ........................ ........................ 408,000

Debt Securities ................................................................................................ 249,000 5,000 2,000 252,000

$725,000 $6,200 $2,200 $729,000

At December 31, 20X1, maturities of investments classified as available-for-sale were as follows:

Amortized cost Fair value

Less than One Year ................................................................................................................................................ $25,000 $26,000

One through Five Years .......................................................................................................................................... 681,000 684,000

After Five Years ....................................................................................................................................................... 56,500 57,500

Total .................................................................................................................................................................. $762,500 $767,500

As of December 31, 20X1 and 20X0, the amount of unrealized gains on available for sale securities included in accumulated other

comprehensive income is shown net of deferred income taxes of $2,000 and $1,600, respectively.

Nonregulated Investments:

Investments in nonregulated activities consist of the following:

20X1 20X0

Customer Premises Equipment ............................................................................................................................... $493,000 $500,000

CATV equipment ..................................................................................................................................................... 650,000 678,000

Cellular facilities ....................................................................................................................................................... 1,329,000 1,047,000

Other ........................................................................................................................................................................ 28,000 35,000

Total Nonregulated Investments ...................................................................................................................... 2,500,000 2,260,000

Less: Accumulated Depreciation ............................................................................................................................. 950,000 810,000

$1,550,000 $1,450,000

Nonregulated property is stated at cost. The company provides for depreciation on a straight-line basis at annual rates which will amortize the depreciable property over its estimated useful life.

Following is a summary of net income from nonregulated investments for the year ending December 31, 20X1 and 20X0:

20X1 20X0

Income ..................................................................................................................................................................... $400,000 $268,000

Expenses ................................................................................................................................................................. 367,000 241,000

$33,000 $27,000

Income tax expense related to these activities totaled $15,000 in 20X1 and $12,000 in 20X0.

5. Investment in Telecommunications Plant:

Telecommunications Plant in Service and under construction is stated at cost. Listed below are the major classes of the telecommunications plant as of December 31, 20X1 and 20X0:

20X1 20X0

Land ......................................................................................................................................................................... $185,000 $185,000

Buildings .................................................................................................................................................................. 1,385,000 1,435,000

Central Office Equipment ........................................................................................................................................ 9,929,000 8,379,000

Outside Plant ........................................................................................................................................................... 10,226,000 9,120,000

Furniture and Office Equipment .............................................................................................................................. 352,000 256,000

Vehicles and Work Equipment ................................................................................................................................ 723,000 725,000

$22,800,000 $20,100,000

The company provides for depreciation on a straight-line basis at annual rates which will amortize the depreciable property over its estimated useful life. Such provision, as a percentage of the average balance of telecommunications plant in service was 7.2 percent in

20X1 and 7.1 percent in 20X0.

6. Mortgage Notes:

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27851

Long-term debt is represented by mortgage notes payable to the United States of America. Following is a summary of outstanding

long-term debt as of December 31, 20X1 and 20X0:

20X1 20X0

2% Notes due September 30, 20X8 ....................................................................................................................... $2,495,000 $2,373,000

5% Notes due March 31, 20X12 ............................................................................................................................. 6,984,000 6,176,000

9,479,000 8,549,000

Less: Current Maturities .......................................................................................................................................... 579,000 449,000

$8,900,000 $8,100,000

As of December 31, 20X1, there were no unadvanced funds.

Principal and interest installments on the above notes are due quarterly in equal amounts of $254,000. As of December 31, 20X1, annual maturities of long-term debt outstanding for the next five years are as follows:

20X2 ......................................................................................................................................................................................................... $579,000

20X3 ......................................................................................................................................................................................................... 600,000

20X4 ......................................................................................................................................................................................................... 612,000

20X5 ......................................................................................................................................................................................................... 624,000

20X6 ......................................................................................................................................................................................................... 637,000

The long-term debt agreements contain restrictions on the payment of dividends or redemption of capital stock. The terms of the Mortgage Agreement require the maintenance of defined amounts in member’s equity and working capital after payment of dividends.

7. Employee Benefits:

Substantially all of the employees of the Company are covered by the ABC Retirement and Security Program, a multiemployer plan.

In addition to pension contributions the Company provides health care benefits for substantially all retired employees and dependents

until they reach age 65.

The following illustrates the pension and postretirement benefits plans for the year ended December 31, 20X1 and 20X0.

Pension benefits Other benefits

20X1 20X0 20X1 20X0

Change in benefit obligation:

Benefit obligation beginning of year ................................................. $1,871,000 $1,841,000 $1,552,000 $1,464,000

Service Cost ..................................................................................... 115,000 145,000 39,000 39,000

Interest Cost ..................................................................................... 95,000 86,000 104,000 104,000

Actuarial Gain ................................................................................... (490,000) (157,000)

Benefits Paid .................................................................................... (6,000) (43,000) (58,000) (56,000)

Benefit obligation at end of year ...................................................... $1,585,000 $1,872,000 $1,637,000 $1,551,000

Change in plan assets:

Fair value of plan assets beginning of year ..................................... $461,000 $281,000 $0 $0

Actual return on plan assets ............................................................ 45,000 21,000

Employer Contribution ...................................................................... 144,000 203,000 58,000 56,000

Benefits Paid .................................................................................... (6,000) (43,000) (58,000) (56,000)

Fair value of plan assets at end of year .......................................... $644,000 $462,000 $0 $0

Funded status ................................................................................... $(941,000) $(1,410,000) $(1,637,000) $(1,551,000)

Unrecognized net actuarial loss (gain) ............................................. (97,000) 428,000 .......................... ..........................

Unrecognized prior service cost ....................................................... 627,000 654,000 .......................... ..........................

Unrecognized transition obligation ................................................... .......................... .......................... 973,000 1,048,000

Prepaid (Accrued) benefit cost ......................................................... $(411,000) $(328,000) $(664,000) $(503,000)

Weighted-average assumptions as of December 31:

Discount rate .................................................................................... 6.75% 5.50% 8.00% 8.00%

Expected return on plan assets ....................................................... 6.50% 6.00% .......................... ..........................

Rate of compensation increase ........................................................ 5.00% 5.50% 6.00% 6.00%

Components of net periodic benefit cost:

Service cost ...................................................................................... $115,000 $145,000 $39,000 $39,000

Interest cost ...................................................................................... 95,000 86,000 104,000 104,000

Expected return on plan assets ....................................................... (33,000) (22,000) .......................... ..........................

Amortization of prior service cost ..................................................... 27,000 27,000 .......................... ..........................

Amortization of transition obligation ................................................. .......................... .......................... 75,000 75,000

Recognized net actuarial loss .......................................................... 24,000 (28,000) .......................... ..........................

Net periodic benefit cost ................................................................... $228,000 $208,000 $218,000 $218,000

8. Income Taxes and Deferred Income Taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of the company’s assets and liabilities for financial reporting basis and the amounts used for income tax purposes.

Deferred federal and state tax assets and liabilities in the accompanying balance sheet include the following:

27852 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations

December 31,

20X1 20X0

Deferred Tax Liabilities:

Federal .............................................................................................................................................................. $192,000 $152,000

State ................................................................................................................................................................. 31,000 25,000

Total Deferred Tax Liabilities: ................................................................................................................... 223,000 177,000

Deferred Tax Assets:

Federal .............................................................................................................................................................. 28,000 700

State ................................................................................................................................................................. 5,000 300

Total Deferred Tax Assets ........................................................................................................................ 33,000 1,000

Net Deferred Tax Liability ........................................................................................................................................ $190,000 $176,000

Current Portion ........................................................................................................................................................ $0 $0

Long-term portion .................................................................................................................................................... 190,000 176,000

Net Deferred Tax Liability ................................................................................................................................. $190,000 $176,000

Income taxes reflected in the Statement of Income and Retained Earnings include:

December 31,

20X1 20X0

Federal income taxes:

Current tax expense ......................................................................................................................................... $103,000 $71,000

Deferred tax expense ....................................................................................................................................... 10,000 5,000

State income taxes:

Current tax expense ......................................................................................................................................... 12,000 6,000

Deferred tax expense ....................................................................................................................................... 1,000 (1,000)

Total income tax expense ......................................................................................................................... $126,000 $81,000

9. Commitments:

The company has executed contracts for construction programs for approximately $1,600,000 at December 31, 20X1. The amount unpaid against these commitments at December 31, 20X1 is $1,100,000.

Exhibit 5–Illustrative Independent Auditor’s

Management Letter for Telecommunications

Borrowers

RUS requires that CPAs auditing RUS

borrowers provide a management letter in

accordance with Section 1773.33. This letter

must be signed by the CPA, bear the same

date as the auditor’s report, and be addressed

to the borrower’s board of directors.

Illustrative Independent Auditors’

Management Letter for Telecommunications

Borrowers

March 2, 20X2

Board of Directors

Center County Telecommunications Systems,

Inc.

[City, State]

We have audited the financial statements

of Center County Telecommunications

Systems, Inc. for the year ended December

31, 20X1, and have issued our report thereon

dated March 2, 20X2. We conducted our

audit in accordance with generally accepted

auditing standards, the standards applicable

to financial audits contained in Government

Auditing Standards issued by the

Comptroller General of the United States, and

7 CFR Part 1773, Policy on Audits of Rural

Utilities Service (RUS) Borrowers. Those

standards require that we plan and perform

the audit to obtain reasonable assurance

about whether the financial statements are

free of material misstatement.

In planning and performing our audit of

the financial statements of Center County

Telecommunications Systems, Inc. for the

year ended December 31, 20X1, we

considered its internal control over financial

reporting in order to determine our auditing

procedures for the purpose of expressing an

opinion on the financial statements and not

to provide assurance on the internal control

over financial reporting.

Our consideration of the internal control

over financial reporting would not

necessarily disclose all matters in the

internal control over financial reporting that

might be material weaknesses. A material

weakness is a condition in which the design

or operation of one or more of the internal

control components does not reduce to a

relatively low level the risk that

misstatements in amounts that would be

material in relation to the financial

statements being audited may occur and not

be detected within a timely period by

employees in the normal course of

performing their assigned functions. We

noted no matters involving the internal

control over financial reporting that we

consider to be material weaknesses. [If a

material weakness was noted, refer the reader

to the independent auditors’ report on

compliance and on internal control over

financial reporting.]

Section 1773.33 requires comments on

specific aspects of the internal control over

financial reporting, compliance with specific

RUS loan and security instrument provisions,

and other additional matters. We have

grouped our comments accordingly. In

addition to obtaining reasonable assurance

about whether the financial statements are

free from material misstatements, at your

request, we performed tests of specific

aspects of the internal control over financial

reporting, of compliance with specific RUS

loan and security instrument provisions, and

of additional matters. The specific aspects of

the internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and

additional matters tested include, among

other things, the accounting procedures and

records, materials control, compliance with

specific RUS loan and security instrument

provisions set forth in § 1773.33(e)(2), and

related party transactions and investments. In

addition, our audit of the financial

statements also included the procedures

specified in § 1773.38 through 1773.45. Our

objective was not to provide an opinion on

these specific aspects of the internal control

over financial reporting, compliance with

specific RUS loan and security instrument

provisions, or additional matters, and

accordingly, we express no opinion thereon.

No reports other than our independent

auditors’ report, and our independent

auditors’ report on compliance and on

internal control over financial reporting, all

dated March 2, 20X2 or summary of

recommendations related to our audit have

been furnished to management.

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Rules and Regulations 27853

Our comments on specific aspects of the

internal control over financial reporting,

compliance with specific RUS loan and

security instrument provisions, and other

additional matters as required by § 1773.33

are presented below.

Comments on Certain Specific Aspects of the

Internal Control Over Financial Reporting

We noted no matters regarding Center

County Telecommunications Systems, Inc.’s

internal control over financial reporting and

its operation that we consider to be a material

weakness as previously defined with respect

to:

—The accounting procedures and records

[list other comments];

—The process for accumulating and

recording labor, material, and overhead

costs, and the distribution of these costs to

construction, retirement, and maintenance

or other expense accounts [list other

comments]; and

—The materials control [list other

comments].

Comments on Compliance With Specific RUS

Loan and Security Instrument Provisions

At your request, we have performed the

procedures enumerated below with respect to

compliance with certain provisions of laws,

regulations, contracts, and grants. The

procedures we performed are summarized as

follows:

—Procedures performed with respect to the

requirement for a borrower to obtain

written approval of the mortgagee to enter

into any contract, agreement or lease

between the borrower and an affiliate of

Center County Telecommunications

Systems, Inc. for the year ended December

31, 20X1:

1. Obtained and read a borrower-prepared

schedule of new written contracts,

agreements or leases entered into during the

year between the borrower and an affiliate as

defined in § 1773.33(e)(2)(i).

2. Reviewed Board of Director minutes to

ascertain whether board-approved written

contracts are included in the borrowerprepared schedule.

3. Noted the existence of written RUS [and

other mortgagee] approval of each contract

listed by the borrower.

—Procedure performed with respect to the

requirement to submit RUS Form 479 to

the RUS:

1. Agreed amounts reported in Form 479 to

Center County Telecommunications Systems,

Inc.’s records.

The results of our tests indicate that, with

respect to the items tested, Center County

Telecommunications Systems, Inc. complied,

except as noted below, in all material

respects, with the specific RUS loan and

security instrument provisions referred to

below. The specific provisions tested, as well

as any exceptions noted, include the

requirements that:

—The borrower has obtained written

approval of the RUS [and other mortgagees]

to enter into any contract agreement or

lease with an affiliate as defined in

§ 1773.33(e)(2)(i) [list all exceptions]; and

—The borrower has submitted its Form 479

to the RUS and the Form 479, Financial

and Statistical Report, as of December 31,

20X1, represented by the borrower as

having been submitted to RUS is in

agreement with the Center County

Telecommunications Systems, Inc.’s

audited records in all material respects [list

all exceptions] [or if the audit year end is

other than December 31], appears

reasonable based upon the audit

procedures performed [list all exceptions].

Comments on Other Additional Matters

In connection with our audit of the

financial statements of Center County

Telecommunications Systems, Inc., nothing

came to our attention that caused us to

believe that Center County

Telecommunications Systems, Inc. failed to

comply with respect to:

—The reconciliation of continuing property

records to the controlling general ledger

plant accounts addressed at § 1773.33(c)(1)

[list all exceptions];

—The clearing of the construction accounts

and the accrual of depreciation on

completed construction addressed at

§ 1773.33(c)(2) [list all exceptions];

—The retirement of plant addressed at

§ 1773.33(c)(3) and (4) [list all exceptions];

—The approval of the sale, lease, or transfer

of capital assets and disposition of

proceeds for the sale of lease of plant,

material, or scrap addressed at

§ 1773.33(c)(5) [list all exceptions];

—The disclosure of material related party

transactions, in accordance with Statement

of Financial Accounting Standards No. 57,

Related Party Transactions, for the year

ended December 31, 20X1, in the financial

statements referenced in the first paragraph

of this report addressed at § 1773.33(f) [list

all exceptions]; and

—The detailed schedule of investments.

Our audit was made for the purpose of

forming an opinion on the basic financial

statements taken as a whole. The detailed

schedule of investments required by

§ 1773.33(i) and provided below is presented

for purposes of additional analysis and is not

a required part of the basic financial

statements. This information has been

subjected to the auditing procedures applied

in our audit of the basic financial statements

and, in our opinion, is fairly stated in all

material respects in relation to the basic

financial statements taken as a whole.

[The detailed schedule of investments would

be included here. The total of the investment

in each company reported must agree with

the detail investment subsidiary account(s).]

This report is intended solely for the

information and use of the board of directors,

management, and the RUS and supplemental

lenders and is not intended to be and should

not be used by anyone other than these

specified parties. However, this report is a

matter of public record and its distribution is

not limited.

Certified Public Accountants

[FR Doc. 01–12127 Filed 5–18–01; 8:45 am]

BILLING CODE 3410–15–P

DEPARTMENT OF ENERGY

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 431

RIN 1904–AB06

Energy Efficiency Program for

Commercial and Industrial Equipment:

Efficiency Standards for Commercial

Heating, Air Conditioning and Water

Heating Equipment

AGENCY: Department of Energy (DOE).

ACTION: Final rule; completion of

regulatory review.

SUMMARY: On January 12, 2001, DOE

published in the Federal Register the

final rule entitled ‘‘Energy Efficiency

Program for Commercial and Industrial

Equipment: Efficiency Standards for

Commercial Heating, Air Conditioning

and Water Heating Equipment’’ (66 FR

3336). In accordance with the

memorandum of January 20, 2001, from

the Assistant to the President and Chief

of Staff, entitled ‘‘Regulatory Review

Plan,’’ published in the Federal Register

on January 24, 2001 (66 FR 7702), DOE

temporarily delayed for 60 days the

effective date of that rule (66 FR 8745,

February 2, 2001). DOE has now

completed its review of that regulation,

and does not intend to initiate any

further rulemaking action to modify its

provisions.

DATES: The effective date of the rule

amending 10 CFR part 431 published at

66 FR 3336, January 12, 2001, and

delayed at 66 FR 8745, February 2,

2001, is confirmed as April 13, 2001.

FOR FURTHER INFORMATION CONTACT: Jill

Holtzman, Office of General Counsel,

(202) 586–3410,

jill.holtzman@hq.doe.gov or Lawrence

R. Oliver, Office of the General Counsel,

(202) 586–9521,

lawrence.oliver@hq.doe.gov or Cyrus

Nasseri, Office of Energy Efficiency and

Renewable Energy, (202) 586–9138,

cyrus.nasseri@ee.doe.gov.

Issued in Washington, DC on May 14,

2001.

Spencer Abraham,

Secretary of Energy.

[FR Doc. 01–12686 Filed 5–18–01; 8:45 am]

BILLING CODE 6450–01–P