A Performance Audit of the Utah Telecommunication Open ...

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the organization’s general management practices. To address theirconcerns, we developed an audit plan to review the following areas:The size and use of UTOPIA’s debt financingThe causes leading to UTOPIA’s current financialconditionUTOPIA’s management and board governance practicesChapter II describes how UTOPIA has used $185 million in debtfinancing. Chapter III examines causes for UTOPIA’s performance todate. Chapter IV identifies steps that the UTOPIA board andmanagement can take to improve their oversight and control of theorganization.This audit addressesUTOPIA’s debt, pastproblems, andmanagement practices.Due to a lack of reliable information, the audit team found itdifficult to document much of UTOPIA’s operating activities. Thefinancial records are independently audited and were found to becomplete and accurate. We also conducted some tests to verify theaccuracy of the subscriber counts included in this report. However, wefound a lack of reliable data regarding the agency’s past and ongoingoperating activities. For this reason, the audit staff was required to relyheavily on information gathered during interviews with principal staff,board members, and consultants.- 4 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
Chapter IIUTOPIA Faces a ChallengingFinancial SituationIn 2003, the Utah Telecommunication Open InfrastructureAgency (UTOPIA) set out to quickly build a fiber-optic network thatwould reach each residence and business within its member cities.Those associated with UTOPIA believed that, once its network wasbuilt, it would sign up enough network subscribers to generate apositive cash flow within a few years. However, nine years have passedsince construction began and only one-third of the network has beencompleted. Because cost increases have outpaced the growth inrevenue, the agency has consistently posted large annual operatingdeficits. As a result, UTOPIA has found itself in a weakened financialcondition.One underlying challenge is that UTOPIA’s infrastructureinvestment is not producing sufficient revenue. In most areas whereconstruction has been completed, UTOPIA has insufficient subscribersto cover the cost of building and operating the infrastructure.Additionally, UTOPIA made a large investment in other sections ofthe network where the network infrastructure was never completed.Until UTOPIA completes the stranded sections of the network, thosesections will not produce any revenue. UTOPIA officials report thatsince 2008, UTOPIA has been working to put its strandedinvestments into production.UTOPIA’s Ambitious GoalsHave Not Been MetUTOPIA originally planned to build a broadband network in threeyears and to achieve a positive cash flow in five years. However, it hasnot met that schedule. Instead, the cost of financing and operating thenetwork increased before UTOPIA could provide a substantialnumber of customers with service. As a result, revenues have not beensufficient to cover its costs. Year after year, as operating deficits haveaccrued, the agency developed a large negative asset balance.UTOPIA has not metgrowth or revenuetargets established in2003.Office of the Utah Legislative Auditor General - 5 -
Page 1: REPORT TO THEUTAH LEGISLATURENumber
Page 5: DigestA Performance Audit ofUtah Te
Page 9: Table of ContentsDigest ...........
Page 12 and 13: will be funded through UIA financin
Page 16 and 17: UTOPIA Did Not Reach Its Goal to Bu
Page 18 and 19: UTOPIA did notachieve its goal toco
Page 20 and 21: Figure 2.4 Summary of the Agencies
Page 22 and 23: efinancing, the maximum amount pled
Page 24 and 25: One consequence of the slow growth
Page 26 and 27: factors in deciding where to build.
Page 28 and 29: completed in a timely fashion and h
Page 30 and 31: Figure 2.10 Seven Years of Operatin
Page 32 and 33: Figure 2.11 By 2010, UTOPIA Had Spe
Page 34 and 35: plan did not anticipate the difficu
Page 36 and 37: end of 2010, 3,698 former subscribe
Page 38 and 39: Uncollected revenuesfrom retail pro
Page 40 and 41: agreed to provide UTOPIA with a $66
Page 42 and 43: As problems mounted, the board deci
Page 44 and 45: The data in Figure 3.2 shows that,
Page 46 and 47: As stated previously, two possible
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Page 50 and 51: UTOPIA Has a New Development PlanAi
Page 52 and 53: Centerville and in its legacy areas
Page 54 and 55: UTOPIA shouldidentify specific area
Page 56 and 57: e applied. Not surprisingly, we fou
Page 58 and 59: act in its entirety. Also, the agen
Page 60 and 61: Manual, which describes how local a
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separate public body that must comp
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public entities that are subject to
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Five‐Year Plan Summary 2Agency (U
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Five‐Year Plan Summary 4cities’
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