A RISK-BASED AUDIT METHODOLOGY FOR ELECTRICITY LOSSES IN DISTRIBUTION UTILITIES: EVIDENCE FROM UZBEKISTAN

Abstract

Electricity losses are the largest expense of distribution utilities, yet they are typically recorded in aggregate and audited using general-purpose procedures. At the Jizzakh branch of Hududiy Elektr Tarmoqlari (HET) JSC, losses amounted to UZS 207.3 billion, or 90.3% of selling expenses, in 2024. This paper develops and calibrates a risk-based audit methodology for such losses. The audit risk model is extended by dividing control risk into technical (metering and data systems) and administrative components; the required detection risk and monetary-unit sample sizes are derived analytically; and the loss statistics of all 14 HET branches for 2024–2025 are examined using analytical procedures. Overall materiality (5% of selling expenses) is UZS 11.48 billion, equivalent to approximately one percentage point of the branch’s loss ratio, while a systematic 0.5% bias in input metering alone would misstate the loss amount by UZS 5.58 billion, exceeding specific materiality (UZS 3.44 billion). With an audit risk of 0.10, the required sample size decreases from 99 monetary units under the current control environment to 42 when both control components are remediated. The analysis shows that all 14 branches reported lower loss ratios in 2025 (relative declines of 3–35%). However, the commercial component of losses was negative in eight branches and decreased in only four, while the reported decomposition could not be independently recalculated. Jizzakh and Samarkand are assigned the highest audit priority. The 47-day audit programme is revised to address an insufficient allocation of time to planning and the absence of a scheduled confirmation of purchased electricity volumes. The results provide auditors of regulated distribution utilities with a transparent basis for determining the scope and sample sizes of electricity loss audits.