HomeMy WebLinkAbout10-24-18 F&A Committee Packet 1
OTAY WATER DISTRICT
FINANCE AND ADMINISTRATION
COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY, CALIFORNIA
BOARDROOM
WEDNESDAY
October 24, 2018
12:00 P.M.
This is a District Committee meeting. This meeting is being posted as a special meeting
in order to comply with the Brown Act (Government Code Section §54954.2) in the event that
a quorum of the Board is present. Items will be deliberated, however, no formal board actions
will be taken at this meeting. The committee makes recommendations
to the full board for its consideration and formal action.
AGENDA
1. ROLL CALL
2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO
SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU-
RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. APPROVE THE AUDITED FINANCIAL STATEMENTS, INCLUDING THE
INDEPENDENT AUDITORS’ UNQUALIFIED OPINION, FOR THE FISCAL YEAR
ENDED JUNE 30, 2018 (DYCHITAN) [5 minutes]
4. APPROVE THE PURCHASE OF SEVEN (7) FLEET VEHICLES BY ISSUING
PURCHASE ORDERS TO: ENCINITAS FORD IN THE AMOUNT OF $102,045.42
FOR THE PURCHASE OF THREE (3) F150 HALF TON TRUCKS; SUNROAD AUTO
LLC IN THE AMOUNT OF $145,566.71 FOR THE PURCHASE OF TWO (2) ONE
TON TRUCKS AND ONE (1) F550 CLASS 5 DUMP TRUCK; AND THEODORE
ROBBINS FORD IN THE AMOUNT OF $39,009.94 FOR THE PURCHASE OF
ONE (1) F250 THREE QUARTER TON TRUCK. THE TOTAL COST FOR SEVEN (7)
FLEET VEHICLES IS $286,622.07 (MARTINEZ) [5 minutes]
5. APPROVE THE ISSUANCE OF A PURCHASE ORDER TO RDO EQUIPMENT
COMPANY IN THE AMOUNT OF $304,182.30 FOR THE PURCHASE OF ONE (1)
MINI EXCAVATOR AND ONE (1) RUBBER TIRE LOADER, AND DECLARE UNITS
742, 269, 1503, 3247 AND 3460 SURPLUS (MARTINEZ) [5 minutes]
2
6. APPROVE THE ISSUANCE OF A REQUEST FOR PROPOSAL FOR AUDIT
SERVICES FOR FISCAL YEAR 2019. THE SERVICES WILL BE FOR ONE (1)
YEAR, WITH FOUR (4) ONE-YEAR OPTIONS, WITH EACH OPTION YEAR
SUBJECT TO BOARD REVIEW AND APPROVAL (FAKHOURI) [5 minutes]
7. ADJOURNMENT
BOARD MEMBERS ATTENDING:
Mark Robak, Chair
Mitch Thompson
All items appearing on this agenda, whether or not expressly listed for action, may be delib-
erated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the Dis-
trict’s website at www.otaywater.gov. Written changes to any items to be considered at the
open meeting, or to any attachments, will be posted on the District’s website. Copies of the
Agenda and all attachments are also available through the District Secretary by contacting
her at (619) 670-2280.
If you have any disability which would require accommodation in order to enable you to par-
ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior
to the meeting.
Certification of Posting
I certify that on October 19, 2018 I posted a copy of the foregoing agenda near the
regular meeting place of the Board of Directors of Otay Water District, said time being at least
24 hours in advance of the meeting of the Board of Directors (Government Code Section
§54954.2).
Executed at Spring Valley, California on October 19, 2018.
/s/ Susan Cruz, District Secretary
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 7, 2018
SUBMITTED BY:
Marissa Dychitan
Senior Accountant
PROJECT: DIV. NO. All
APPROVED BY:
Eid Fakhouri, Finance Manager
Kevin Koeppen, Assistant Chief of Finance
Joseph R. Beachem, Chief Financial Officer
Mark Watton, General Manager
SUBJECT: Approve the Audited Financial Statements for the Fiscal Year
Ended June 30, 2018
GENERAL MANAGER’S RECOMMENDATION:
That the Board approve the Audited Financial Statements (Attachment
B) including the Independent Auditors’ unqualified opinion, for the
fiscal year ended June 30, 2018.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To inform the Board of the significant financial events which
occurred during the fiscal year ended June 30, 2018 as reflected in
the audited financial statements.
ANALYSIS:
Teaman, Ramirez & Smith, Inc., performed the audit and found that, in
all material respects, the financial statements correctly represent
2
the financial position of the District. They found no material
errors in the financial records or statements (Attachment D).
Total Assets:
Total assets decreased by $8.6 million or 1.53% during fiscal year
2018, to $554.5 million, due primarily to the implementation of GASB
Statement No.75 which was partially offset by capital contributions
and improved operating results.
Deferred Outflows & Deferred Inflows:
Deferred outflows increased by $1.5 million or 13.94% and deferred
inflows decreased by $2.3 million or 61.19% due to the changes in
Deferred Actuarial Pension Costs, and implementation of GASB No. 75
which established Deferred Actuarial OPEB Costs.
Total Liabilities & Net Positions:
Total liabilities increased by approximately $8.8 million from the
previous fiscal year, to $177.9 million. This is attributable to the
$4.3 million increase in Net Pension Liability which is caused by the
$5.2 million difference between actual and projected earnings on
Pension Plan Investments, the recording of $4.7 million in Net OPEB
Liability as a result of implementing GASB No. 75 and an increase in
accounts payable. These increases are partially offset by the
decrease in long-term debt of $4.4 million.
The beginning net position of $401.2 million was decreased by $17.8
million as a result of the implementation of GASB No. 75. The
District’s Net Position is $387.5 million as of June 30, 2018.
Capital Contributions:
Capital contributions for fiscal year 2018 were $9.5 million. This
consists of developers contributing $8.7 million in capacity fees and
$0.3 million in contributed fixed assets. Ratepayers also paid $0.5
million in availability fees, which are considered a part of capital
contributions.
Results of Operations:
Operating revenues increased by $9.0 million or 10.16%, mainly as a
result of the overall increase in sales volume.
Cost of water sales increased by $5.4 million or 9.56% due to an
increase in water sales volume and unit purchase costs.
3
Non-Operating Revenues & Expenses:
Non-operating revenues decreased by $2.2 million or 21.78% for
FY 2018 due to a decrease in capacity fee drawdown from capital
contribution to CIPs that did not qualify as capital expense. The
decrease was partially offset with small increases in other revenue
categories such as property taxes and assessments, rent and leases,
investment earnings and miscellaneous revenues.
Non-operating expenses decreased by $2.7 million or 35.20% due to a
decrease in interest expense brought about by the full amortization
of the 2007 COPS refunding costs and a decrease in CIP expenses that
did not qualify as capital expense.
Additional Audit Correspondence:
As a part of completing the audit engagement, Teaman, Ramirez and
Smith, Inc., also provided the following letters summarizing their
observations and conclusions concerning the District’s overall
financial processes:
Management Letter: The auditors did not identify any
deficiencies in internal controls that they considered to be
material weaknesses. (Attachment C).
Audit Committee Letter: This letter describes overall aspects
of the audit, including audit principles, performance,
dealings with management, and significant findings or issues.
There were no transactions entered into by the District during
the year for which there was a lack of authoritative guidance
or consensus. All significant transactions have been
recognized in the financial statements in the proper period.
There were no disagreements with management concerning
financial accounting, reporting, or auditing matters, and
there were no significant difficulties in dealing with
management in performing the audit. (Attachment D).
Report on Applying Agreed-Upon Procedures: A review of the
District’s investment portfolio at year end, and a sample of
specific investment transactions completed throughout the
fiscal year were performed and there were no exceptions to
compliance from the District’s Investment Policy. (Attachment
E).
4
FISCAL IMPACT:
None.
STRATEGIC GOAL:
The District ensures its continued financial health through long-term
financial planning, formalized financial policies, enhanced budget
controls, fair pricing, debt planning, and improved financial
reporting.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action
B) Audited Annual Financial Statements
C) Management Letter
D) Audit Committee Letter
E) Report on Applying Agreed-Upon Procedures
ATTACHMENT A
SUBJECT/PROJECT:
Approve the Audited Financial Statements for the Fiscal
Year Ended June 30, 2018
COMMITTEE ACTION:
The Finance and Administration Committee recommend that the Board
approve the Audited Financial Statements (Attachment B) including the
Independent Auditors’ unqualified opinion, for the fiscal year ended
June 30, 2018.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
OTAY WATER DISTRICT
FINANCIAL STATEMENTS
WITH
REPORT ON AUDIT BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
TABLE OF CONTENTS
JUNE 30, 2018
Page
Number
Independent Auditors’ Report 1 - 2
Management’s Discussion & Analysis 3 - 10
Basic Financial Statements:
Statement of Net Position 11 - 12
Statement of Revenues, Expenses, and Changes in Net Position 13
Statement of Cash Flows 14 - 15
Notes to Financial Statements 16 - 52
Required Supplementary Information:
Schedule of Changes in the Net OPEB Liability and Related Ratios 53
Schedule of Contributions 54
Schedule of Changes in the Net Pension Liability and Related Ratios 55
Schedule of Plan Contributions 56
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
INDEPENDENT AUDITORS' REPORT
Board of Directors
Otay Water District
Spring Valley, California
Report on the Financial Statements
We have audited the accompanying financial statements of the business-type activities of the Otay Water District (the “District”),
as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the
District’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting
principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United States and the State Controller’s
Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the District’s preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position
of the business-type activities of the Otay Water District as of June 30, 2018, and the respective changes in financial position and
cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of
America, as well as the accounting systems prescribed by the California State Controller’s Office and California regulations
governing Special Districts.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
Emphasis of Matter
As described in Note 1 to the basic financial statements, the District adopted the provisions of Governmental Accounting
Standards Board Statement No. 75, Accounting and Financing Reporting for Postemployment Benefits Other Than Pensions.
Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management's discussion and analysis
and required supplementary information on pages 3-10 and 53-56 be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards
Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate
operational, economic, or historical context. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of America, which consisted of
inquiries of management about the methods of preparing the information and comparing the information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated ______ __, 2018, on our consideration
of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing
of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on
internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.
Riverside, California
_______ __, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
Management’s Discussion and Analysis
3
As management of the Otay Water District (the “District”), we offer readers of the District’s financial
statements, this narrative overview, and analysis of the District’s financial performance during the fiscal
year ending June 30, 2018. Please read it in conjunction with the District’s financial statements that follow
Management’s Discussion and Analysis. All amounts, unless otherwise indicated, are expressed in
millions of dollars.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the District’s basic financial
statements, which are comprised of the following: 1) Statement of Net Position, 2) Statement of Revenues,
Expenses, and Changes in Net Position, 3) Statement of Cash Flows, and 4) Notes to the Financial
Statements. This report also contains other supplementary information in addition to the basic financial
statements.
The Statement of Net Position presents information on all of the District’s assets, deferred outflows of
resources, liabilities, and deferred inflows of resources, with the difference reported as Total Net Position.
Over time, increases or decreases in net positions may serve as a useful indicator of whether the financial
position of the District is improving or weakening.
The Statement of Revenues, Expenses and Changes in Net Position presents information showing how the
District’s net position changed during the most recent fiscal year. All changes in net positions are reported
as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash
flows. Thus, revenues and expenses are reported in this statement for some items that will only result in
cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).
Financial Highlights
The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at
the close of the most recent fiscal year by $387.5 million (net position). Of this amount, $27.7 million (unrestricted net
position) may be used to meet the District’s ongoing obligations to citizens and creditors.
Total assets decreased by $8.6 million or 1.53% during Fiscal Year 2018, to $554.5 million, due primarily to the
implementation of GASB Statement No. 75 offset by investments in capital infrastructure, contributions, and improved
operating results.
Net Position at July 1, 2017 was decreased by $17.8 million due to the change in assumption of Other Post-Employment
Benefits (OPEB) actuarial valuation as a result of the implementation of GASB Statement No. 75. The most significant
impact of the implementation requires the presentation of Other Post-Employment Benefits (OPEB) Plan’s $4.7 million
Unfunded Actuarial Accrual as a liability on the Statement of Net Position.
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PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
4
The Statement of Cash Flows presents information on cash receipts and payments for the fiscal year.
The Notes to the Financial Statements provides additional information that is essential to a full
understanding of the data supplied in each of the specific financial statements listed above.
In addition to the basic financial statements and accompanying notes, this report also presents certain
required supplementary information concerning the District’s progress in funding its obligation to provide
retirement benefits to its employees.
Financial Analysis:
As noted, net position may serve, over time, as a useful indicator of an entity’s financial position. In the
case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of
resources by $387.5 million at the close of the most recent fiscal year.
By far, the largest portion of the District’s net position, $355.6 million (92%), reflects its investment in capital
assets, less any remaining outstanding debt used to acquire those assets. The District uses these capital
assets to provide services to citizens; consequently, these assets are not available for future spending.
Although the District’s investment in its capital assets is reported effectively as a resource, it should be
noted that the resources needed to repay the debt must be provided from other sources, since the capital
assets themselves cannot be used to liquidate these liabilities.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
Management’s Discussion and Analysis
5
Statements of Net Position
(In Millions of Dollars)
2018 2017 2016
Assets
Current and Other Assets $ 103.6 $ 112.9 $ 112.4
Capital Assets 450.9 450.2 454.0
Total Assets 554.5 563.1 566.4
Deferred Outflows of Resources
Deferred Amount on Refunding
Deferred Actuarial Pension Costs
0.0
10.2
0.2
10.7
1.3
7.0
Deferred Actuarial OPEB Costs 2.2 0.0 0.0
Total Deferred Outflows of Resources 12.4 10.9 8.3
Liabilities
Long-Term Debt Outstanding 91.2 95.6 99.8
Net OPEB Liability 4.7 0.0 0.0
Net Pension Liability 49.6 45.2 40.1
Other Liabilities 32.4 28.2 27.8
Total Liabilities 177.9 169.0 167.7
Deferred Inflows of Resources
Deferred Actuarial Pension Costs 0.9 3.8 5.7
Deferred Actuarial OPEB Costs 0.6 0.0 0.0
Total Deferred Inflows of Resources 1.5 3.8 5.7
Net Position 1
Net Investment in Capital Assets 355.6 351.0 351.6
Restricted for Debt Service 4.2 4.3 4.4
Unrestricted 27.7 45.9 45.3
Total Net Position $ 387.5 $ 401.2 $ 401.3
The District’s operations and population continue to grow, albeit at slower rates than the housing boom
years. Much of this growth has and will continue to occur in the residential sector, especially in the area of
multi-family dwellings, as well as in the commercial area. The District still has available land to develop
unlike other parts of the County, as well as low unemployment and job creation, which has spurred the
development in the service area.
1 GASB No. 75 implemented in FY 2018. Prior years were not restated as the information was not readily
available.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
6
In FY 2018, the District’s Capital Assets increased by $9.2 million before accumulated depreciation. (See
Note 4 in the Notes to Financial Statements). The District also saw a decrease in Long-Term Debt of $4.4
million due to the annual payments of long-term debt (See Note 5 in the Notes to Financial Statements).
Certain planning and environmental study costs associated with capital projects, such as the Otay Mesa
Desalination due to the permanent moratorium in Otay Mesa, do not qualify as capital costs under
Generally Accepted Accounting Principles and are included in the miscellaneous (non-operating)
expenses of the District. For FY 2018 and FY 2017 those expenses were $0.9 million and $2.3 million,
respectively.
At the end of FY 2018 the District is able to report positive balances in all categories of net position. This
situation also held true for the prior two fiscal years.
Statements of Revenues, Expenses, and Changes in Net Position
(In Millions of Dollars)
2018 2017 2016
Water Sales $ 92.6 $ 8.3 $ 73.9
Wastewater Revenue 2.9 3.0 3.2
Connection and Other Fees 2.0 1.8 1.8
Non-operating Revenues 7.9 10.1 8.9
Total Revenues 105.4 98.6 87.8
Depreciation Expense 17.5 17.8 16.5
Other Operating Expenses 88.3 78.8 73.2
Non-operating Expenses 5.0 7.7 6.2
Total Expenses 110.8 104.3 95.9
Loss Before Capital
Contributions (5.4) (5.7) (8.1)
Capital Contributions 9.5 5.6 7.0
Change in Net Position 4.1 (0.1) (1.1)
Beginning Net Position, As Previously Stated 401.2 401.3 402.4
Prior Period Adjustment (17.8) 0.0 ( 0.0)
Beginning Net Position, As Restated 383.4 401.3 402.4
Ending Net Position $ 387.5 $ 401.2 $ 401.3
Water Sales increased by $8.9 million and $9.8 million in FY 2018 and FY 2017, respectively. The increases
were due to both increases in units sold and water rates. The increases in unit sales is largely due to less
rainfall and higher than average temperature as well as the elimination of water use restrictions in FY 2017.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
7
Other Operating Expenses increased by $9.5 million and $5.6 million in FY 2018 and FY 2017 predominantly
due to the increase in Cost of Water Sales brought about by the increase and units purchased in FY 2018
and FY 2017, respectively.
Connection and Other Fees revenues increased by $0.2 million in FY 2018 and remains the same in
FY 2017. The improvement in economy has resulted in an increase of $3.9 million in Capital Contributions
in FY 2018 compared to a decrease of $1.4 million in FY 2017.
Non-operating Revenues
Non-operating Revenues by Major Source
(In Millions of Dollars)
2018 2017 2016
Taxes and Assessments $ 4.5 $ 4.1 $ 4.0
Rents and Leases 1.4 1.4 1.3
Other Non-operating Revenue 2.0 4.6 3.6
Total Non-operating Revenues $ 7.9 $ 10.1 $ 8.9
The District’s total non-operating revenues decreased by $2.2 million in FY 2018 and increased by $1.2
million in FY 2017. The change in Non-operating Revenues between Fiscal Years 2018, 2017 and 2016 is
primarily due to the transfer of capacity revenue from capital contribution to fund project expenditures that
do not qualify as capital expenditures. All other Non-operating Revenues remained steady during this 3-
year period.
Capital Assets and Debt Administration
The District’s capital assets (net of accumulated depreciation) as of June 30, 2018, totaled $450.9 million.
Included in this amount is land. The District’s net capital assets increased by .16% for FY 2018 and
decreased by .84% for FY 2017.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
8
Capital Assets
(In Millions of Dollars)
2018 2017 2016
Land $ 14.4 $ 14.4 $ 14.1
Construction in Progress 17.6 14.2 12.5
Water System 484.2 483.8 476.6
Recycled Water System 114.7 112.3 111.8
Sewer System 48.2 44.5 42.8
Field Equipment 8.5 9.0 9.1
Buildings 20.1 20.6 20.6
Transportation Equipment 3.4 3.3 3.4
Communication Equipment 3.5 3.4 3.3
Office Equipment 17.7 17.6 19.4
732.3 723.1 713.6
Less Accumulated
Depreciation (281.4) (272.9) (259.6)
Net Capital Assets $ 450.9 $ 450.2 $ 454.0
As indicated by figures in the table above, the majority of capital assets added during both fiscal years
were related to the potable and sewer systems. In addition, the majority of the cost of construction-in-
progress is also related to water systems. Additional information on the District’s capital assets can be
found in Note 4 of the Notes to Financial Statements.
At June 30, 2018, the District had $91.2 million in outstanding debt (net of $4.0 million of maturities
occurring in FY 2019), which consisted of the following:
General Obligation Bonds $ 2.8
Certificates of Participation 6.9
Revenue Bonds 81.5
Total Long-Term Debt $ 91.2
Additional information on the District’s long-term debt can be found in Note 5 of the Notes to Financial
Statements
Prior Period Adjustment
The Governmental Accounting Standards Board (GASB) issued Statement No. 75, “Accounting and
Financial Reporting for Postemployment Benefits Other Than Pensions - an amendment of GASB
Statement No. 45”, for periods beginning after June 15, 2017. The District implemented these standards in
FY 2018. The result of the implementation of these standards was to decrease the net position at July 1,
2017 by $17.8 million, which recognizes net OPEB liability, deferred outflows of resources, deferred inflows
of resources, and expenses related to the OPEB plan.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
9
Fiscal Year 2018-2019 Budget
Economic Factors
The San Diego region imports 84% of its potable supply so factors such as local rainfall as well as weather
conditions elsewhere in the western portion of the nation can affect the region. San Diego received below
average rainfall in FY 2018, and the District anticipates an average rainfall pattern in the coming years.
Between 2008 and 2016 the District’s water sales declined for the District by nearly 30%. This decrease
was driven by many factors including the economic downturn caused by the great recession, increases in
the price of imported water, and State mandated cuts in potable water use due to the prolonged statewide
drought. Decreases in water sales during this period were offset by corresponding decreases in water
purchases and District managed costs such as reduced employee count and internal cost cuts, achieved
through automation and streamlining of processes. Due to record rain and snowfall, the State mandated
conservation ended in FY 2017. The removal of State mandates, dry winters and increased development
have led to water sales volumes increasing 6.7% in 2017 and 9.0% in 2018. The District is budgeting only
1.0% volume growth in FY 2019, which is due solely to growth in the customer base. Should future water
sales volumes decline due to limited supplies or mandated cuts, the District’s actions will be
commensurate with the magnitude of the reduction.
The District continues to respond to the challenges presented by growth, State mandates, and the
potential of drought, by creating new opportunities and new organizational efficiencies. By utilizing and
continuing to refine its Strategic Business Plan, it has captured the Board of Director’s vision and united its
staff in a common mission. The District has achieved a number of significant accomplishments due to its
successful adherence to its Strategic Business Plan. The District is not only poised to continue successfully
providing an affordable, safe, and reliable water supply for the people of its service area, but is set to reap
the rewards of greater efficiencies and economies of scale.
The District is currently at about 69% of its projected ultimate population, serving approximately 225,000
people. Long-term, this percentage should continue to increase as the District's service area continues to
develop and grow. By 2050, the District is projected to serve approximately 308,000 people, with an
average daily demand of 46 million gallons per day (MGD). Currently, the District services the needs of this
growing population by purchasing water from the San Diego County Water Authority (CWA), who in turn
purchases its water from the Metropolitan Water District (MWD) and the Imperial Irrigation District (IID).
Otay takes delivery of the water through several connections of large diameter pipelines owned and
operated by CWA. The District currently receives treated water from CWA directly and from the Helix Water
District via a contract with CWA. In addition, the District has an emergency agreement with the City of San
Diego to purchase water in the case of a shutdown of the main treated water source. The City of San
Diego also has a long-term contract with the District to provide recycled water for landscape and irrigation
usage. Through innovative agreements like these, benefits can be achieved by both parties by using
excess capacity of another agency, and diversifying local supply, thereby increasing reliability.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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Management’s Discussion and Analysis
10
Financial
The District is budgeted to deliver approximately 29,377.2 acre-feet of potable water to 50,625 potable
customer accounts during FY 2018-2019. Management feels that these projections are realistic after
accounting for low growth, supply changes, and a focus on conservation. A combination of factors,
including the drought and economic uncertainty, have created challenges in developing projections for the
current fiscal year. Both unemployment and levels of distressed activity in the commercial and residential
resale market have improved from their economic crisis peaks. The housing market has experienced
higher demand compared to the previous years and unemployment is at record lows. District staff projects
that over the next six years the District will sell another 3,630 meters which translates to 4,544 equivalent
dwelling units (EDUs). This growth is estimated to increase sales volumes by an average of 1% per year
over the next five years. While all of these factors impact the region’s water usage, people’s need for water
remains an underlying constant. Staff continues working diligently on developing new water supplies as
they work through the financial impacts of conservation and the modest economic turnaround.
Management is unaware of any other conditions that could have a significant impact on the District’s
current financial position, net position, or operating results.
Contacting the District’s Financial Management
This financial report is designed to provide a general overview of the Otay Water District’s finances for the
Board of Directors, citizens, creditors, and other interested parties. Questions concerning any of the
information provided in the report or requests for additional information should be addressed to the
District’s Finance Department, 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978-2004.
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
ASSETS
Current Assets:
Cash and Cash Equivalents (Notes 1 and 2) 24,147,997$
Restricted Cash and Cash Equivalents (Notes 1 and 2) 80,477
Investments (Note 2)30,866,180
Board Designated Investments (Note 2) 29,879,617
Restricted Investments (Notes 1 and 2) 4,166,548
Accounts Receivable, Net 12,109,378
Accrued Interest Receivable 295,947
Taxes and Availability Charges Receivable, Net 215,704
Restricted Taxes and Availability Charges Receivable, Net 27,480
Inventories 822,737
Prepaid Items and Other Receivables 1,018,820
Total Current Assets 103,630,885
Capital Assets (Note 4):
Land 14,406,778
Construction in Progress 17,618,059
Capital Assets, Net of Depreciation 418,825,726
Total Capital Assets, Net of Depreciation 450,850,563
Total Assets 554,481,448
DEFERRED OUTFLOWS OF RESOURCES
Deferred Actuarial Pension Costs (Note 7)10,186,229
Deferred Actuarial OPEB Costs (Note 8)2,202,004
Total Deferred Outflows of Resources 12,388,233$
Continued
STATEMENT OF NET POSITION
JUNE 30, 2018
The accompanying notes are an integral part of this statement.
11
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PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
LIABILITIES
Current Liabilities:
Current Maturities of Long-term Debt (Note 5) 4,040,000$
Accounts Payable 15,437,565
Accrued Payroll Liabilities 694,859
Other Accrued Liabilities 4,089,640
Customer and Developer Deposits 3,340,010
Accrued Interest 1,380,446
Unearned Revenues 233,251
Liabilities Payable from Restricted Assets:
Restricted Accrued Interest 45,200
Total Current Liabilities 29,260,971
Non-current Liabilities:
Long-term Debt (Note 5):
General Obligation Bonds 2,823,143
Certificates of Participation 6,893,293
Revenue Bonds 81,465,550
Net OPEB Liability 4,710,492
Net Pension Liability 49,582,316
Other Non-current Liabilities 3,117,705
Total Non-current Liabilities 148,592,499
Total Liabilities 177,853,470
DEFERRED INFLOWS OF RESOURCES
Deferred Actuarial Pension Costs (Note 7)936,234
Deferred Actuarial OPEB Costs (Note 8)539,449
Total Deferred Inflows of Resources 1,475,683
NET POSITION
Net Investment in Capital Assets 355,628,577
Restricted for Debt Service 4,247,025
Unrestricted 27,664,926
Total Net Position 387,540,528$
STATEMENT OF NET POSITION - CONTINUED
JUNE 30, 2018
The accompanying notes are an integral part of this statement.
12
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PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
OPERATING REVENUES
Water Sales 92,595,195$
Wastewater Revenue 2,865,520
Connection and Other Fees 2,013,057
Total Operating Revenues 97,473,772
OPERATING EXPENSES
Cost of Water Sales 62,321,213
Wastewater 2,501,240
Administrative and General 23,445,578
Depreciation 17,466,318
Total Operating Expenses 105,734,349
Operating Income (Loss) (8,260,577)
NON-OPERATING REVENUES (EXPENSES)
Investment Earnings 723,860
Taxes and Assessments 4,481,719
Availability Charges 697,724
Gain (Loss) on Sale of Capital Assets (1,709,538)
Rents and Leases 1,439,247
Miscellaneous Revenues 2,255,605
Donations (123,050)
Interest Expense (3,941,321)
Miscellaneous Expenses (900,247)
Total Non-operating Revenues (Expenses) 2,923,999
Income (Loss) Before Capital Contributions (5,336,578)
Capital Contributions 9,506,192
Change in Net Position 4,169,614
Total Net Position, Beginning, As Previously Reported 401,186,989
Prior Period Adjustment (Note 14) (17,816,075)
Total Net Position, Beginning, As Restated 383,370,914
Total Net Position, Ending 387,540,528$
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED JUNE 30, 2018
The accompanying notes are an integral part of this statement.
13
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PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from Customers 95,612,497$
Receipts from Connections and Other Fees 2,013,057
Other Receipts 2,183,296
Payments to Suppliers (61,807,704)
Payments to Employees (21,689,670)
Other Payments (899,502)
Net Cash Provided By (Used For) Operating Activities 15,411,974
CASH FLOWS FROM NONCAPITAL AND RELATED
FINANCING ACTIVITIES
Receipts from Taxes and Assessments 4,495,002
Receipts from Property Rents and Leases 1,316,197
Net Cash Provided By (Used For) Noncapital and Related
Financing Activities 5,811,199
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Proceeds from Capital Contributions 9,254,970
Proceeds from Sale of Capital Assets 77,684
Proceeds from Debt Related Taxes and Assessments 697,724
Principal Payments on Long-Term Debt (3,820,000)
Interest Payments and Fees (4,427,336)
Acquisition and Construction of Capital Assets (19,388,972)
Net Cash Provided By (Used For) Capital and Related
Financing Activities (17,605,930)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest Received on Investments 643,924
Proceeds from Sale and Maturities of Investments 12,631,381
Purchase of Investments (10,142,153)
Net Cash Provided By (Used For) Investing Activities 3,133,152
Net Increase (Decrease) in Cash and Cash Equivalents 6,750,395
Cash and Cash Equivalents - Beginning 17,478,079
Cash and Cash Equivalents - Ending 24,228,474$
Continued
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2018
The accompanying notes are an integral part of this statement.14
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Reconciliation of Operating Income (Loss) to Net Cash Flows
Provided By (Used For) Operating Activities:
Operating Income (Loss)(8,260,577)$
Adjustments to Reconcile Operating Income to
Net Cash Provided By (Used For) Operating Activities:
Depreciation 17,466,318
Miscellaneous Revenues 2,183,296
Miscellaneous Expenses (899,502)
(Increase) Decrease in Accounts Receivable 263,462
(Increase) Decrease in Inventory (85,552)
(Increase) Decrease in Prepaid Items and Other Receivables (56,801)
(Increase) Decrease in Deferred Actuarial Pension Costs 494,900
(Increase) Decrease in Deferred Actuarial OPEB Costs 82,416
Increase (Decrease) in Accounts Payable 3,893,151
Increase (Decrease) in Accrued Payroll and Related Expenses (90,637)
Increase (Decrease) in Other Accrued Liabilities 318,137
Increase (Decrease) in Customer and Developer Deposits (111,680)
Increase (Decrease) in Prepaid Capacity Fees 43,392
Increase (Decrease) in Net OPEB Liability (1,834,367)
Increase (Decrease) in Net Pension Liability 4,332,872
Increase (Decrease) in Deferred Actuarial Pension Costs (2,866,303)
Increase (Decrease) in Deferred Actuarial OPEB Costs 539,449
Net Cash Provided By (Used For) Operating Activities 15,411,974$
Schedule of Cash and Cash Equivalents:
Current Assets:
Cash and Cash Equivalents 24,147,997$
Restricted Cash and Cash Equivalents 80,477
Total Cash and Cash Equivalents 24,228,474$
Supplemental Disclosures
Non-Cash Investing and Financing Activities Consisted of the Following:
Contributed Capital for Water and Sewer System 251,222$
Change in Fair Value of Investments and Recognized Gains/Losses 360,248
Amortization Related to Long-term Debt 364,678
STATEMENT OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED JUNE 30, 2018
The accompanying notes are an integral part of this statement.15
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16
NOTE DESCRIPTION PAGE
1 Reporting Entity and Summary of Significant Accounting Policies..……….. 17 - 24
2 Cash and Investments………………………………………………………... 25 - 28
3 Fair Value Measurements…………………………………………..……….. 29
4 Capital Assets…………………………………………………..……………. 30
5 Long-Term Debt………………………………………………….………….. 31 - 35
6 Net Position………………………………………………………………….. 35
7 Defined Benefit Pension Plan……………………………………………….. 36 - 41
8 Other Post Employment Benefits………………………..…………............... 41 - 46
9 Water Conservation Authority………………………………………............ 46 - 47
10 Commitments and Contingencies……………………………………………. 47
11 Risk Management……………………………………………………………. 48 - 49
12 Interest Expense……………………………………………………............... 49
13 Segment Information………………………………………………..……….. 49 - 52
14 Prior Period Adjustment...…………………………………………..……….. 52
15 Subsequent Events……...…………………………………………..……….. 52
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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PRELIMINARY & TENTATIVE
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17
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Reporting Entity
The reporting entity Otay Water District (the “District”) includes the accounts of the District, Otay Service
Corporation (the “Corporation”) and the Otay Water District Financing Authority (the “Financing Authority”).
The Otay Water District (the “District”) is a public entity established in 1956 pursuant to the Municipal Water
District Law of 1911 (Section 711 et. Seq. of the California Water Code) for the purpose of providing water and
sewer services to the properties in the District. The District is governed by a Board of Directors consisting of five
directors elected by geographical divisions based on District population for a four-year alternating term.
The District formed the Otay Service Corporation on June 21, 1993, a nonprofit public benefit corporation duly
organized and existing under the laws of the State of California. The Service Corporation was formed to assist the
District in the financing of public capital improvements.
The District formed the Financing Authority on March 3, 2010 under the Joint Exercise of Powers Act, constituting
Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California
Government Code. The Financing Authority was formed to assist the District in the financing of public capital
improvements.
The financial statements present the District and its component units. The District is the primary government unit.
Component units are those entities which are financially accountable to the primary government, either because the
District appoints a voting majority of the component unit’s board, or because the component units will provide a
financial benefit or impose a financial burden on the District. The District has accounted for the Service
Corporation and Financing Authority as “blended” component units. Despite being legally separate, the Service
Corporation and Financing Authority are so intertwined with the District that they are in substance, part of the
District’s operations. Accordingly, the balances and transactions of these component units are reported within the
funds of the District. Separate financial statements are not issued for the Service Corporation and the Financing
Authority.
B) Measurement Focus, Basis of Accounting and Financial Statement Presentation
Measurement focus is a term used to describe “which” transactions are recorded within the various financial
statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus
applied. The accompanying financial statements are reported using the economic resources measurement focus, and
the accrual basis of accounting. Under the economic measurement focus all assets and liabilities (whether current or
noncurrent) associated with these activities are included on the Statement of Net Position. The Statement of
Revenues, Expenses and Changes in Net Position present increases (revenues) and decreases (expenses) in total net
position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded
when a liability is incurred, regardless of the timing of related cash flows.
The District reports its activities as an enterprise fund, which is used to account for operations that are financed and
operated in a manner similar to a private business enterprise, where the intent of the District is that the costs (including
depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered
primarily through user charges.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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18
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
B) Measurement Focus, Basis of Accounting and Financial Statement Presentation - Continued
The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the
accepted standard setting body for governmental accounting financial reporting purposes.
Net position of the District is classified into three components: (1) net investment in capital assets, (2) restricted net
position, and (3) unrestricted net position. These classifications are defined as follows:
Net Investment in Capital Assets
This component of net position consists of capital assets, net of accumulated depreciation and reduced by the
outstanding balances of notes or borrowing that are attributable to the acquisition of the assets, construction, or
improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt
attributable to the unspent proceeds are not included in the calculation of the net investment in capital assets.
Restricted Net Position
This component of net position consists of net position with constrained use through external constraints imposed by
creditors (such as through debt covenants), grantors, contributions, or laws or regulations of other governments or
constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Position
This component of net position consists of net position that do not meet the definition of “net investment in capital
assets” or “restricted net position”.
The District distinguishes operating revenues and expenses from those revenues and expenses that are non-operating.
Operating revenues are those revenues that are generated by water sales and wastewater services while operating
expenses pertain directly to the furnishing of those services. Non-operating revenues and expenses are those revenues
and expenses generated that are not associated with the normal business of supplying water and wastewater treatment
services.
The District recognizes revenues from water sales, wastewater revenues, and meter fees as they are earned. Taxes and
assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego, net of
allowance for delinquencies of $27,020 at June 30, 2018.
Additionally, capacity fee contributions received which are related to specific operating expenses are offset against
those expenses and included in Cost of Water Sales in the Statements of Revenues and Expenses and Changes in Net
Position.
Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant
proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and
unrestricted - net position, a flow assumption must be made about the order in which the resources are considered to be
applied.
It is the District’s practice to consider restricted - net position to have been depleted before unrestricted - net position is
applied, however it is at the Board’s discretion.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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19
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
C) New Accounting Pronouncements
Implemented
Governmental Accounting Standard Board Statement No. 75
In June of 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits
Other Than Pensions. This Statement was issued to improve accounting and financial reporting for
postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves
information provided by governmental employers about financial support for OPEB that is provided by other
entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by
Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by
Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for
Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting
requirements for OPEB plans. The provisions of this Statement are effective for fiscal years beginning after June 15,
2017. This Statement has been implemented in the District’s financial statements.
Governmental Accounting Standard Board Statement No. 81
In March of 2016, GASB issued Statement No. 81, Irrevocable Split Interest Agreements. This statement was
issued to improve accounting and financial reporting for irrevocable split-interest agreements by providing
recognition and measurement guidance for situations in which a government is a beneficiary of the agreement.
Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more
beneficiaries, including governments. Split-interest agreements can be created through trusts—or other legally
enforceable agreements with characteristics that are equivalent to split-interest agreements—in which a donor
transfers resources to an intermediary to hold and administer for the benefit of a government and at least one other
beneficiary. This Statement requires that a government that receives resources pursuant to an irrevocable split-
interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement.
Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in
irrevocable split-interest agreements that are administered by a third party, if the government controls the present
service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the
resources become applicable to the reporting period. The requirements of this Statement are effective for reporting
periods beginning after December 15, 2016. Currently, this statement has no effect on the District’s financial
statements.
Governmental Accounting Standard Board Statement No. 82
In March of 2016, GASB issued Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67,
No. 68, and No. 73. This statement was issued to address certain issues that have been raised with respect to
Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for
Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the
Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically,
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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20
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
C) New Accounting Pronouncements - Continued
Implemented - Continued
Governmental Accounting Standard Board Statement No. 82 - Continued
this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary
information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial
Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to
satisfy employee (plan member) contribution requirements. Prior to the issuance of this Statement, Statements 67
and 68 required presentation of covered-employee payroll, which is the payroll of employees that are provided with
pensions through the pension plan, and ratios that use that measure, in schedules of required supplementary
information. This Statement amends Statements 67 and 68 to instead require the presentation of covered payroll,
defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure. This
Statement also clarifies the term deviation used in Actuarial Standards of Practice and payments made by the
employer to satisfy contribution requirements. The requirements of this Statement are effective for reporting
periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions
in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most
recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that
employer in the first reporting period in which the measurement date of the pension liability is on or after June 15,
2017. The District has implemented GASB No. 82 which is reflected on the District’s financial statements.
Governmental Accounting Standard Board Statement No. 85
In March of 2017, GASB issued Statement No. 85, Omnibus 2017. This Statement addresses practice issues that
have risen from the implementation of certain GASB Statements; primarily pension and OPEB related
measurement, recognition, timing, and reporting issues. Other issues include blending of component units for
governments whose primary activity is business-type, goodwill reporting, classifying real estate held by insurance
entities and measuring particular investments at amortized cost. This Statement is effective for reporting periods
beginning after June 15, 2017. Currently, this statement has no effect on the District’s financial statements.
Governmental Accounting Standard Board Statement No. 86
In May of 2017, GASB issued Statement No. 86, Certain Debt Extinguishment Issues. This Statement expands upon
GASB No. 7 Advance Refundings Resulting in Defeasance of Debt which defines debt defeased in substance and
the criteria for the trusts used to extinguish debt. This Statement establishes essentially the same requirements for
when a government places cash and other monetary assets acquired with only existing resources in an irrevocable
trust to extinguish the debt. This Statement is effective for reporting periods beginning after June 15, 2017.
Currently, this statement has no effect on the District’s financial statements.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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21
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
C) New Accounting Pronouncements - Continued
Pending Accounting Standards
GASB has issued the following statements which impact the District’s financial reporting requirements in the
future:
i. GASB 83 – “Certain Asset Retirement Obligations”, effective for fiscal years beginning after June 15, 2018.
ii. GASB 84 – “Fiduciary Activities”, effective for fiscal years beginning after December 15, 2018.
iii. GASB 87 – “Leases”, effective for fiscal years beginning after December 15, 2019.
iv. GASB 88 – “Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements”
effective for fiscal years beginning after June 15, 2018.
v. GASB 89 – “Accounting for Interest Cost Incurred before the End of a Construction Period” effective for
fiscal years beginning after December 15, 2019.
vi. GASB 90 – “Majority Equity Interests – an amendment of GASB Statements No. 14 and No. 61” effective
for fiscal years beginning after December 15, 2018.
D) Deferred Outflows / Inflows of Resources
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of
resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net
position that applies to a future period(s) and so will not be recognized as an outflow of resources
(expense/expenditure) until then. The District has two items that qualify for reporting in this category, deferred
actuarial pension costs and deferred actuarial OPEB costs are items that are deferred and recognized as an outflow of
resources in the period the amounts become available.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of
resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net
position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time.
The District has two items that qualify for reporting in this category. Accordingly, the items, deferred actuarial pension
costs and deferred actuarial OPEB costs, are deferred and recognized as an inflow of resources in the period that the
amounts become available.
E) Statements of Cash Flows
For purposes of the Statement of Cash Flows, the District considers all highly liquid investments (including
restricted assets) with a maturity period, at purchase, of three months or less to be cash equivalents.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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22
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
F) Investments
Investments are stated at their fair value, which represents the quoted or stated market value. Investments that are
not traded on a market, such as investments in external pools, are valued based on the stated fair value as
represented by the external pool. All investments are stated at their fair value, the District has not elected to report
certain investments at amortized costs.
G) Inventory and Prepaids
Inventory consists primarily of materials used in the construction and maintenance of the water and sewer system and is
valued at weighted average cost. Both inventory and prepaids use the consumption method whereby they are reported
as an asset and expensed as they are consumed.
H) Capital Assets
Capital assets are recorded at cost, where historical records are available, and at an estimated historical cost where no
historical records exist. Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are
capitalized if they have an expected useful life of two years or more. The District will also capitalize individual
purchases under the capitalization threshold if they are part of a new capital program. The cost of purchased and self-
constructed additions to utility plant and major replacements of property are capitalized. Costs include materials, direct
labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, overhead, and
interest incurred during the construction period. Repairs, maintenance, and minor replacements of property are charged
to expense. Donated assets are capitalized at their acquisition value on the date contributed.
The District capitalizes interest on construction projects up to the point in time that the project is substantially
completed. Capitalized interest for fiscal year ending June 30, 2018 of $266,959 is included in the cost of water system
assets and is depreciated on the straight-line basis over the estimated useful lives of such assets.
Depreciation is calculated using the straight-line method over the following estimated useful lives:
Water System 15-70 Years
Field Equipment 2-50 Years
Buildings 30-50 Years
Communication Equipment 2-10 Years
Transportation Equipment 2-7 Years
Office Equipment 2-10 Years
Recycled Water System 50-75 Years
Sewer System 25-50 Years
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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23
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
I) Compensated Absences
It is the District’s policy to record vested or accumulated vacation and sick leave as an expense and liability as benefits
accrue to employees.
Beginning Ending Due Within
Balance Additions Reductions Balance One Year
Compensated
Absences $ 2,733,700 $ 2,977,867 $ 2,903,953 $ 2,807,614 $ 280,761
Current portion is reflected in Accrued Payroll Liabilities and remainder in other non-current liabilities on the
Statement of Net Position.
J) Classification of Liabilities
Certain current liabilities have been classified as current liabilities payable from restricted assets as they will be
funded from restricted assets.
K) Allowance for Doubtful Accounts
The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that
the accounts will be uncollectible. Uncollectible accounts are determined by the allowance method based upon prior
experience and management’s assessment of the collectibility of existing specific accounts. The allowance for doubtful
accounts was $223,005 for 2018.
L) Property Taxes
Tax levies are limited to 1% of full market value (at time of purchase) which results in a tax rate of $1.00 per $100
assessed valuation, under the provisions of Proposition 13. Tax rates for voter-approved indebtedness are excluded
from this limitation.
The County of San Diego (the “County”) bills and collects property taxes on behalf of the District. The County’s tax
calendar year is July 1 to June 30. Property taxes attach as a lien on property on January 1. Taxes are levied on July 1
and are payable in two equal installments on November 1 and February 1, and become delinquent after December 10
and April 10, respectively.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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24
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
M) Pensions
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions,
and pension expense, information about the fiduciary net position of the District’s California Public Employees’
Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have
been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including
refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.
Investments are reported at fair value.
N) Other Post-Employment Benefits (OPEB)
For purposes of measuring the net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB
expense, information about the fiduciary net position of the District’s plan (OPEB Plan) and additions to/deductions
from the OPEB Plan’s fiduciary net position have been determined on the same basis. For this purpose, benefit
payments are recognized when currently due and payable in accordance with the benefit terms. Investments are
reported at fair value.
Generally accepted accounting principles require that the reported results must pertain to liability and asset information
within certain defined timeframes. For this report, the following timeframes are used:
Valuation Date June 30, 2017
Measurement Date June 30, 2017
Measurement Period July 1, 2016 to June 30, 2017
O) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets,
deferred outflows of resources, liabilities, and deferred inflows of resources, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
25
2) CASH AND INVESTMENTS
The primary goals of the District’s Investment Policy are to assure compliance with all Federal, State, and Local laws
governing the investment of funds under the control of the organization, protect the principal of investments entrusted, and
generate income under the parameters of such policies.
Cash and Investments are classified in the accompanying financial statements as follows:
Statement of Net Position:
Cash and Cash Equivalents $ 24,147,997
Restricted Cash and Cash Equivalents 80,477
Investments 30,866,180
Board Designated Investments 29,879,617
Restricted Investments 4,166,548
Total Cash and Investments $ 89,140,819
Cash and Investments consist of the following:
Cash on Hand $ 2,950
Deposits with Financial Institutions 754,437
Investments 88,383,432
Total Cash and Investments $ 89,140,819
Investments Authorized by the California Government Code and the District’s Investment Policy
The table below identifies the investment types that are authorized for the District by the California Government Code
(or the District’s Investment Policy, where more restrictive). The table also identifies certain provisions of the
California Government Code (or the District’s Investment Policy, where more restrictive) that address interest rate risk,
credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond
trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the
California Government Code or the District’s Investment Policy.
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Of Portfolio(1) In One Issuer
U.S. Treasury Obligations 5 years None None
U.S. Government Sponsored Entities 5 years None None
Certificates of Deposit 5 years 15% None
Corporate Medium-Term Notes 5 years 10% None
Commercial Paper 270 days 10% 10%
Money Market Mutual Funds N/A 10% None
County Pooled Investment Funds N/A None None
Local Agency Investment Fund (LAIF) N/A None None
(1) Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
26
2) CASH AND INVESTMENTS - Continued
Investments Authorized by Debt Agreements
Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements, rather than the
general provisions of the California Government Code or the District’s Investment Policy.
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.
Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest
rates. One of the ways that the District manages its exposure to interest rates risk is by purchasing investments with shorter
durations than the maximum allowable under the District’s Investment Policy and by timing cash flows from maturities, so
that a portion of the portfolio is maturing or coming close to maturity evenly over time, as necessary, to provide the cash
flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the District’s investments to market interest rate fluctuations are
provided by the following tables that show the distribution of the District’s investments by maturity as of June 30, 2018.
Remaining Maturity (in Months)
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S. Government Sponsored Entities $ 64,967,885 $ 27,845,100 $ 27,313,861 $ 9,808,924 $ -
Local Agency Investment Fund (LAIF) 11,204,070 11,204,070 - - -
San Diego County Pool 12,131,000 12,131,000 - - -
Money Market Funds 80,477 80,477 - - -
Total $ 88,383,432 $ 51,260,647 $ 27,313,861 $ 9,808,924 $ -
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.
This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is
the minimum rating required by (where applicable) the California Government Code or the District’s Investment Policy, or
debt agreements, and the Moody’s ratings as of June 30, 2018.
Minimum Rating as of Year End
Legal Not
Investment Type Rating AAA AA A-1 Rated
U.S. Government Sponsored Entities $ 64,967,885 N/A $ 64,967,885 $ - $ - $ -
Local Agency Investment Fund (LAIF) 11,204,070 N/A - - - 11,204,070
San Diego County Pool 12,131,000 N/A - - - 12,131,000
Money Market Funds 80,477 N/A - - 80,477 -
Total $ 88,383,432 $ 64,967,885 $ - $ 80,477 $ 23,335,070
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
27
2) CASH AND INVESTMENTS - Continued
Concentration of Credit Risk
The investment policy of the District contains various limitations on the amounts that can be invested in any one type or
group of investments and in any issuer, beyond that stipulated by the California Government Code, Sections 53600 through
53692. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that
represent 5% or more of total District investments as of June 30, 2018:
Issuer Investment Type Reported Amount
Federal Home Loan Bank U.S. Government Sponsored Entities $ 13,877,960
Federal Home Loan Mortgage Corp U.S. Government Sponsored Entities $ 13,789,744
Federal National Mortgage Association U.S. Government Sponsored Entities $ 23,423,521
Federal Farm Credit Banks U.S. Government Sponsored Entities $ 11,890,740
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government
will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an
outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g.,
broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities
that are in the possession of another party. The California Government Code and the District’s Investment Policy do not
contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other
than the following provision for deposits: The California Government Code requires that a financial institution secure
deposits made by state or local government units by pledging securities in an undivided collateral pool held by a depository
regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the
collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows
financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured
public deposits.
As of June 30, 2018, $555,267 of the District’s deposits with financial institutions in excess of federal depository insurance
limits, were held in collateralized accounts.
Local Agency Investment Fund (LAIF)
The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the
District’s investment in this pool is reported in the accompanying financial statements at amounts based upon District’s pro-
rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that
portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded
on an amortized cost-basis.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
28
2) CASH AND INVESTMENTS - Continued
Local Agency Investment Fund (LAIF) - Continued
The LAIF is a special fund of the California State Treasury through which local governments may pool investments. The
District may invest up to $65,000,000 in the fund. Investments in LAIF are highly liquid, as deposits can be converted to
cash within twenty-four hours without loss of interest. Investments with LAIF are secured by the full faith and credit of the
State of California. The yield of LAIF for the quarter ended June 30, 2018 was 1.90%. The estimated amortized cost and
fair value of the LAIF pool at June 30, 2018 was $88,964,875,827 and $88,798,232,977. The District’s share of the pool at
June 30, 2018 was approximately 0.0126%.
San Diego County Pooled Fund
The San Diego County Pooled Investment Fund (SDCPIF) is a pooled investment fund program governed by the County of
San Diego Board of Supervisors, and administered by the County of San Diego Treasurer and Tax Collector. Investments
in SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty, determined on an
amortized cash basis, the same as the fair value of the District’s position in the pool.
The County of San Diego’s bank deposits are either federally insured or collateralized in accordance with the California
Government Code. Pool detail is included in the County of San Diego Comprehensive Annual Financial Report (CAFR).
Copies of the CAFR may be obtained from the County of San Diego Auditor-Controller’s Office - 1600 Pacific Coast
Highway, San Diego California 92101.
Restricted Cash and Cash Equivalents
Debt Service:
Water Revenue Bond Series 2010A $ 22,024
Water Revenue Bond Series 2010B 58,453
Total $ 80,477
Board Designated Investments
Investments are Board restricted for the cost of the following District projects:
New Water Supply $ 1,341,075
Replacement 28,538,542
Total $ 29,879,617
Restricted Investments
Debt Service:
General Obligation Bond ID No. 27-2009 $ 487,087
Water Revenue Bond Series 2010A 1,014,684
Water Revenue Bond Series 2010B 2,664,777
Total $ 4,166,548
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
29
3) FAIR VALUE MEASUREMENTS
Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurements and Application,
provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value with Level 1 given the highest priority and Level 3 the lowest
priority. The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the organization has
the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include the following:
a. Quoted prices for similar assets or liabilities in active markets.
b. Quoted prices for identical or similar assets or liabilities in markets that are not active.
c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield
curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks,
and default rates).
d. Inputs that are derived principally from or corroborated by observable market data by correlation or other
means (market-corroborated inputs).
Level 3 inputs are unobservable inputs for the asset or liability.
Fair value of assets measured on a recurring basis at June 30, 2018, are as follows:
Significant Other
Observable Inputs
Fair Value (Level 2) Uncategorized
U.S. Government Sponsored Entities
$ 64,967,885
$ 64,967,885
$ -
Local Agency Investment Fund (LAIF) 11,204,070 - 11,204,070
San Diego County Pool 12,131,000 - 12,131,000
Money Market Funds 80,477 80,477 -
Total $ 88,383,432 $ 65,048,362 $ 23,335,070
Investments classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing
is used to value securities based on the securities’ relationship to benchmark quoted prices. Uncategorized investments
do not fall under the fair value hierarchy as there is no active market for the investments.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
30
4) CAPITAL ASSETS
The following is a summary of changes in Capital Assets for the year ended June 30, 2018:
Beginning Ending
Balance Additions Deletions Adjustments1 Balance
Capital Assets, Not Depreciated
Land $ 14,389,187 $ - $ - $ 17,591 $ 14,406,778
Construction in Progress 14,201,511 19,344,410 (15,927,862) - 17,618,059
Total Capital Assets
Not Depreciated 28,590,698 19,344,410 (15,927,862) 17,591 32,024,837
Capital Assets, Being Depreciated
Infrastructure 640,641,602 14,875,150 (9,312,310) 869,559 647,074,001
Field Equipment 8,988,620 60,471 (530,190) - 8,518,901
Buildings 20,576,125 635,154 (243,913) (887,150) 20,080,216
Transportation Equipment 3,286,998 278,472 (136,166) - 3,429,304
Communication Equipment 3,371,041 155,636 (12,362) - 3,514,315
Office Equipment 17,620,584 554,553 (525,150) - 17,649,987
Total Capital Assets
Being Depreciated 694,484,970 16,559,436 (10,760,091) (17,591) 700,266,724
Less Accumulated Depreciation:
Infrastructure 235,280,822 15,735,932 (7,597,237) 481,160 243,900,677
Field Equipment 7,036,892 307,889 (525,717) - 6,819,064
Buildings 9,596,983 509,171 (119,055) (481,160) 9,505,939
Transportation Equipment 2,608,206 155,029 (136,166) - 2,627,069
Communication Equipment 2,627,246 245,639 (12,362) - 2,860,523
Office Equipment 15,728,569 512,658 (513,501) - 15,727,726
Total Accumulated
Depreciation 272,878,718 17,466,318 (8,904,038) - 281,440,998
Total Capital Assets
Being Depreciated, Net
421,606,252
(906,882)
(1,856,053)
(17,591)
418,825,726
Total Capital Assets, Net $ 450,196,950 $ 18,437,528 $ (17,783,915) $ - $ 450,850,563
1 Adjustments are related to recategorization of capital assets during the fiscal year.
Depreciation expense for the year ended June 30, 2018 was $17,466,318.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
31
5) LONG-TERM DEBT
Long-term liabilities for the year ended June 30, 2018 are as follows:
Beginning Ending Due Within
Balance Additions Deletions Balance One Year
General Obligation Bonds:
Improvement District No. 27 - 2009 $ 3,995,000 $ - $ 605,000 $ 3,390,000 $ 635,000
Unamortized Bond Premium 84,498 - 16,355 68,143 -
Net General Obligation Bonds 4,079,498 - 621,355 3,458,143 635,000
Certificates of Participation:
1996 Certificates of Participation 8,200,000 - 600,000 7,600,000 700,000
1996 COPS Unamortized Discount (7,452) - (745) (6,707) -
Net Certificates of Participation 8,192,548 - 599,255 7,593,293 700,000
Revenue Bonds:
2010 Water Revenue Bonds Series A 8,820,000 - 940,000 7,880,000 975,000
2010 Water Revenue Bonds Series B 36,355,000 - - 36,355,000 -
2013 Water Revenue Refunding Bonds 5,220,000 - 660,000 4,560,000 685,000
2016 Water Revenue Refunding Bonds 32,185,000 - 1,015,000 31,170,000 1,045,000
2010 Series A Unamortized Premium 539,411 - 74,402 465,009 -
2013 Bonds Unamortized Premium 592,588 - 96,095 496,493 -
2016 Bonds Unamortized Premium 3,422,619 - 178,571 3,244,048 -
Net Revenue Bonds 87,134,618 - 2,964,068 84,170,550 2,705,000
Total Long-Term Liabilities $ 99,406,664 $ - $ 4,184,678 $ 95,221,986 $ 4,040,000
General Obligation Bonds
In June 1998, the District issued $11,835,000 of General Obligation Refunding Bonds. The proceeds of this issue, together
with other lawfully available monies, were to be used to establish an irrevocable escrow to advance refund and defease in
their entirety the District’s previous outstanding General Obligation Bond issue. In November 2009, the District issued
$7,780,000 of General Obligation Refunding Bonds Improvement District No. 27-2009 to refund the 1998 issue. The
proceeds from the bond issue were $7,989,884, which included an original issue premium of $209,884. An amount of
$7,824,647, which consisted of unpaid principal and accrued interest, was deposited into an escrow fund. Pursuant to an
optional redemption clause in the 1998 bonds, the District was able to redeem the 1998 bonds, without premium at any time
after September 1, 2009. On December 15, 2009 the 1998 bonds were refunded.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
32
5) LONG-TERM DEBT - Continued
General Obligation Bonds - Continued
These bonds are general obligations of Improvement District No. 27 (ID 27) of the District. The Board of Directors has the
power and is obligated to levy annual ad valorem taxes without limitation, as to rate or amount for payment of the bonds and
the interest upon all property which is within ID 27 and subject to taxation. The General Obligation Bonds are payable from
District-wide tax revenues. The Board may utilize other sources for servicing the bond debt and interest.
The Improvement District No. 27-2009 General Obligation Refunding Bonds have interest rates from 3.00% to 4.00% with
maturities through Fiscal Year 2023.
Future debt service requirements for the bonds are as follows:
For the Year Ended
June 30, Principal Interest
2019 $ 635,000 $ 122,900
2020 650,000 97,200
2021 680,000 70,600
2022 705,000 42,900
2023 720,000 14,400
$ 3,390,000 $ 348,000
Certificates of Participation (COPS)
In June 1996, COPS with face value of $15,400,000 were sold by the Otay Service Corporation to finance the cost of
design, acquisition, and construction of certain capital improvements. An installment purchase agreement between the
District, as Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and interest
associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the
installment agreement. The certificates bear interest at a variable weekly rate not to exceed 12%. The variable interest rate
is tied to the 30-day LIBOR index and the Securities Industry and Financial Markets Association (SIFMA) index. An
irrevocable letter of credit facility is necessary to market the District’s variable rate debt. This facility is with Union Bank
and covers the outstanding principal and interest. The facility expires on June 29, 2020. The interest rate at June 30, 2018
was 1.50%. The installment payments are to be paid annually at $350,000 to $1,100,000 from September 1, 1996 through
September 1, 2026.
In March 2007, Revenue Certificates of Participation (COPS) with face value of $42,000,000 were sold by the Otay Service
Corporation to improve the District’s water storage system and distribution facilities. An installment purchase agreement
between the District, as a Buyer, and the Corporation, as Seller, was executed for the scheduled payment of principal and
interest associated with the COPS. The installment payments are to be paid from taxes and net revenues, as described in the
installment agreement. On May 1, 2016 the 2007 COPS was refunded.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
33
5) LONG-TERM DEBT - Continued
There is no aggregate reserve requirement for the COPS. Future debt service requirements for the certificates are as
follows:
For the Year 1996 COPS
Ended June 30, Principal Interest(1)
2019 $ 700,000 $ 105,250
2020 700,000 94,750
2021 700,000 84,250
2022 800,000 72,500
2023 800,000 60,500
2024-2027 3,900,000 102,750
$ 7,600,000 $ 520,000
(1)Variable Rate - Interest reflected at June 30, 2018 at a rate of 1.50%.
The COPS debt issue contain various covenants and restrictions, principally that the District fix, prescribe, revise and collect
rates, fees and charges for the Water System which will at lease sufficient to yield, during each fiscal year, taxes and net
revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The District was in
compliance with these rate covenants for the fiscal year ended June 30, 2018.
Water Revenue Bonds
In April 2010, Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing
Authority to provide funds for the construction of water storage and transmission facilities. The bond issue consisted of two
series; Water Revenue Bonds, Series 2010A (Non-AMT Tax Exempt) with a face value of $13,840,000 plus a $1,078,824
original issue premium, and Water Revenue Bonds, Series 2010B (Taxable Build America Bonds) with a face value of
$36,355,000. The Series 2010A bonds are due in annual installments of $785,000 to $1,295,000 from September 1, 2012
through September 1, 2025; bearing interest at 2% to 5.25%. The Series 2010B bonds are due in annual installments of
$1,365,000 to $3,505,000 from September 1, 2026 through September 1, 2040; bearing interest at 6.377% to 6.577%.
Interest on both Series is payable on September 1, 2010 and semiannually thereafter on March 1st and September 1st of each
year until maturity or earlier redemption. The installment payments are to be made from taxes and net revenues of the
Water System as described in the installment purchase agreement, on parity with the payments required to be made by the
District for the 1996 Certificates of Participation described above and the 2013 and 2016 Water Revenue Refunding Bonds
described below.
The proceeds of the bonds will be used to fund the project described above as well as to fund reserve funds of $1,030,688
(Series 2010A) and $2,707,418 (Series 2010B). $542,666 was used to fund various costs of issuance.
The original issue premium is being amortized over the 14-year life of the Series 2010A bonds. Amortization for the year
ending June 30, 2018 was $74,402 and is included in interest expense. The unamortized premium at June 30, 2018 is
$465,009.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
34
5) LONG-TERM DEBT - Continued
Water Revenue Bonds - Continued
The 2010 Water Revenue Bonds contains various covenants and restrictions, principally that the District fix, prescribe,
revise and collection rates, fees and charges for the Water System which will at least be sufficient to yield, during each fiscal
year, taxes and net revenues equal to one hundred twenty-five percent (125%) of the debt service for such fiscal year. The
District was in compliance with these rate covenants for the fiscal year ended June 30, 2018.
In June 2013, the 2013 Water Revenue Refunding Bonds were issued to defease the 2004 Refunding Certificates of
Participation. The bonds were issued with a face value of $7,735,000 plus a $984,975 original issue premium. The bonds
are due in annual installments of $660,000 to $835,000 from September 1, 2013 through September 1, 2023; bearing
interest at 1% to 4%. The installment payments are to be made from taxes and net revenues of the Water System, on parity
with the payments required to be made by the District for the 1996 and 2016 Water Revenue Bonds and the 2010A and
2010B described above.
The original issue premium is being amortized over the 11 year life of the Series 2013 bonds. Amortization for the year
ending June 30, 2018 was $96,095 and is included in interest expense. The unamortized premium at June 30, 2018 is
$496,493.
In May 2016, Water Revenue Refunding Bonds were issued to defease the 2007 Revenue Certificates of Participation. The
bonds are due in annual installments of $1,200,000 to $2,235,000 from September 1, 2016 through September 1, 2036;
bearing interest of 2% to 5%. The bonds were issued with a face value of $33,385,000 plus $3,630,950 original issue
premium. The savings between the cash flow required to service, the old debt and the cash flow required to service the new
debt is $5,664,140 and represent an economic gain on refunding of $4,538,175.
The original issue premium is being amortized over the 20 year life of the Series 2016 bonds. Amortization for the year
ending June 30, 2018 was $178,571 and is included in interest expense. The unamortized premium at June 30, 2018 is
$3,244,048.
The total amount outstanding at June 30, 2018 and aggregate maturities of the revenue bonds for the fiscal years subsequent
to June 30, 2018, are as follows:
For the Year
2010 Water Revenue Bond
Series A
2010 Water Revenue Bond
Series B
Ended June 30, Principal Interest Principal Interest
2019 $ 975,000 $ 367,988 $ - $ 2,371,868
2020 1,015,000 323,112 - 2,371,868
2021 1,065,000 271,112 - 2,371,868
2022 1,120,000 216,488 - 2,371,868
2023 1,175,000 159,113 - 2,371,868
2024-2028 2,530,000 132,856 4,360,000 11,453,765
2029-2033 - - 9,320,000 9,049,258
2034-2038 - - 12,795,000 5,459,733
2039-2042 - - 9,880,000 1,002,335
$ 7,880,000 $ 1,470,669 $ 36,355,000 $ 38,824,431
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
for DISCUSSION PURPOSES ONLY
35
5) LONG-TERM DEBT - Continued
Water Revenue Bonds - Continued
For the Year
2013 Water Revenue
Refunding Bonds
2016 Water Revenue
Refunding Bonds
Ended June 30, Principal Interest Principal Interest
2019 $ 685,000 $ 168,700 $ 1,045,000 $ 1,173,456
2020 715,000 140,700 1,100,000 1,119,831
2021 745,000 111,500 1,155,000 1,063,456
2022 775,000 81,100 1,215,000 1,004,206
2023 805,000 49,500 1,285,000 941,706
2024-2028 835,000 16,700 7,480,000 3,658,132
2029-2033 - - 9,315,000 1,917,682
2034-2037 - - 8,575,000 498,078
$ 4,560,000 $ 568,200 $ 31,170,000 $ 11,376,547
Revenues Pledged
The District has pledged a portion of future water sales revenues to repay its Water Revenue Bonds and Certificates of
Participation. Total principal and interest remaining on the water revenue bonds and certificates of participation is
$140,324,846 payable through fiscal year 2042. For the current year, principal and interest paid by the water sales revenues
were $3,215,000 and $4,268,091, respectively.
6) NET POSITION
Designations of Net Position
In addition to the restricted net position, a portion of unrestricted net position, have been designated by the Board of
Directors for the following purposes as of June 30, 2018:
Designated Betterment $ 2,293,440
Replacement Reserve 20,510,569
Designated New Supply Fund 325,645
Employee Benefits Reserve 262,404
Total $ 23,392,058
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
DRAFT COPY – 10/11/2018
PRELIMINARY & TENTATIVE
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7) DEFINED BENEFIT PENSION PLAN
A) General Information about the Pension Plans
Plan Descriptions
All qualified permanent and probationary employees are eligible to participate in the District’s Plan, agent multiple-
employer defined benefit pension plans administered by the California Public Employees’ Retirement System
(CalPERS), which acts as a common investment and administrative agent for its participating member employers.
Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly
available reports that include a full description of the pension plans regarding provisions, assumptions and
membership information that can be found on the CalPERS website.
Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to
plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service,
equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50
with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service.
The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional
Settlement 2W Death Benefit. The cost of living adjustments for the plan are applied as specified by the Public
Employees’ Retirement Law.
The Plans’ provisions and benefits in effect at June 30, 2018 are summarized as follows:
Prior to On or After
Hire Date January 1, 2013 January 1, 2013
Benefit Formula 2.7% at 55 2% at 62
Benefit Vesting Schedule 5 years service 5 years service
Benefit Payments Monthly for life Monthly for life
Retirement Age 50 - 55 52 - 67
Monthly Benefits, as a % of Eligible Compensation 2.0% to 2.7% 1.0% to 2.5%
Required Employee Contribution Rates 8% 6.25%
Required Employer Contribution Rates 20.869% - 25.435% 25.435% - 34.246%
Employees Covered
The following employees were covered by the benefit terms for the Plan:
Inactive Employees or Beneficiaries Currently Receiving Benefits 175
Inactive Employees Entitled to But Not Yet Receiving Benefits 140
Active Employees 134
Total 449
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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7) DEFINED BENEFIT PENSION PLAN - Continued
A) General Information about the Pension Plans - Continued
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates
for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1
following notice of a change in the rate. Funding contributions for the Plan are determined annually on
an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to
finance the costs of benefits earned by employees during the year, with an additional amount to finance any
unfunded accrued liability. The District is required to contribute the difference between the actuarially determined
rate and the contribution rate of employees.
B) Net Pension Liability
The District’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s
fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2017, using the annual
actuarial valuation as of June 30, 2016 rolled forward to June 30, 2017 using standard update procedures. A
summary of principal assumptions and methods used to determine the net pension liability is shown below:
Actuarial Assumptions
The total pension liabilities in the June 30, 2016 actuarial valuations were determined using the following actuarial
assumptions:
Valuation Date June 30, 2016
Measurement Date June 30, 2017
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.75%
Payroll Growth 3.0%
Projected Salary Increase 3.3% - 14.2%(1)
Investment Rate of Return 7.5%(2)
(1) Depending on age, service and type of employment
(2) Net of pension plan investment expenses, including inflation
The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2016
valuation were based on the results of a January 2014 actuarial experience study for the period 1997
to 2011. Further details of the Experience Study can be found on the CalPERS website.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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7) DEFINED BENEFIT PENSION PLAN - Continued
B) Net Pension Liability - Continued
Discount Rate
The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the
municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans
that would most likely result in a discount rate that would be different from the actuarially assumed discount rate.
Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15% discount rate is
adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate
of 7.15% will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are
presented in a detailed report that can be obtained from the CalPERS website.
According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for
pension plan administrator expense. The 7.50% investment return assumption used in this accounting valuation is
net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return
excluding administrative expenses would have been 7.65%. Using this lower discount rate has resulted in a slightly
higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the
difference in calculation and did not find it to be a material difference.
The long-term expected rate of return on pension plan investments was determined using a building-block method
in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment expense and inflation) are developed for each major asset class.
In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term
market return expectations as well as the expected pension fund cash flows. Using historical returns of all the
funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-
term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and
long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by
calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as
the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent
to the single equivalent rate calculated above the rounded down to the nearest one quarter of one percent.
The following table reflects the long-term expected real rate of return by asset class. The rate of return was
calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These
rates of return are net of administrative expenses.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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7) DEFINED BENEFIT PENSION PLAN - Continued
B) Net Pension Liability - Continued
Discount Rate - Continued
Asset Class
New Strategic
Allocation
Real Return
Years 1 - 10(a)
Real Return
Years 11+(b)
Global Equity 47.0% 4.90% 5.38%
Global Fixed Income 19.0% 0.80% 2.27%
Inflation Sensitive 6.0% 0.60% 1.39%
Private Equity 12.0% 6.60% 6.63%
Real Estate 11.0% 2.80% 5.21%
Infrastructure and Forestland 3.0% 3.90% 5.36%
Liquidity 2.0% -0.40% -0.90%
Total 100%
(a) An expected inflation of 2.5% used for this period.
(b) An expected inflation of 3.0% used for this period.
C) Changes in the Net Pension Liability
The changes in the Net Pension Liability for the Plan for June 30, 2018:
Increase (Decrease)
Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability/(Asset)
Beginning Balance $ 119,095,572 $ 73,846,128 $ 45,249,444
Changes in the Year:
Service Cost 2,556,902 - 2,556,902
Interest on the Total Pension Liability 8,836,284 - 8,836,284
Changes in Benefit Terms - - -
Changes in Assumptions 7,308,486 - 7,308,486
Differences Between Actual and Expected
Experience
(1,208,593)
-
(1,208,593)
Contribution - Employer - 4,105,810 (4,105,810)
Contribution - Employees - 1,014,329 (1,014,329)
Net Investment Income - 8,149,097 (8,149,097)
Benefit Payments, Including Refunds of
Employee Contributions
(5,779,040)
(5,779,040)
-
Administrative Expense - (109,029) 109,029
Net Changes 11,714,039 7,381,167 4,332,872
Ending Balance $ 130,809,611 $ 81,227,295 $ 49,582,316
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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7) DEFINED BENEFIT PENSION PLAN - Continued
C) Changes in the Net Pension Liability - Continued
Sensitivity of the Net Pension Liability to Changes in the Discount Rate
The following presents the net pension liability of the District for the Plan, calculated using the discount rate for the
Plan, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1-
percentage point lower or 1-percentage point higher than the current rate:
1% Decrease 6.15%
Net Pension Liability $ 67,205,545
Current Discount Rate 7.15%
Net Pension Liability $ 49,582,316
1% Increase 8.15%
Net Pension Liability $ 34,980,142
Pension Plan Fiduciary Net Position
Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS
financial reports.
D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
For the year ended June 30, 2018, the District recognized pension expense of $6,413,616. At June 30, 2018, the
District reported deferred outflows of resources and deferred inflows of resources related to pensions from the
following services:
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to measurement date $ 4,452,147 $ -
Differences between actual and expected experience - (936,234)
Changes in assumptions 4,601,639 -
Net difference between projected and actual earnings on
pension plan investments
1,132,443
-
Total $ 10,186,229 $ (936,234)
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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7) DEFINED BENEFIT PENSION PLAN - Continued
D) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions - Continued
$4,452,147 reported as deferred outflows of resources related to contributions subsequent to the measurement date
will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts
reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized
as pension expense as follows:
Deferred
Year Ended Outflow/(Inflows)
June 30 of Resources
2018 $ 2,090,840
2019 2,830,327
2020 462,151
2021 (585,470)
2022 -
Thereafter -
E) Payable to the Pension Plan
At June 30, 2018, the District reported a payable of $88,989 for the outstanding amount of contributions to the
pension plan required for the year ended June 30, 2018 reflected in the accrued payroll liabilities on the Statement
of Net Position.
8) OTHER POST EMPLOYMENT BENEFITS (OPEB)
Plan Description
The District’s defined benefit postemployment healthcare plan, (DPHP), provides medical benefits to eligible retired
District employees and beneficiaries. DPHP is part of the Public Agency portion of the California Employers’ Retiree
Benefit Trust Fund (CERBT), an agent multiple-employer plan administered by California Public Employees’
Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public
employers within the State of California. CalPERS issues a separate Comprehensive Annual Financial Report. Copies
of the CalPERS’ annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento,
California 95814.
Prior to the plan agreements signed in 2011, the eligibility in the plan was broken into 3 tiers, employees hired before
January 1, 1981, employees hired on or after January 1, 1981 but before July 1, 1993 and employees hired on or after
July 1, 1993. Board members elected before January 1, 1995 are also eligible for the plan. Eligibility also includes age
and years of service requirements which vary by tier. Benefits include up to 100% medical and/or dental premiums for
life for the retiree for Tier I, II or III employees, and up to 100% spouse premium until death of retiree or age 65
whichever is greater and dependent premium up to age 19 depending on the tier.
Subsequent to the agreements in 2011 and 2012 all employees are eligible for the plan after 20 years of consecutive
service and unrepresented employees hired before January 1, 2013 are eligible after 15 years. Survivor benefits are
covered beyond Medicare.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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42
8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued
Employees Covered
As of June 30, 2017 actuarial valuation, the following current and former employees were covered by the benefit terms
under the Plan:
Active employees 131
Inactive employees or beneficiaries currently receiving benefits 79
Inactive employees entitled to, but not yet receiving benefits -
Total 210
Contributions
The annual contribution is based on the actuarially determined contribution. For the fiscal year ended June 30, 2018, the
District’s cash contributions were $2,054,208 in payments to the trust and the estimated implied subsidy was $147,796
resulting in total payments of $2,202,004.
Net OPEB Liability
The District’s net OPEB liability was measured as of June 30, 2017 and the total OPEB liability used to calculate the net
OPEB liability was determined by an actuarial valuation dated June 30, 2017 based on the following actuarial methods
and assumptions:
Actuarial Assumptions
Discount Rate 7.00%
Inflation 2.75%
Salary Increases 3.0% plus merit
Investment Rate of Return 7.00%
Mortality Rate(1) Derived using CalPERS Membership Data for all funds
Pre-Retirement Turnover(2) Derived using CalPERS Membership Data for all funds
Healthcare Trend Rate 6.00% HMO/6.50% PPO decreasing to 5.00% HMO/5.00% PPO
Notes:
(1) Pre-retirement mortality information was derived from data collected during 1997 to 2011 CalPERS Experience Study
dated January 2014 and post-retirement mortality information was derived from the 2007 to 2011 CalPERS Experience
Study. The Experience Study Reports may be access on the CalPERS website www.calpers.ca.gov under Forms and
Publications.
(2) The pre-retirement turnover information was developed based on CalPERS specific data. For more details, please refer to
the 2007 to 2011 Experience Study Report. The Experience Study Report may be accessed on the CalPERS website
www.calpers.ca.gov under Forms and Publications.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued
Net OPEB Liability - Continued
The long-term expected rate of return on OPEB plan investments was determined using a building block method in which
best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and
inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of
return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected
inflation. Best estimates of arithmetic real rates of return for each major asset class included in the OPEB plan’s target asset
are summarized in the following table:
Long-term
Target Expected Real
Asset Class Allocation Rate of Return
US Equity 30.0% 4.85%
International Equity 27.0% 5.85%
REITs 8.0% 3.65%
US Fixed Income 27.0% 2.35%
Commodities 3.0% 1.75%
Inflation Assets 5.0% 1.50%
Total 100%
Discount Rate
The discount rate used to measure the total OPEB liability was 7.00%. The projection of cash flows used to determine the
discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates.
Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected
OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of
return on OPEB plan investments was applied to all periods of projects benefit payments to determine the total OPEB
liability.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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44
8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued
Changes in the OPEB Liability
The changes in the net OPEB liability for the Plan are as follows:
Increase (Decrease)
Total OPEB
Liability
(a)
Plan Fiduciary
Net Position
(b)
Net OPEB
Liability/(Asset)
(c) = (a) - (b)
Balance at June 30, 2017
(Valuation Date June 30, 2017) $ 25,037,076 $ 18,492,217 $ 6,544,859
Changes Recognized for the Measurement Period:
Service Cost 687,528 - 687,528
Interest 1,764,343 - 1,764,343
Changes of Assumptions - - -
Contribution - Employer - 2,284,420 (2,284,420)
Net Investment Income - 2,011,985 (2,011,985)
Benefit Payments (1,039,420) (1,039,420) -
Administrative Expense - (10,167) 10,167
Net Changes 1,412,451 3,246,818 (1,834,367)
Balance at June 30, 2018
(Measurement Date June 30, 2017)
$ 26,449,527
$ 21,739,035
$ 4,710,492
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate
The following presents the net OPEB liability of the District if it were calculated using a discount rate that is one
percentage point lower or one percentage point higher than the current rate, for measurement period ended June 30,
2017:
1% Decrease
(6.00%)
Current
Discount Rate
(7.00%)
1% Increase
(8.00%)
Net OPEB Liability $ 8,830,538 $ 4,710,492 $ 1,378,817
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued
Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates
The following presents the net OPEB liability of the District if it were calculated using health care cost trend rates that
are one percentage point lower or one percentage point higher than the current rate, for measurement period ended June
30, 2017:
1% Decrease
(5.00% HMO/5.50% PPO
Decreasing to
4.00% HMO/4.00% PPO)
Current Healthcare Cost
Trend Rates
(6.00% HMO/6.5% PPO
Decreasing to
5.00% HMO/5.00% PPO)
1% Increase
(7.00% HMO/7.50% PPO
Decreasing to
6.00% HMO/6.00% PPO)
Net OPEB Liability $ 1,158,335 $ 4,710,492 $ 9,214,495
OPEB Plan Fiduciary Net Position
CERBT issues a publicly available financial report that may be obtained from the California Public Employees
Retirement System Executive Office, 400 P Street, Sacramento, California 95814.
Recognition of Deferred Outflows and Deferred Inflows of Resources
Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense
systematically over time.
Amounts are first recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are
categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future
OPEB expense.
The recognition period differs depending on the source of the gain or loss:
Net difference between projected and actual
earnings on OPEB plan investments
5 years
All other amounts Expected average remaining service lifetime (EARSL)
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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46
8) OTHER POST EMPLOYMENT BENEFITS (OPEB) - Continued
OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB
For the fiscal year ended June 30, 2018, the District recognized OPEB expense of $(39,299). As of fiscal year ended
June 30, 2018, the District reported deferred outflows of resources related to OPEB from the following services:
Deferred Outflows
of Resources
Deferred Inflows
of Resources
OPEB contributions subsequent to measurement date $ 2,202,004 $ -
Changes in assumptions - -
Net differences between projected and actual earnings
on OPEB plan investments
-
(539,449)
Total $ 2,202,004 $ (539,449)
The $2,202,004 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2017
measurement date will be recognized as a reduction of the net OPEB liability during the fiscal year ending June 30,
2019. Other amounts reported as deferred outflows of resources related to OPEB will be recognized as expense as
follows:
Deferred
Year Ended Outflow/(Inflows)
June 30, of Resources
2019 $ (134,862)
2020 (134,862)
2021 (134,862)
2022 (134,863)
2023 -
Thereafter -
9) WATER CONSERVATION AUTHORITY
In 1999 the District formed the Water Conservation Garden Authority (the “Authority”), a Joint Powers Authority, with
other local entities to construct, maintain and operate a xeriscape demonstration garden in the furtherance of water
conservation. The authority is a non-profit public charity organization and is exempt from income taxes. During the year
ended June 30, 2018, the District contributed $123,050, for the development, construction and operation costs of the
xeriscape demonstration garden.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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47
9) WATER CONSERVATION AUTHORITY - Continued
A summary of the Authority’s June 30, 2017 audited financial statement is as follows (latest report available):
Assets $ 1,250,047
Liabilities 0
Net Position $ 1,250,047
Revenues, Gains and Other Support $ 490,780
Expenses 557,052
Changes in Net Position $ (66,272)
10) COMMITMENTS AND CONTINGENCIES
Construction Commitments
The District had committed to capital projects under construction with an estimated cost to complete of $21,974,525 at June
30, 2018.
Litigation
Certain claims, suits and complaints arising in the ordinary course of operation have been filed or are pending against the
District. In the opinion of the staff and counsel, all such matters are adequately covered by insurance, or if not so covered,
are without merit or are of such kind, or involved such amounts, as would not have significant effect on the financial
position or results of operations of the District if disposed of unfavorably.
Refundable Terminal Storage Fees
The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee
in order to provide the District with the funds necessary to build additional storage capacity. The agreement further allows
the developers to relinquish all or a portion of such water storage capacity. If the District grants to another property owner
the relinquished storage capacity, the District shall refund to the applicable developer $746 per equivalent dwelling unit
(EDU). There were 17,867 EDUs that were subject to this agreement. At June 30, 2018, 1,750 EDUs had been
relinquished and refunded, 15,086 EDUs had been connected, and 1,031 EDUs have neither been relinquished nor
connected.
Developer Agreements
The District has entered into various Developer Agreements with developers towards the expansion of District facilities.
The developers agree to make certain improvements and after the completion of the projects the District agrees to reimburse
such improvements with a maximum reimbursement amount for each developer. Contractually, the District does not incur a
liability for the work until the work is accepted by the District. As of June 30, 2018, none of the outstanding developer
agreements had been accepted.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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48
11) RISK MANAGEMENT
General Liability
The District is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions,
and natural disasters. Beginning in July 2003, the District began participation in an insurance pool through the Special
District Risk Management Authority (SDRMA). SDRMA is a not-for-profit public agency formed under California
Government Code Sections 6500 et. Seq. SDRMA is governed by a board composed of members from participating
agencies. The mission of SDRMA is to provide renewable, efficiently priced risk financing and risk management services
through a financially sound pool. The District pays an annual premium for commercial insurance covering general liability,
excess liability, property, automobile, public employee dishonesty, and various other claims. Separate financial statements
of SDRMA may be obtained at Special District Risk Management Authority, 1112 “I” Street, Suite 300, Sacramento, CA
95814.
General and Auto Liability, Public Officials’ Errors and Omissions and Employment Practices Liability: Total risk
financing limits of $10 million combined single limit at $10 million per occurrence, subject to the following deductibles:
$12,000 per occurrence for third party general liability property damage;
$1,000 per occurrence for third party auto liability property damage;
50% co-insurance of cost expended by SDRMA, in excess of $10,000 up to $210,000, per occurrence, as respects
any employment practices claim or suit arising in whole or any part out of any action involving discipline,
demotion, reassignment or termination of any employee of the member.
Employee Dishonesty Coverage: Total of $1,000,000 per loss includes Public Employee Dishonesty, Forgery or Alteration
and Theft, Disappearance and Destruction coverage’s effective July 1, 2017.
Property Loss: Replacement cost, for property on file, if replaced, and if not replaced within two years after the loss, paid
on an actual cash value basis, to a combined total of $1 billion per occurrence, subject to a $1,000 deductible per
occurrence, effective July 1, 2017.
Boiler and Machinery: Replacement cost up to $100 million per occurrence, subject to a $1,000 deductible, effective July 1,
2017.
Public Officials Personal Liability: $500,000 each occurrence, with an annual aggregate of $500,000 per each
elected/appointed official to which this coverage applies, subject to the terms, conditions and exclusions as provided in the
Memorandum of Coverage’s, deductible of $500 per occurrence, effective July 1, 2017.
Comprehensive and Collision: On selected vehicles, with deductibles of $250/$500 or $500/$1,000, as elected; ACV limits;
fully self-funded by SDRMA; Policy No. LCA - SDRMA – 2017-18, effective July 1, 2017.
Workers’ Compensation Coverage and Employer’s Liability: Statutory limits per occurrence for Workers’ Compensation
and $5.0 million for Employer’s Liability Coverage, subject to the terms, conditions and exclusions as provided in the
Memorandum of Coverage, effective July 1, 2017.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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49
11) RISK MANAGEMENT - Continued
General Liability - Continued
Cyber Coverage: $2,000,000 Annual Aggregate Limit of Liability for each Insured/Member for Information Security &
Privacy Liability. Policy includes at $25,000 deductible per claim.
Health Insurance
Beginning in January 2008, the District began providing health insurance through SDRMA covering all of its employees,
retirees, and other dependents. SDRMA is a pooled medical program, administered in conjunction with the California State
Association of Counties (CSAC).
Adequacy of Protection
During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that
exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage
from coverage in the prior year.
12) INTEREST EXPENSE
Interest expense for the years ended June 30, 2018 is as follows:
Amount Expensed $ 3,941,321
Amount Capitalized as a Cost of
Construction Projects 266,959
Total Interest $ 4,208,280
13) SEGMENT INFORMATION
The District has issued Water Revenue Bonds in previous fiscal years to finance certain capital improvements. While
water and wastewater services are accounted for jointly in these financial statements, the investors in the Water Revenue
Bonds rely solely on the revenues of the water services for repayment.
CNOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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50
13) SEGMENT INFORMATION - Continued
Summary financial information for the water services is presented for June 30, 2018:
Condensed Statement of Net Position
June 30, 2018
Water Services
ASSETS
Cash and Investments $ 83,936,096
Accounts Receivable 11,937,362
Other Current Asset 2,346,388
Capital Assets 425,858,728
Total Assets 524,078,574
DEFERRED OUTFLOWS OF RESOURCES
Deferred Actuarial Pension Costs 9,760,597
Deferred Actuarial OPEB Costs 2,098,510
Total Deferred Outflows of Resources 11,859,107
LIABILITIES
Accounts Payable 14,537,105
Other Miscellaneous Liabilities 4,345,073
Other Current Liabilities 9,038,907
General Obligation Bonds 2,823,143
Certificates of Participation 6,893,293
Net OPEB Liability 4,489,099
Revenue Bonds 81,465,550
Net Pension Liability 47,296,682
Other Non-current Liabilities 3,117,705
Total Liabilities 174,006,557
DEFERRED INFLOWS OF RESOURCES
Deferred Actuarial Pension Costs 916,299
Deferred Actuarial OPEB Costs 514,095
Total Deferred Inflows of Resources 1,430,394
NET POSITION
Net Investment in Capital Assets 330,636,742
Restricted for Debt Service 4,247,025
Unrestricted 25,616,963
Total Net Position $ 360,500,730
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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51
13) SEGMENT INFORMATION - Continued
Condensed Statement of Revenues, Expenses and Changes in Net Position
For the Year Ended June 30, 2018
Water Services
Operating Revenues
Water Sales $ 92,595,195
Connection and Other Fees 2,009,084
Total Operating Revenues 94,604,279
Operating Expenses
Cost of Water Sales 62,321,213
Administrative and General 23,448,297
Depreciation 16,459,587
Total Operating Expenses 102,229,097
Operating Income (Loss) (7,624,818)
Non-operating Revenues (Expenses)
Investment Earnings 656,472
Taxes and Assessments 4,480,930
Availability Charges 646,323
Gain (Loss) on Sale of Capital Assets (1,527,679)
Rents and Leases 1,439,247
Miscellaneous Revenues 2,255,605
Donations (123,050)
Interest Expense (3,941,321)
Miscellaneous Expenses (893,623)
Total Non-operating Revenues (Expenses) 2,992,904
Income (Loss) Before Capital Contributions (4,631,914)
Capital Contributions 9,469,083
Change in Net Position 4,837,169
Total Net Position, Beginning , As Previously Reported 372,812,297
Prior Period Adjustment (17,148,736)
Total Net Position, Beginning, As Restated 355,663,561
Total Net Position, Ending $ 360,500,730
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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13) SEGMENT INFORMATION - Continued
Condensed Statement of Cash Flows
For the Year Ended June 30, 2018
Water Services
Net Cash Provided/(Used) by:
Operating Activities $ 14,471,842
Non-capital and Related Financing Activities 5,811,199
Capital and Related Financing Activities (16,598,410)
Investing Activities 3,065,764
Net Increase (Decrease) in Cash and Cash Equivalents 6,750,395
Cash and Cash Equivalents, Beginning 17,478,079
Cash and Cash Equivalents, Ending $ 24,228,474
14) PRIOR PERIOD ADJUSTMENT
The prior period adjustment of $17,816,075 relates to the implementation of GASB Statement 75 for postemployment
benefits other than pensions. According to GASB Statement 75, Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions, which was implemented by the District in the 2018 fiscal year,
recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenses related to OPEB plan.
15) SUBSEQUENT EVENTS
On July 11, 2018, the Board of Directors approved the transfer of $31.8 million to CalPERS to reduce the District’s
unfunded pension liability.
On September 5, 2018, the Board of Directors approved the issuance of $29,000,000 of 2018 Series A Water Revenue
Bonds. As of the date this report has been issued, the 2018 Series A Water Revenue Bonds have not been finalized, and
interest rates and repayment schedules are not yet available and have not been approved.
On October 3, 2018, the Board of Directors approved the bond authorization be increased to an amount not to exceed
$36,000,000 and that the additional proceeds be used to refinance the $6,900,000 outstanding 1996 Variable Rate
COPS.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2018
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CREQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2018
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53
Schedule of Changes in the Net OPEB Liability and Related Ratios for
Measurement Periods Ended June 30,
Measurement Period 2017
Total OPEB Liability
Service Cost $ 687,528
Interest on the Total OPEB Liability 1,764,343
Actual and Expected Experience Difference -
Changes in Assumptions -
Changes in Benefit Terms -
Benefit Payments (1,039,420)
Net Change in Total OPEB Liability 1,412,451
Total OPEB Liability - Beginning 25,037,076
Total OPEB Liability - Ending (a) $ 26,449,527
Plan Fiduciary Net Position
Contribution - Employer $ 2,284,420
Net Investment Income 2,011,985
Benefit Payments (1,039,420)
Administrative Expense (10,167)
Net Change in Plan Fiduciary Net Position 3,246,818
Plan Fiduciary Net Position - Beginning 18,492,217
Plan Fiduciary Net Position - Ending (b) $ 21,739,035
Net OPEB Liability - Ending (a)-(b) $ 4,710,492
Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 82.2%
Covered-employee Payroll 12,513,000
Net OPEB Liability as a Percentage of Covered-employee Payroll 37.6%
Notes to Schedule:
Historical information is required only for measurement periods for which GASB 75 is applicable. Future years’ information
will be displayed up to 10 years as information becomes available.
REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2018
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Schedule of Contributions
Last Ten Fiscal Years’
Fiscal Year Ended June 30, 2018
Actuarially Determined Contribution (ADC) $ 1,116,418
Contributions in Relation to the ADC (2,202,004)
Contribution Deficiency (Excess) $ (1,085,586)
Covered-Employee Payroll 12,168,663
Contributions as a percentage of covered-employee payroll 18.10%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2018 were from the
June 30, 2017 actuarial valuation.
Methods and assumptions used to determine contributions:
Actuarial Cost Method Entry Age Normal
Amortization Method/Period Level percent of payroll over a closed rolling 15-year period
Asset Valuation Method Market value
Inflation 2.75%
Payroll Growth 3.00% plus merit
Investment Rate of Return 7.00% per annum
Healthcare Cost-trend Rates 6.00% HMO/6.5% PPO decreasing to 5.00% HMO/5.00% PPO
Retirement Age Tier 1 employees - 2.7% at 55 and Tier 2 employees - 2.0% at 62.
The probabilities of Retirement are based on the 2014 CalPERS Experience
Study for the period from 1997 to 2011.
Mortality Pre-retirement mortality probability based on 2014 CalPERS 1997-2011
Experience Study covering CalPERS participants. Post-retirement mortality
probability based on CalPERS Experience Study 2007-2011 covering
participants in CalPERS.
Historical information is required only for measurement periods for which GASB 75 is applicable.
Future years’ information will be displayed up to 10 years as information become available.
REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2018
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Schedule of Changes in the Net Pension Liability and Related Ratios
Last 10 Years1
Measurement Period2 2016-2017 2015-2016 2014-2015 2013-2014
TOTAL PENSION LIABILITY
Service Cost $ 2,556,902 $ 2,298,617 $ 2,250,860 $ 2,330,709
Interest 8,836,284 8,575,275 8,229,312 7,907,915
Changes of Benefit Terms - - - -
Changes of Assumptions 7,308,486 - (1,996,819) -
Difference Between Expected and Actual Experience (1,208,593) (613,440) (981,200) -
Benefit Payments, Including Refunds of Employee
Contributions
(5,779,040)
(5,448,218)
(5,288,251)
(4,885,406)
Net Change in Total Pension Liability 11,714,039 4,812,234 2,213,902 5,353,218
Total Pension Liability - Beginning 119,095,572 114,283,338 112,069,436 106,716,218
Total Pension Liability - Ending (a) $ 130,809,611 $ 119,095,572 $ 114,283,338 $ 112,069,436
PLAN FIDUCIARY NET POSITION
Contributions - Employer $ 4,105,810 $ 3,819,770 $ 3,557,098 $ 3,137,174
Contributions - Employee 1,014,329 1,010,337 1,007,023 1,074,954
Net Investment Income 8,149,097 369,214 1,601,760 10,874,999
Benefit Payments, Including Refunds of Employee
Contributions
(5,779,040
(5,448,218)
(5,288,251)
(4,885,406)
Administrative Expense (109,029) (45,185) (83,511) -
Other Changes in Fiduciary Net Position - - - -
Net Change in Fiduciary Net Position 7,381,167 (294,082) 794,119 10,201,721
Plan Fiduciary Net Position - Beginning 73,846,128 74,140,210 73,346,091 63,144,370
Plan Fiduciary Net Position - Ending (b) $ 81,227,295 $ 73,846,128 $ 74,140,210 $ 73,346,091
Plan Net Pension Liability/(Asset) - Ending (a) - (b) $ 49,582,316 $ 45,249,444 $ 40,143,128 $ 38,723,345
Plan Fiduciary Net Position as a Percentage of the
Total Pension Liability
62.10%
62.01%
64.87%
65.45%
Covered Payroll $ 12,829,415 $ 12,767,963 $ 12,451,513 $ 12,276,578
Plan Net Pension Liability/(Asset) as a Percentage of
Covered Payroll
386.47%
354.40%
322.40%
315.42%
1 Measurement period 2016-17 (fiscal year 2017-2018) was the fourth year of implementation; therefore, only four years are shown.
2 Historical information is required only for measurement periods for which GASB 68 is applicable
Notes to Schedule:
Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which
occurred after June 30, 2016. This applies for voluntary benefit changes as well as any offers of Two Years Additional
Service Credit (a.k.a. Golden Handshakes).
Changes of Assumptions: For the 2018 fiscal year, the accounting discount rate reduced from 7.65% to 7.15%. For the
2017 fiscal year, there were no changes. For the 2016 fiscal year, amounts reported reflect an adjustment the discount rate
of 7.5% (net of administrative expense) to 7.65% (without a reduction for pension plan administrative expense). In 2014,
amounts reported were based on the 7.5% discount rate.
REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2018
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56
E 30, 2017 and 2016
Schedule of Plan Contributions1
Fiscal Year
2017-18
Fiscal Year
2016-17
Fiscal Year
2015-16
Fiscal Year
2014-15
Actuarially Determined Contribution2 $ 4,452,147 $ 4,105,810 $ 3,819,770 $ 3,557,098
Contributions in Relation to the Actuarially Determined
Contribution2
(4,452,147)
(4,105,810)
(3,819,770)
(3,557,098)
Contribution Deficiency (Excess) $ - $ - $ - $ -
Covered Payroll3 $ 12,759,085 $ 12,829,415 $ 12,767,963 $ 12,451,513
Contributions as a Percentage of Covered Payroll3 34.89% 32.00% 29.92% 28.57%
1 Historical information is required only for measurement periods for which GASB 68 is applicable.
2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers
may choose to make additional contributions toward their unfunded liability. Employer contributions for such plans exceed the
actuarially determined contributions.
3 Includes one year’s payroll growth using 3.00% payroll assumption.
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2016-17 were from
the June 30, 2014 public agency valuations.
Actuarial Cost Method Entry Age Normal
Amortization Method/Period For details see June 30, 2014 Funding Valuation Report
Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2014 Funding Valuation
Report
Inflation 2.75%
Salary Increases Varies by Entry Age and Service
Payroll Growth 3.00%
Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes
Inflation
Retirement Age
The probabilities of Retirement are based on the 2010 CalPERS Experience
Study for the period from 1997 to 2007
Mortality
The probabilities of mortality are based on the 2010 CalPERS Experience
Study for the period from 1997 to 2007. Pre-retirement and Post-retirement
mortality rates include 5 years of projected mortality improvement using Scale
AA published by the Society of Actuaries.
REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED JUNE 30, 2018
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Independent Auditors’ Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards
Board of Directors
Otay Water District
Spring Valley, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards, issued
by the Comptroller General of the United States, the financial statements of the business-type activities of the
Otay Water District (the “District”), as of and for the year ended June 30, 2018, and the related notes to the
financial statements, which collectively comprise the District’s basic financial statements, and have issued
our report thereon dated ____________, 2018.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the District’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose
of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not
express an opinion on the effectiveness of the District’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the District’s
financial statements will not be prevented, or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material weaknesses
or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in
internal control that we consider to be material weaknesses. However, material weaknesses may exist that
have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the District’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
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contracts and grant agreements, 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 or other matters that are required to be
reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and
the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control
or on compliance. This report is an integral part of an audit performed in accordance with Government
Auditing Standards in considering the District’s internal control and compliance. Accordingly, this
communication is not suitable for any other purpose.
Riverside, California
___________, 2018
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___________, 2018
Board of Directors
Otay Water District
Spring Valley, CA
We have audited the financial statements of the business-type activities of the Otay Water District (the “District”)
for the year ended June 30, 2018. Professional standards require that we provide you with information about our
responsibilities under generally accepted auditing standards, as well as certain information related to the
planned scope and timing of our audit. We have communicated such information in our letter to you dated May
7, 2018. Professional standards also require that we communicate to you the following information related to
our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the District are described in Note 1 to the financial statements. As described in Note
1 to the financial statements, the District changed accounting policies related to Statement of Governmental
Accounting Standards (GASB Statement) No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other Than Pensions, in the 2018 fiscal year. Accordingly, the cumulative effect of the accounting
changes as of the beginning of the year are reported in the financial statements. We noted no transactions
entered into by the District during the year for which there is a lack of authoritative guidance or consensus. All
significant transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management’s knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ significantly from those expected. The most
sensitive estimates affecting the business-type activities’ financial statements were:
Management’s estimate of the fair value of investments is based on information provided by financial
institutions. We evaluated the key factors and assumptions used to develop the fair value of investments
in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of capital assets depreciation is based on historical estimates of each capitalized
item’s useful life. We evaluated the key factors and assumptions used to develop the capital assets
depreciation in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of net other postemployment benefits (OPEB) liability is based on an actuarial
valuation. We evaluated the key factors and assumptions used to develop the net OPEB liability in
determining that it is reasonable in relation to the financial statements taken as a whole.
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Management’s estimation of defined benefit pension obligation is based on an actuarial valuation.
We evaluated the key factors and assumptions used to develop the defined benefit pension obligation
in determining that it is reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to financial statement
users. The most sensitive disclosures affecting the financial statements were:
The disclosure of the fair value of investments in Notes 2 and 3 to the financial statements represents
amounts susceptible to market fluctuation.
The disclosure of capital assets in Note 4 to the financial statements is based on historical information
which could differ from actual useful lives of each capitalized item.
The disclosure of other postemployment benefits and the net OPEB liability in Note 8 to the financial
statements represents management’s estimate based on an actuarial valuation. Actual results could differ
depending on these key factors and assumptions used for the actuarial valuation.
The disclosure of defined benefit pension plan in Note 7 to the financial statements represents
management’s estimate based on an actuarial valuation. Actual results could differ depending on
these key factors and assumptions used for the actuarial valuation.
The financial statement disclosures are neutral, consistent and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other
than those that are trivial, and communicate them to the appropriate level of management. None of the
misstatements detected as of a result of audit procedures were material, either individually or in the aggregate, to the
financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter,
whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s
report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation
letter dated ______________, 2018.
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Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters,
similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting
principle to the District’s financial statements or a determination of the type of auditor’s opinion that may be
expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards,
with management each year prior to retention as the District’s auditors. However, these discussions occurred in the
normal course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to the management and discussion and analysis, Schedule of Changes in the
Net OPEB Liability and Related Ratios, Schedule of Contributions, Schedule of Changes in the Net Pension
Liability and Related Ratios, and Schedule of Plan Contributions, which are required supplementary information
(RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management
regarding the methods of preparing the information and comparing the information for consistency with
management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during
our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any
assurance on the RSI.
We were not engaged to report on the introductory and statistical sections, which accompany the financial
statements but are not RSI. We did not audit or perform other procedures on this other information and we do not
express an opinion or provide any assurance on it.
As part of the audit, we assisted with the preparation of the financial statements and related notes and state
controllers report preparation. However, these services, does not constitute an audit under Government Auditing
Standards and are considered nonaudit services. Management has reviewed, approved, and accepted responsibility
for the results of these services.
Restriction on Use
This information is intended solely for the use of the Board of Directors and management of the District and is not
intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
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INDEPENDENT ACCOUNTANTS’ REPORT
ON APPLYING AGREED-UPON PROCEDURES
Mr. Joseph Beachem
Chief Financial Officer
Otay Water District
Spring Valley, CA
We have performed the procedures enumerated below, which were agreed to by the Otay Water District (the
“District”), solely to assist the District’s senior management in evaluating the investments of the District as of and
for the fiscal year ended June 30, 2018. The District’s management is responsible for evaluating the investments
of the District. This agreed-upon procedures engagement was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is
solely the responsibility of those parties specified in the report. Consequently, we make no representation
regarding the sufficiency of the procedures described below either for the purpose for which this report has been
requested or for any other purpose.
Our procedures and findings are as follows:
1. Obtain a copy of the District’s investment policy and determine that it is in effect for the fiscal year
ended June 30, 2018.
Finding: At June 30, 2018, the current investment policy (Policy #27) is dated May 3, 2017.
This policy was reviewed and approved at May 3, 2017 and was last amended on May
3, 2017 at the regular board meeting. Prior to this the policy was last amended on May
4, 2016. Therefore the investment policy is in effect for the time period under review.
2. Select 4 investments held at year end and determine if they are allowable investments under the
District’s Investment Policy.
Finding: We selected the following investments: FHLM - Maturity 7/27/2018, FHLM - Maturity
10/03/2019, FFCB - Maturity 4/26/2019, and FNMA - Maturity 2/28/2020. All four
investments are allowable and within maturity limits as stated in the District’s
investment policy at June 30, 2018.
3. For the four investments selected in #2 above, determine if they are held by a third party custodian
designated by the District.
Finding: The four investments examined are held by a third party custodian, Union Bank of
California, designated by the District in compliance with the District’s investment
policy. Per discussion with the District’s management and evidenced by Union Bank of
California’s statement, Union Bank does not act as a broker dealer for the District but
acts as a custodial agent of the District holding the investments in a trust capacity.
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2
4. Confirm the par or original investment amount and market value for the four investments selected
above with the custodian or issuer of the investments.
Finding: No exceptions were noted as a result of our procedures.
5. Select two investment earnings transactions that took place during the year and recompute the earnings
to determine if the proper amount was received.
Finding: Selected the following investment earnings transactions: interest earned on FANM
Bond on November 20, 2017 and interest earned on FHLM Bond on January 8, 2018.
No exceptions were noted as a result of our procedures.
6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts.
Finding: No exceptions were noted as a result of our procedures.
7. Select five investment transactions (buy, sell, trade or maturity) occurring during the year under review
and determine that the transactions are permissible under the District’s investment policy.
Finding: We selected the following investment transactions: FHLB Bond matured on March 23,
2018, FHLB Bond purchased on January 29, 2018, FHLM Note matured on September
29, 2017, FHLM Note purchased on December 28, 2017, and FHLMC Note purchased
on April 19, 2018. Those transactions were permissible under the District’s investment
policy. No exceptions were noted as a result of our procedures.
8. Review the supporting documents for the five investments selected at #7 above to determine if the
transactions were appropriately recorded into the District’s general ledger.
Finding: No exceptions were noted as a result of our procedures.
This agreed-upon procedures engagement was conducted in accordance with attestation standards established by
the American Institute of Certified Public Accountants. We were not engaged to, and did not, conduct an audit or
review, the objective of which would be the expression of an opinion or conclusion, respectively, on the
investments of the District for the fiscal year ending June 30, 2018. Accordingly, we do not express such an
opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention
that would have been reported to you.
This report is intended solely for the information and use of the Board of Directors and senior management of the
Otay Water District and is not intended to be and should not be used by anyone other than these specified parties.
Riverside, California
_____, 2018
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PRELIMINARY & TENTATIVE
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STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 7, 2018
SUBMITTED BY:
Jose Martinez,
Asst. Chief of Water
Operations
PROJECT: DIV. NO. All
APPROVED BY:
Pedro Porras, Chief Water Operations
Mark Watton, General Manager
SUBJECT: TO AUTHORIZE THE PURCHASE OF SEVEN (7) FLEET VEHICLES
GENERAL MANAGER’S RECOMMENDATION:
Authorize the General Manager to issue purchase orders to:
a. Encinitas Ford in the amount of $102,045.42 for the purchase
of three (3) F150 half ton trucks;
b. Sunroad Auto LLC in the amount of $145,566.71, for the
purchase of two (2) one ton trucks and one (1) F550 Class 5
Dump Truck and;
c. Theodore Robbins Ford in the amount of $39,009.94 for the
purchase of one (1) F250 three quarter ton truck
For a total of seven (7) fleet vehicles and a cost of $286,622.07.
COMMITTEE ACTION:
See Attachment “A.”
PURPOSE:
To obtain Board authorization to purchase seven (7) Fleet
replacement vehicles from the vendors specified with the lowest
responsive quotes.
ANALYSIS:
Included in the approved FY 2019 budget are eleven (11) vehicles.
These requested seven (7) vehicles are to replace Units:
121 (2001 Ford F550 Valve Crew Truck);
138 (2002 Ford F550 Dump Truck);
139 (2003 Ford F550 Utility Body);
137 (2002 Ford F250 Survey Truck); and
170 (2007 Ford F150 Water System Truck)
The remaining two vehicles are to support additional staff in the
Meter Maintenance and Survey sections of the District. These seven
vehicles are utilized for the day-to-day maintenance, survey and
inspection of the facilities and Capital Improvement Projects
(CIPs) throughout the District.
In accordance with District policy, quotes were solicited for the
seven (7) vehicles via BidSync, the District’s purchasing
solicitation system. After additional individual efforts by
purchasing staff to reach out to multiple vendors, two to three
responsive quotes were received and are shown below. Prices
received include all applicable fees, taxes, and delivery.
Funding for this purchase has been included in CIP P2282, Vehicle
Capital Purchases Program.
Three Ford F150 Trucks
Dealer Bid Price
Sunroad Auto LLC DBA Kearny Pearson Ford
- San Diego, CA $103,535.21
Encinitas Ford – Encinitas, CA $102,045.42
Ford F250 Truck
Dealer Bid Price
Sunroad Auto LLC DBA Kearny Pearson Ford
- San Diego, CA $44,173.32
Theodore Robins Ford – Costa Mesa, CA $39,009.94
Ford F350 Truck
Dealer Bid Price
Theodore Robins Ford – Costa Mesa, CA $53,078.86
Sunroad Auto LLC DBA Kearny Pearson Ford
- San Diego, CA $47,082.57
Ford F450 Truck
Dealer Bid Price
Theodore Robins Ford – Costa Mesa, CA $49,808.24
Western Truck Exchange – Los Angeles, CA $47,283.30
Sunroad Auto LLC DBA Kearny Pearson Ford
- San Diego, CA $45,793.07
F550 Class 5 Dump Truck
Dealer Bid Price
Western Truck Exchange – Los Angeles, CA $72,798.50
Sunroad Auto LLC DBA Kearny Pearson Ford
- San Diego, CA $52,691.07
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
The total purchase of these seven (7) vehicles will cost
$286,622.07, which will be charged against the Vehicle Capital
Purchases CIP P2282. The total cost in this account will not
exceed budgeted funding.
The Finance Department has determined that 100% of the funds are
available in the replacement fund.
The following expenditure summary shows the eleven items which
were budgeted in CIP 2282 for FY19 including the seven items being
requested in this staff report:
Total CIP 2282 Vehicle Replacements FY19
Budget: $520,500
Proposed Seven (7) Fleet Trucks ($286,622.07)
Three (3) Compact Trucks - Budgeted ($74,538.61)
One (1) HAZWOPR Replacement Van -
Budgeted ($65,000)
Projected CIP P2282 FY19 Under Budget: $94,339.32
STRATEGIC GOAL:
Operate the system to meet demand twenty-four hours a day, seven
days a week.
LEGAL IMPACT:
None.
Attachment “A,” Committee Action
ATTACHMENT A
SUBJECT/PROJECT: TO AUTHORIZE THE PURCHASE OF SEVEN (7) FLEET VEHICLES
COMMITTEE ACTION:
The Finance and Administration Committee reviewed this item at a
meeting held on October 24, 2018 and the following comments were made:
Note:
The ‘‘Committee Action’’ is written in anticipation of the Committee
moving the item forward for Board approval. This report will be sent to
the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: November 7, 2018
SUBMITTED BY:
Jose Martinez,
Asst. Chief of Water
Operations
PROJECT: DIV. NO. All
APPROVED BY:
Pedro Porras, Chief Water Operations
Mark Watton, General Manager
SUBJECT: TO AUTHORIZE THE PURCHASE OF ONE (1) MINI EXCAVATOR AND TO
AUTHORIZE THE PURCHASE OF ONE (1) LOADER
GENERAL MANAGER’S RECOMMENDATION:
Authorize the General Manager to issue a purchase order to RDO
Equipment Company in the amount of $304,182.30 for the purchase of
one (1) mini excavator and one (1) rubber tire loader and declare
Units 742, 269, 1503, 3247 and 3460 surplus.
COMMITTEE ACTION:
See Attachment “A.”
PURPOSE:
To obtain Board authorization to purchase one (1) mini excavator
and one (1) replacement rubber tire loader.
ANALYSIS:
Included in the approved FY 2019 budget under Capital Purchases
are one (1) mini excavator and one (1) loader. The purchase of
these two (2) field equipment assets will replace and surplus
the following five (5) assets:
Unit 742 (1980 CAT D6 bulldozer);
Unit 269 (1981 CAT 950B rubber tire loader);
Unit 1503 (1984 International Harvester 515 rubber tire
loader);
Unit 3123 (1998 John Deere 310 backhoe); and
Unit 3460 (1999 John Deere 310 backhoe).
As a result, the District would achieve a net reduction in the
number of field assets by a total of three (3) while increasing
its ability to respond to the growing and changing operating
environment. This reduction will reduce equipment maintenance
costs.
The existing two rubber tire loaders are over 35 years old, Tier
0 emissions ratings and as a result limited to only 200 hours of
operations. The existing loaders are only used for the efficient
loading of materials into dump trucks: one at the District’s
Regulatory and the other at the 30 Million Reservoir locations.
The new replacement loader is rated to meet the Tier 4 Final
standards and will be permitted with unlimited hours allowing
the District to additionally replace the D6 bulldozer that is
used to maintain and manage the spoils located at the Use Area.
Based on an evaluation of the current and future work performed
by the Utility Maintenance Section, and an increase of District
infrastructure located in dense environments such as mixed-use
developments, the proposed mini excavator will allow the
District to efficiently and safely complete repairs with less
impact to the community in a more constrained environment.
The proposed field equipment purchases will be made in
accordance with the District’s Purchasing Manual, Section 6.2.3
Cooperative/Joint Purchases through the National Joint Powers
Alliance, now known as Sourcewell. Sourcewell is a government
agency that performs cooperative purchasing as defined by the
American Bar Association Model Procurement Code for State and
Local Governments to ensure organizations receive fair and
competitive quotes on equipment.
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
The purchase of the mini excavator and one (1) rubber tire
loader will cost $304,182.30. Both of these purchases were
budgeted for in the Field Equipment Capital Purchases CIP 2286
and will be charged against this CIP. The total cost in this
account will not exceed budgeted funding.
The Finance Department has determined that the funds are available
in the replacement fund.
The following expenditure summary shows the four items which were
budgeted in CIP 2286 for FY19 including the two items being
requested in this staff report:
Total CIP 2286 Field Equipment
Replacements FY19 Budget: $363,400
One (1) Replacement Force Main UTV ($13,744.90)
One (1) Replacement Trailer, Budgeted ($32,800)
Proposed one (1) Mini Excavator ($123,868.79)
Proposed one (1) Replacement Loader ($180,313.51)
Projected CIP P2286 FY19 Under Budget: $12,672.80
STRATEGIC GOAL:
Operate the system to meet demand twenty-four hours a day, seven
days a week.
LEGAL IMPACT:
None.
Attachment “A,” Committee Action
ATTACHMENT A
SUBJECT/PROJECT:
TO AUTHORIZE THE PURCHASE OF ONE (1) MINI EXCAVATOR AND TO
AUTHORIZE THE PURCHASE OF ONE (1) LOADER
COMMITTEE ACTION:
The Finance and Administration Committee reviewed this item at a
meeting held on October 24, 2018 and the following comments were made:
Note:
The ‘‘Committee Action’’ is written in anticipation of the Committee
moving the item forward for Board approval. This report will be sent to
the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
STAFF REPORT
TYPE MEETING: Finance and Administration
Committee
MEETING DATE: October 24, 2018
SUBMITTED BY:
Eid Fakhouri
Finance Manager
PROJECT: DIV. NO. All
APPROVED BY:
Kevin Koeppen, Assistant Chief of Finance
Joseph R. Beachem, Chief Financial Officer
Mark Watton, General Manager
SUBJECT: To Obtain Approval for the Issuance of FY 2019 Audit Services
Request for Proposal
GENERAL MANAGER’S RECOMMENDATION:
That the Finance and Administration Committee (F&A Committee) approve
the issuance of a Request for Proposal (RFP) for audit services for
Fiscal Year 2019. The audit services will be for one year, with four
(4) one-year options, with each option year subject to Board review
and approval.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To inform the F&A Committee of the expiration of the current 5-year
audit services contract and to obtain approval to issue an RFP for
audit services for Fiscal Year 2019.
2
ANALYSIS:
The District is required to retain the services of an independent
auditing firm each fiscal year to perform an audit of the District’s
financial statements.
The District’s practice is to retain auditors for a five-year period.
This practice is a long standing recommendation of the Governmental
Finance Officers Association (GFOA) Audit Procurement Best Practice
Guide.
“Governmental entities should enter into multi-year agreements of at
least five years in duration when obtaining the services of
independent auditors. Such agreements allow for greater continuity
and help to minimize the potential for disruption in connection with
the independent audit. Multi-year agreements can also help to reduce
audit costs by allowing auditors to recover certain "startup" costs
over several years, rather than over a single year.”
The District’s current auditors, Teaman, Ramirez & Smith, Inc., have
worked under contract from FY 2014 to FY 2018, and have reached the
end of the 5-year term. It is time to issue a Request for Proposal
and hire a new audit firm.
Staff has identified qualified audit firms with expertise and
experience with auditing water agencies. These firms will be invited
to submit proposals. Staff will then rank the proposals and invite
the top three firms to interview with the Committee. The Committee
will evaluate these firms and make a recommendation to the Board to
award the contract.
Time Line
The following is a tentative schedule for the activities involved in
issuing the RFP, selecting the auditor and completing the FY 2019
financial audit:
Oct-2018: Issue Request for Proposal
Nov-2018: Due date for RFP responses
Jan-2019: Audit Committee evaluates and recommends auditor
Feb-2019: Board selects auditor and awards contract
Apr-2019: Interim field work (5 days)
Aug-2019: Final field work (5 days)
Oct-2019: Finance Committee presentation of audited financials
Nov-2019: Board presentation of audited financials
Dec-2019: Completed CAFR
3
FISCAL IMPACT:
None.
STRATEGIC GOAL:
The District ensures its continued financial health through long-term
financial planning and debt planning.
LEGAL IMPACT:
Compliance with the laws governing the District.
Attachments:
A) Committee Action
B) Draft Request for Proposal
ATTACHMENT A
SUBJECT/PROJECT:
To Obtain Approval for the Issuance of FY2019 Audit
Services Request for Proposal
COMMITTEE ACTION:
The Finance and Administration Committee directed staff to proceed
with issuing a Request for Proposal (RFP) for audit services for
Fiscal Year 2019. The audit services will be for one year, with four
(4) one-year options, with each option year subject to Board review
and approval.
NOTE:
The “Committee Action” is written in anticipation of the Committee
moving the item forward for board approval. This report will be sent
to the Board as a committee approved item, or modified to reflect any
discussion or changes as directed from the committee prior to
presentation to the full board.
1
Otay Water District
REQUEST FOR PROPOSAL
FOR
PROFESSIONAL AUDITING SERVICES
2554 Sweetwater Springs Boulevard
Spring Valley, California 91978-2004
Attachment B
2
Otay Water District
REQUEST FOR PROPOSAL
TABLE OF CONTENTS
I. INTRODUCTION
A. General Information
B. Term of Engagement
C. Subcontracting
II. NATURE OF SERVICES REQUIRED
A. Scope of Work to be Performed
B. Auditing Standards to be Followed
C. Reports to be Issued
D. Additional Services
E. Working Paper Retention and Access to Working
Papers
III. DESCRIPTION OF THE DISTRICT
A. Background Information
B. Magnitude of Finance Operations
C. Fund Structure
D. Budgetary Basis of Accounting
E. Pension Plans
F. Availability of Prior Reports and Working Papers
IV. TIME REQUIREMENTS
A. Proposal Calendar
B. Notification and Contract Dates
C. Dates for Availability of Financial Records and Workpapers
D. Proposed Schedule for the 2019 Fiscal Year Audit
E. Conferences
F. Dates Reports are Due
3
V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT
PREPARATION
A. Finance Department and Clerical Assistance
B. Statements and Schedules to be prepared by the Staff of the District
C. Work Area, Telephone, Photocopying and FAX Machines
D. Report Preparation
VI. PROPOSAL REQUIREMENTS
A. General Requirements
1. Inquiries
2. Submission of Proposals
B. Technical Proposal
1. General Requirements
2. Independence
3. License to Practice in California
4. Firm Qualifications and Experience
5. Partner, Supervisory and Staff Qualifications and Experience
6. Prior Engagements with the District
7. Similar Engagements with Other Government Entities
8. Specific Audit Approach
9. Identification of Anticipated Potential Audit Problems
C. Sealed Cost Submittal
1. Total All-Inclusive Maximum Price
2. Rates by Partner, Specialist, Supervisory and Staff
3. Out-of-pocket Expenses in the Total All-inclusive Maximum Price
and Reimbursement Rates
4. Rates for Additional Professional Services
5. Manner of Payment
VII. EVALUATION PROCEDURES
A. Review of Proposals
B. Evaluation Criteria
1. Mandatory Elements
2. Technical Qualifications
3. Price
B. Oral Presentations
C. Final Selection
D. Right to Reject Proposals
4
APPENDICES
A. Report Examples
1. 2017 Comprehensive Annual Financial Report (CAFR)
(Copy may be downloaded at www.otaywater.gov )
2. 2017 Finance Committee Reporting Package
a. Staff Report
b. Management Letter
c. Report on Internal Control Over Financial Reporting
d. Report on Applying Agreed-Upon Procedures
3. 2017 State Controller Report
B. List of Management and Key Personnel
C. Proposer Guarantees
D. Proposer Warranties
E. Format for Schedules of Professional Fees and Expenses to Support the Total All-
Inclusive Maximum Price
F. Formation of Contract
5
Otay Water District
REQUEST FOR PROPOSALS
I. INTRODUCTION
A. General Information
The Otay Water District is requesting proposals from qualified firms of Certified
Public Accountants to audit its financial statements for the fiscal year ending June
30, 2019, with the possible option of auditing its financial statements for each of
the four subsequent fiscal years. These audits are to be performed in accordance
with generally accepted auditing standards, the standards set forth for financial
audits in the General Accounting Office's (GAO) Government Auditing Standards
(1994 and revisions), the provisions of the federal Single Audit Act of 1984 (and
subsequent amendments), the California State Controller’s Minimum Audit
Requirements for California Special Districts, and U.S. Office of Management
and Budget (OMB) Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations.
There is no expressed or implied obligation for the Otay Water District to
reimburse responding firms for any expenses incurred in preparing proposals in
response to this request; these costs should not be included in the submittal.
To be considered, a copy of the firm’s proposal must be received by the District
no later than the submittal date and time. The Otay Water District reserves the
right to reject any or all proposals submitted.
Proposals submitted will be evaluated by a panel consisting of the District’s
management personnel. The panel will rank proposals based on the criteria
outlined in this RFP and submit their recommendations to the District’s Finance
and Administration Committee. The Committee will make a recommendation for
hire to the full Board of Directors, and final selection of the firm will be made by
the Board.
During the evaluation process, the Committee and the District reserve the right,
where it may serve the District’s best interest, to request additional information or
clarifications from Proposers, or to allow corrections of errors or omissions. At
the discretion of the District or the Committee, firms submitting proposals may be
requested to make oral presentations as part of the evaluation process.
6
The District reserves the right to retain all proposals submitted and to use any
ideas in a proposal regardless of whether that proposal is selected. Submission of
a proposal indicates acceptance by the firm of the conditions contained in this
request for proposals, unless clearly and specifically noted in the proposal
submitted, and confirmed in the contract between the District and the firm
selected. It is anticipated the selection of a firm will be completed by February 6,
2019. Following the notification of the selected firm, it is expected a standard
District contract will be executed between both parties within ten (10) working
days thereafter. A sample of the District’s Agreement for Consulting Services is
attached as Appendix H.
B. Term of Engagement
A one-year contract is anticipated, with the possibility of up to 4 one-year
extensions, subject to the annual review and recommendation of the Committee,
the satisfactory negotiation of terms (including a price acceptable to both the
District and the selected firm), and the concurrence of the Board.
C. Subcontracting
Subcontractors will not be allowed to perform any work identified within this
Request for Proposals, or any agreement attached to or derived from, without the
express prior written consent of the District.
II. NATURE OF SERVICES REQUIRED
A. Scope of Work to be Performed
The District desires the Auditor to express an opinion on the fair presentation of
its basic financial statements in conformity with generally accepted accounting
principles. The Auditor shall also be responsible for performing certain limited
procedures involving supplementary information required by the Governmental
Accounting Standards Board, as mandated by generally accepted auditing
standards. The Auditor is not required to audit the schedule of expenditures of
federal awards, if any. However, the Auditor is to provide an "in-relation-to"
report on that schedule based on the auditing procedures applied during the audit
of the financial statements, if necessary.
B. Auditing Standards to be Followed
To meet the requirements of this request for proposals, the audit shall be
performed in accordance with generally accepted auditing standards, the standards
set forth for financial audits in the General Accounting Office's. Government
7
Auditing Standards (1994 and revisions), the provisions of the federal Single
Audit Act of 1984 (and subsequent amendments), the California State Controller’s
Minimum Audit Requirements for California Special Districts, and U.S. Office
of Management and Budget Circular A-133, Audits of States, Local Governments,
and Non-Profit Organizations.
C. Reports to be Issued
1. Opinion: Following the completion of the audit of the fiscal year's
financial statements, the Auditor shall issue a report on the fair
presentation of the financial statements in conformity with generally
accepted accounting principles.
2. Management Letter: The Auditor shall communicate in a letter to the
General Manager any reportable conditions found during the audit. A
reportable condition shall be defined as a significant deficiency in the design
or operation of the internal control structure, which could adversely affect the
organization's ability to record, process, summarize, and report financial data
consistent with the assertions of management in the financial statements. In
addition, the following conditions shall be considered reportable:
Irregularities and Illegal Acts: Auditors shall be required to make an
immediate, written report of any irregularities and illegal acts of which they
become aware to the following parties:
Mark Watton, General Manager, Otay Water District
3. Audit Committee Letter: Auditors shall assure themselves that the
Finance Committee is informed of each of the following:
i. The Auditor's responsibility under generally accepted auditing
standards.
ii. Planned scope and timing of the audit.
iii. Significant audit findings.
Qualitative aspects of accounting practice.
Difficulties encountered in performing the audit.
Corrected and uncorrected misstatements.
Disagreements with management.
Management representations.
Management consultation with other accountants.
Other audit findings or issues.
8
4. Report on Internal Controls: The Auditor will issue a report on internal
controls related to the financial statements and compliance with laws,
regulations and the provisions of contracts or grant agreements,
noncompliance with which could have a material effect on the financial
statements in accordance with Government Auditing Standards.
5. Report on Applying Agreed-Upon Procedures: In accordance with the
District’s Investment Policy, the Auditor will issue a report on a review of
specific procedures that assure staff’s compliance with policies and
procedures for the investment of District funds.
D. Additional Services
1. The District is required to submit an Annual Report of Financial
Transactions to the State Controller, in accordance with California
Government Code Section 53891. It is anticipated that the Auditor will be
required to provide assistance to the District to meet the requirements of
that program. (Appendix E, Page 2).
2. The District may be subject to a single audit in accordance with the
provisions of the Single Audit Act of 1984 (as amended) and U.S. Office
of Management and Budget Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations. (Appendix E, Page 3). When
required the performance of any such audit shall be separately quoted and
contracted upon.
3. For the last 14 fiscal years, the District has prepared and sent its
Comprehensive Annual Financial Report (CAFR) to the Government
Finance Officers Association of the United States and Canada (GFOA) for
review in their Certificate of Achievement for Excellence in Financial
Reporting program. While the District takes responsibility for physically
preparing and publishing the CAFR, as well as completing the GFOA
checklist, it is anticipated that the Auditor will be required to provide
assistance to the District to meet the technical requirements of that
program as a part of the financial statement audit.
E. Working Paper Retention and Access to Working Papers
All working papers and reports must be retained, at the Auditor's expense, for a
minimum of three (3) years, unless the firm is notified in writing by the District of
the need to extend the retention period. In addition, the firm shall respond to the
reasonable inquiries of successor Auditors and allow successor Auditors to review
working papers relating to matters of continuing accounting significance.
9
III. DESCRIPTION OF THE DISTRICT
A. Background Information
The District was founded in 1956, has over 54,000 customers and serves a
population of approximately 225,000 people. The District’s fiscal year begins on
July 1, 2018 and ends on June 30, 2019.
The Auditor's principal contact with the District will be Eid Fakhouri, Finance
Manager, or a designated representative, who will coordinate the assistance to be
provided by the District to the Auditor.
The District has a total payroll and benefits of approximately $21 million,
covering 134 employees. The District structure includes four department heads
that report directly to the General Manager who oversees the following areas:
Finance, Engineering Services, Administrative Services, and Water Operations.
More detailed information on the District and its finances can be found in the
Code of Ordinances, Operating Budget and historical CAFRs. To obtain access to
these documents, contact the District directly, or access its website at
www.otaywater.gov.
B. Magnitude of Finance Operations
The Finance Department is managed by the Chief Financial Officer and accounts
for all aspects of Fixed Assets, General Ledger, Investments, Job Costing, Payroll,
and Inventory.
C. Fund Structure
The District operates as an enterprise fund for financial reporting purposes.
D. Budgetary Basis of Accounting
The District prepares budgets on a basis consistent with generally accepted
accounting principles.
E. Pension Plans
The District participates in the California Public Employees Retirement System
(CalPERS). The District made a substantial payment to CalPERS in FY 2019 to
reduce the overall unfunded liability. The District’s defined benefit post-
employment healthcare plan (DPHP) provides Other Post Employment Benefits
10
(OPEB) to eligible retirees and beneficiaries. The plan is administered by
CalPERS.
F. Availability of Prior Audit Reports and Working Papers
Interested Proposers who wish to review prior years' audit reports and
management letters should contact Diane Ander at (619) 670-2251. The District
will use its best efforts to make prior audit reports and supporting working papers
available to Proposers to aid their response to this request for proposals.
IV. TIME REQUIREMENTS
A. Notification to firms for Interview Selection Week of November 19, 2018
(At the District’s option)
Finance and Administration Committee Week of January 21, 2019
Interview, if required
Committee Recommendation Presented to Board February 6, 2019
B. Notification and Contract Dates:
Selected Firm Notified February 7, 2019
Contract Submitted February 18, 2019
C. Dates for Availability of Financial Records and Workpapers
The District will have all required financial records and audit schedules (as of
April 1, 2019), and all management and staff available to meet with the firm's
personnel, to begin Interim Work by April 29, 2019.
The District will have all fiscal year-end financial records and audit schedules
available to begin year-end fieldwork by August 26, 2019.
D. Proposed Schedule for the 2019 Fiscal Year Audit (A similar time schedule will
be developed for audits of future fiscal years if the District exercises its option for
additional audits).
Detailed Audit Plan: The Auditor shall provide District, in March - April 2019,
both a detailed audit plan and a list of all schedules to be prepared by the District.
11
Interim Work: The Auditor shall tentatively complete interim work by June 30,
2019.
Year-End Fieldwork:
The Auditor shall tentatively begin all fieldwork the week of August 26, 2019.
The Auditor shall tentatively complete all fieldwork the week of August 29, 2019.
E. Conferences: At a minimum, the following conferences should be held by the
dates indicated:
Entrance conference with Chief Financial Officer and all key Finance Department
personnel: March - April 2019. The purpose of this meeting will be to discuss
prior audit and the interim work to be performed. This meeting will also be used
to establish overall liaison for the audit and to make arrangements for work space
and other needs of the Auditor. The Auditor shall provide the District a list of all
schedules to be prepared by the District, (including confirmations), as well as the
dates by which the schedules are required. This listing should include any District
staff requirements of the Auditor.
Exit interview with Chief Financial Officer and all key Finance Department
personnel: August - September 2019. The purpose of this meeting will be to
summarize the results of the fieldwork and to review significant findings.
F. Dates Reports are Due
1. The Auditor shall prepare and deliver to the Chief Financial Officer the
draft financial statements, notes, and all additional management letters and
reports, by September 5, 2019.
2. The Chief Financial Officer and key finance personnel will complete their
review of the draft report as expeditiously as possible. During this period,
the Auditor should be available for any meetings that may be necessary to
discuss the audit reports.
3. Once all issues for discussion of the draft financial statements are
resolved, the final signed report shall be delivered to Joseph R. Beachem.
It is anticipated that this process will be completed and the final report
delivered by October 4, 2019.
12
4. The final audit report and signed copies of all additional letters/reports
should be delivered to the Joseph R. Beachem, Chief Financial Officer, at
2554 Sweetwater Springs Boulevard, Spring Valley, CA 91978-2004.
5. Presentation of Audit Report to the Committee – Week of October 21,
2019.
6. Presentation of the Audit Report to the Board – November 6, 2019.
V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT
PREPARATION
A. Finance Department and Clerical Assistance
The Finance Department staff and responsible management personnel will be
available during the audit to assist the firm by providing information,
documentation and explanations. The preparation of confirmations will be the
responsibility of the Finance Department.
B. Statements and Schedules to be prepared by the Staff of the District
The staff of the District will prepare the audit schedules for all balance sheet
accounts and selected income statement accounts.
C. Work Area, Telephones, and Photocopying
The District will provide the Auditor with reasonable work space, desks and
chairs. The Auditor will also be provided with access to telephone lines, and
photocopying facilities, subject to reasonable use.
D. Report Preparation
Final audit report and State Controller report preparation shall be the
responsibility of the Auditor. CAFR preparation, editing and printing shall be the
responsibility of the District, with technical assistance provided by the Auditor.
VI. PROPOSAL REQUIREMENTS
A. General Requirements
1. Inquiries concerning the request for proposals must be made to:
13
Otay Water District
Procurement Division
2554 Sweetwater Springs Boulevard
Spring Valley, California 91978-2004
619-670-2259
2. Submission of Proposals
The following material is required to be received by the solicitation End
Date, for a proposing firm to be considered:
a. A Master Copy (so marked) of a Technical Proposal and two (2)
copies to include the following:
i. Title Page
Title page showing the request for proposals subject; the
firm's name; the name, address and telephone number of
the contact person; and the date of the proposal.
ii. Table of Contents
iii. Transmittal Letter
A signed letter of transmittal briefly stating the Proposer's
understanding of the work to be done, the commitment to
perform the work within the time period, a statement why
the firm believes itself to be best qualified to perform the
engagement, and a statement that the proposal is a firm and
irrevocable offer until March 5, 2019 (120-days).
iv. Detailed Proposal
The detailed proposal should follow the order set forth in
Section VI, B. of this request for proposals.
v. Executed copies of Proposer Guarantees and Proposer
Warranties, attached to this request for proposal (Appendix
C and Appendix D).
b. The Proposer shall submit an original and two (2) copies of a Cost
Submittal in a separate sealed envelope marked as follows:
14
SEALED COST SUBMITTAL TO
Otay Water District
FOR PROFESSIONAL AUDITING SERVICES
June 30, 2019
c. Proposers should send the completed proposal consisting of the
two separate envelopes to the following address:
Otay Water District
Procurement Division
2554 Sweetwater Springs Boulevard
Spring Valley, California 91978-2004
B. Technical Proposal
1. General Requirements
The purpose of the Technical Proposal is to demonstrate the qualifications,
competency and capacity of the firms seeking to undertake an independent
audit of the District in conformity with the requirements of this request for
proposals. As such, the substance of proposals will carry more weight
than their form or manner of presentation. The Technical Proposal should
demonstrate the qualifications of the firm and of the particular staff to be
assigned to this engagement. It should also specify an audit approach that
will meet the request for proposals requirements. THERE SHOULD BE
NO DOLLAR UNITS OR COST SUBMITTAL INCLUDED IN THE
TECHNICAL PROPOSAL DOCUMENT.
The Technical Proposal should address all the points outlined in the
request for proposals (excluding any cost information which should only
be included in the sealed dollar cost submittal). The Proposal should be
prepared simply and economically, providing a straightforward, concise
description of the Proposer's capabilities to satisfy the requirements of the
request for proposals. While additional data may be presented, the
following subjects, Items Nos. 2 through 8, section B – Technical
Proposal, must be included. They represent the criteria against which the
proposal will be evaluated.
2. Independence
The firm should provide an affirmative statement that is independent of
the District, as defined by generally accepted auditing standards/the U.S.
General Accounting Office's Government Auditing Standards (1994)
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The firm should also list and describe the firm's professional relationships,
if any, involving the District for the past five (5) years, together with a
statement explaining why such relationships do not constitute a conflict of
interest relative to performing the proposed audit. In addition, the firm
shall give the District written notice of any professional relationships
entered into during the period of this agreement.
3. License to Practice in California
An affirmative statement should be included that the firm and all assigned
key professional staff are properly licensed to practice in California.
4. Firm Qualifications and Experience
The Proposer should state the size of the firm, the size of the firm's
governmental audit staff, the location of the office from which the work on
this engagement is to be performed, and the number and nature of the
professional staff to be employed in this engagement on a full-time basis
and the number and nature of the staff to be so employed on a part-time
basis.
If the Proposer is a joint venture or consortium, the qualifications of each
firm comprising the joint venture or consortium should be separately
identified and the firm that is to serve as the principal Auditor should be
noted, if applicable.
The firm is also required to submit a copy of the report on its most recent
external quality control review, with a statement whether that quality
control review included a review of specific government engagements.
The firm shall also provide information on the results of any federal or
state desk reviews or field reviews of its audits during the past three (3)
years. In addition, the firm shall provide information on the circumstances
and status of any disciplinary action taken or pending against the firm
during the past three (3) years with state regulatory bodies or professional
organizations.
5. Partner, Supervisory and Staff Qualifications and Experience
The firms shall identify the principal supervisory and management staff,
including partners, managers, and other supervisors and specialists, who
would be assigned to the engagement. Indicate whether each such person
is registered or licensed to practice as a Certified Public Accountant in
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California. Provide detailed information on the government auditing
experience of each person, relevant continuing professional education for
the past three (3) years, and membership in professional organizations
relevant to the performance of this audit.
Engagement partners, managers, other supervisory staff and specialists
may be changed if those personnel leave the firm, are promoted or are
assigned to another office, provided that replacements have substantially
the same or better qualifications or experience. Consultants and firm
specialists mentioned in response to this request for proposal can only be
changed with the express prior written permission of the District, which
retains the right to approve or reject replacements.
6. Similar Engagements with Other Government Entities
For the firm's office that will be assigned responsibility for the audit, list
the most significant engagements (maximum - 5) performed in the last five
(5) years that are similar to the engagement described in this request for
proposal. These engagements should be ranked on the basis of total staff
hours. Indicate the scope of work, date, engagement partners, total hours,
and the name and telephone number of the principal client contact.
7. Specific Audit Approach
The proposal should set forth a work plan, including an explanation of the
audit methodology to be followed, to perform the services required in
Section II of this request for proposal.
Proposers will be required to provide the following information on their
audit approach:
a. Proposed segmentation of the engagement.
b. Level of staff and number of hours to be assigned to each proposed
segment of the engagement. NO DOLLARS OR COST
SUBMITTAL SHOULD BE INCLUDED IN THE TECHNICAL
PROPOSAL
c. Sample size and the extent to which statistical sampling is to be
used in the engagement.
d. Type and extent of analytical procedures to be used in the
engagement.
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e. Approach to be taken to gain and document an understanding of
the District’s internal control structure.
f. Approach to be taken in determining laws and regulations that will
be subject to audit test work.
g. Approach to be taken in drawing audit samples for purposes of
tests of compliance.
8. Identification of Anticipated Potential Audit Problems
The proposal should identify and describe any anticipated potential audit
problems, the firm's approach to resolving these problems, and any special
assistance that will be requested from the District.
C. Sealed Cost Submittal
1. Total All-Inclusive Maximum Price
The sealed cost submittal should contain all pricing information relative to
performing the audit engagement as described in this request for proposal
for the general purpose financial statements, & Agreed Upon Procedures
CAFR. The total all-inclusive maximum price submitted is to contain all
direct and indirect costs including all out-of-pocket expenses.
Identify the portion of the Total All-inclusive Maximum Price that is for
the Agreed Upon Procedures from Section I.C.5 above regarding the
Districts Investments.
The District will not be responsible for expenses incurred in preparing and
submitting the technical proposal or the sealed cost submittal. Such costs
should not be included in the proposal.
The first page of the sealed cost submittal should include the following
information:
a. Name of Firm.
b. Certification that the person signing the proposal is entitled to
represent the firm, empowered to submit the bid, and authorized to
sign a contract with the District.
c. A Total All-Inclusive Maximum Price for the 2019 engagement
and the portion for the Agreed Upon Procedures.
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2. Rates by Partner, Specialist, Supervisory and Staff
The second page of the sealed cost submittal should include a schedule of
professional fees and expenses, presented in the format provided in the
attachment (Appendix E) that supports the total all-inclusive maximum
price. The cost of additional services described in Section II. E. of this
request for proposal should be disclosed as separate components of the
total all-inclusive maximum price.
3. Out-of-pocket Expenses Included in the Total All-inclusive Maximum
Price and Reimbursement Rates
Out-of-pocket expenses for firm personnel (e.g., travel, lodging and
subsistence) will be reimbursed at the rates used by the District for its
employees. All estimated out-of-pocket expenses to be reimbursed should
be presented on the sealed cost submittal in the format provided in the
attachment (Appendix E). All expense reimbursements will be charged
against the total all-inclusive maximum price submitted by the firm. In
addition, a statement must be included in the sealed cost submittal stating
the firm will accept reimbursement for travel, lodging and subsistence at
the prevailing District rates for its employees.
4. Rates for Additional Professional Services
The District requires the firms to submit separate cost component for the
General Purpose Financial Statements. Agreed Upon Procedures & CAFR
(Appendix E, Page 1), and State Controller’s Report (Appendix E, Page
2).
If it should become necessary for the District to request the Auditor to
render any additional services to either supplement the services requested
in this RFP or to perform additional work as a result of the specific
recommendations included in any report issued on this engagement, then
such additional work shall be performed only if set forth in an addendum
to the contract between the District and the firm. Any such additional
work agreed to between the District and the firm shall be performed at the
same rates set forth in the schedule of fees and expenses included in the
sealed cost submittal.
5. Manner of Payment
Progress payments will be made on the basis of hours of work completed
during the course of the engagement and out-of-pocket expenses incurred
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in accordance with the firm's cost submittal. Interim billing shall cover a
period of not less than a calendar month. The total payments shall not
exceed the total all-inclusive cost.
VII. EVALUATION PROCEDURES
A. Review of Proposals
Proposals submitted will be evaluated using the information provided to satisfy
the requirements as previously listed. Firms meeting the mandatory elements will
have their submittals ranked based on the evaluation criteria below. The top 3
ranking firms will be evaluated by the District’s Finance and Administration
Committee and may be invited to an interview. The Committee will then make
the final recommendation to the District’s Board of Directors for final selection.
The District reserves the right to retain all proposals submitted and use any idea in
a proposal regardless of whether that proposal is selected.
B. Evaluation Criteria
Proposals will be evaluated using three sets of criteria. Firms meeting the
mandatory criteria will have their proposals evaluated and scored for both
technical qualifications and price. The following represent the principal selection
criteria which will be considered during the evaluation process.
1. Mandatory Elements
a. The audit firm is independent and licensed to practice in
California.
b. The firm has no conflict of interest with regard to any other work
performed by the firm for the District.
c. The firm adheres to the instructions in this request for proposal on
preparing and submitting the proposal.
d. The firm submits a copy of its last external quality control review
report and the firm has a record of quality audit work.
2. Technical Qualifications:
a. Expertise and Experience
i. The firm's past experience and performance on comparable
government engagements.
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ii. The quality of the firm's professional personnel to be
assigned to the engagement and the quality of the firm's
management support personnel available for consultation.
iii. The firm’s experience with the preparation of awarded
Comprehensive Annual Financial Reports (CAFRs).
b. Audit Approach
i. Adequacy of proposed staffing plan for various segments of
the engagement.
ii. Adequacy of sampling techniques.
iii. Adequacy of analytical procedures.
3. Price:
COST WILL NOT BE THE PRIMARY FACTOR IN THE SELECTION
OF AN AUDIT FIRM
D. Oral Presentations
During the evaluation process the District may request, at its discretion, any or all
firms to make oral presentations. Such presentations will provide firms with an
opportunity to answer any questions regarding the firm's proposal. Not all firms
may be asked to make such oral presentations.
E. Final Selection
It is anticipated that a firm will be selected by February 6, 2019, by the Board.
Following notification of the firm selected, it is expected a contract will be
executed between both parties by February 18, 2019.
F. Right to Reject Proposals
Submission of a proposal indicates acceptance by the firm of the conditions
contained in this request for proposal unless clearly and specifically noted in the
proposal submitted and confirmed in the contract between the District and the
firm selected.
The District reserves the right, without prejudice, to reject any or all proposals, or
any part of a proposal, and to waive any informality in the proposal process. The
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District reserves the right to reject any proposal or Proposer who previously failed
to perform adequately for the District or any other governmental agency. The
District expressly reserves the right to reject the proposal of a Proposer who is in
default on the payment of monies due the District.
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APPENDIX A
REPORT EXAMPLES
1. 2017 Comprehensive Annual Financial Report (CAFR)
2. 2017 Finance Committee Reporting Package
a. Staff Report
b. Audited Financials
c. Management Letter
d. Audit Committee Letter
e. Report on Applying Agreed-Upon Procedures
3. State Controller’s Report
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APPENDIX B
LIST OF MANAGEMENT AND KEY PERSONNEL
Name and Title Phone Number
Mark Watton, General Manager 619-670-2210
Joseph R. Beachem, Chief Financial Officer 619-670-2212
Kevin Koeppen, Asst. Chief Financial Officer 619-670-2250
Eid Fakhouri, Finance Manager 619-670-2259
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APPENDIX C
PROPOSER GUARANTEES
I. The Proposer certifies it can and will provide and make available, as a minimum, all
services set forth in Section II, Nature of Services Required.
Signature of Official: _____________________________
Name (typed): __________________________________
Title: __________________________________________
Firm: __________________________________________
Date: ___________________________________________
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APPENDIX D
PROPOSER WARRANTIES
A. Proposer warrants that it is willing and able to comply with State of California laws with
respect to foreign (non-state of California) corporations.
B. Proposer warrants that it is willing and able to provide proof of insurance covering the
following areas: 1) general liability; 2) worker’s compensation; 3) errors and omissions
providing a prudent amount of coverage for the willful or negligent acts, or omissions of
any officers, employees or agents thereof.
C. Proposer warrants that it will not delegate or subcontract its responsibilities under an
agreement without the prior written permission of the District.
D. Proposer warrants that all information provided by it in connection with this proposal is
true and accurate.
Signature of Official: _____________________________
Name (typed): __________________________________
Title: __________________________________________
Firm: __________________________________________
Date: ___________________________________________
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APPENDIX E
Page 1
SCHEDULE OF PROFESSIONAL FEES AND EXPENSES
FOR THE AUDIT OF THE JUNE 30, 2019 FINANCIAL STATEMENTS
GENERAL PURPOSE FINANCIAL STATEMENTS, AGREED UPON PROCEDURES &
CAFR REVIEW
Standard Quoted
Hourly Hourly
Hours Rates Rates Total
Partners
Managers
Supervisory Staff
Staff
Other (specify):
Subtotal
Out-of-pocket expenses:
Meals and lodging
Transportation
Other (specify):
Total all-inclusive maximum price for 2019 audit __________
Portion for Agreed-Upon Procedures __________
Note: The rate quoted should not be presented as a general percentage of the standard hourly rate
or as a gross deduction from the total all-inclusive maximum price.
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APPENDIX E
Page 2
SCHEDULE OF PROFESSIONAL FEES AND EXPENSES
FOR THE AUDIT OF THE 2019 FINANCIAL STATEMENTS:
SUPPORTING SCHEDULE FOR STATE CONTROLLER’S REPORT
Standard Quoted
Hourly Hourly
Hours Rates Rates Total
Partners
Managers
Supervisory Staff
Staff
Other (specify)
Subtotal
Out-of-pocket expenses
Meals and lodging
Transportation
Other (specify)
Total price for State Controller’s Report
Note: The rate quoted should not be presented as a general percentage of the standard hourly rate
or as a gross deduction from the total all-inclusive maximum price.
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APPENDIX E
Page 3
SCHEDULE OF PROFESSIONAL FEES AND EXPENSES
If required, FOR THE SINGLE AUDIT 2019 FINANCIAL STATEMENTS:
Standard Quoted
Hourly Hourly
Hours Rates Rates Total
Partners
Managers
Supervisory Staff
Staff
Other (specify)
Subtotal
Out-of-pocket expenses
Meals and lodging
Transportation
Other (specify)
Total price for Single Audit and Report
Note: The rate quoted should not be presented as a general percentage of the standard hourly rate
or as a gross deduction from the total all-inclusive maximum price.
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APPENDIX F
FORMATION OF CONTRACT; ADDITIONAL CONTRACT PROVISIONS
1. This Request for Proposal (RFP), together with proposer’s signed offer (Proposal) and the
Otay Water District’s written acceptance thereof, including any contract provisions
approved by the parties pursuant to subsequent negotiations, if any, shall constitute a
binding contract (collective, the “Contract”). The Contract shall only be amended or
modified annually, upon approval by the District of an updated Appendix E or pursuant to
a written amendment signed by both parties.
2. Conflict of Interest
a. Auditor has received and reviewed a copy of the District's Conflict of Interest
Code (the "COI"), set forth under Division I, Chapter 5, Section 6 of the District's
Code of Ordinance. Auditor understands that, to the extent it (i) conducts
research and arrives at conclusions concerning advice, recommendations or
information independently from the District; and (ii) renders information, advice,
recommendations or counsel to the District, it may be required to file a disclosure
statement in accordance with the COI.
b. No officer or employee of the District shall have any financial interest, direct or
indirect, in this Agreement nor shall any such officer or employee participate in
any decision relating to the Agreement which effects his or her financial interest
or the financial interest of any corporation, partnership or association in which he
or she has a financial interest if such participation would be in violation of any
State statute or regulation.
c. Auditor, its officers, managers, related entities, affiliates, business associates, and
their respective relatives or living trusts or other similar entities or persons (each,
a “Related Person”) shall avoid any relationship with District or any contractor of
District that constitutes or may constitute a conflict of interest in connection with
services provided under this Agreement.
d. Prior to entering into this Agreement and during the term, Auditor shall have a
duty to disclose to the District any and all circumstances that pose an actual or
potential conflict of interest.
e. Auditor shall not obtain for itself or any Related Person any financial gain from
the services other than as specified in this Agreement. Auditor represents that
neither Auditor nor any Related Person has an existing financial interest and that
neither will acquire any such interest, direct or indirect, that conflicts in any
manner or degree with the performance of services required under this Agreement
and that no person having any such interest shall be subcontracted in connection
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with this agreement, or employed by Auditor. Auditor shall not enter into this
Agreement if such a conflict of interests exists at present.
f. If an actual or potential conflict of interest issue arises, Auditor agrees to fully
cooperate in any inquiry and to provide the District with all documents or other
information reasonably necessary to enable the District to determine whether or
not a conflict of interest existed or exists.
g. Auditor shall not conduct or solicit any non-District business while on District
property or time.
h. Failure to comply with the provisions of this section shall constitute grounds for
immediate termination of this Agreement, in addition to whatever other remedies
the District may have.
3. The Contract shall be interpreted and enforced pursuant to the laws of the State of
California, without regard to any conflict of laws principles. Disputes which cannot be
resolved by mutual agreement or by the terms and condition of this Contract shall be
resolved by a court of competent jurisdiction in the County of San Diego, State of
California.
Signature of Official: _____________________________
Name (typed): __________________________________
Title: __________________________________________
Firm: __________________________________________
Date: ___________________________________________