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HomeMy WebLinkAbout12-10-13 FA&C Committee Packet 1 OTAY WATER DISTRICT FINANCE, ADMINISTRATION AND COMMUNICATIONS COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM TUESDAY December 10, 2013 11:30 A.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 JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. REPORT ON DIRECTORS EXPENSES FOR THE 1ST QUARTER OF FY 2014 (BENHAM) [5 minutes] 4. ADOPT THE 2014 OTAY WATER DISTRICT LEGISLATIVE PROGRAM GUIDELINES (BUELNA) [5 minutes] 5. ADOPT ORDINANCE NO. 540 TO AMEND THE DISTRICT’S CODE OF ORDINANCES SECTION 3.06 (C), WITHDRAWAL OF FUNDS, TO ALLOW FOR DELEGATES APPROVAL OF THE RELEASE OF PAYMENTS THAT WILL INCREASE THE EFFICIENCY AND PRACTICALITY OF THE DISTRICT’S OPERATION (KOEPPEN) [5 minutes] 6. APPROVE A PURCHASE ORDER TO NEXUS, INC. IN THE AMOUNT OF $204,850.50 FOR THE PURCHASE OF INFORMATION TECHNOLOGY NETWORK EQUIPMENT AND SERVICES (STEVENS) [5 minutes] 2 7. APPROVE AN AGREEMENT WITH TECHNOWSION, INC. FOR A THREE (3) YEAR LICENSING AGREEMENT FOR GE iFIX SCADA SYSTEM AND IMPLEMENTATION SERVICES FOR THE REPLACEMENT OF THE DISTRICT’S SCADA SYSTEM IN AN AMOUNT NOT-TO-EXCEED $415,000 (STEVENS) [5 minutes] 8. APPROVE A THREE (3) YEAR AGREEMENT WITH AZTECA SYSTEMS, INC. IN AN AMOUNT NOT-TO-EXCEED $230,000 FOR A LICENSING AGREEMENT FOR CITYWORKS SOFTWARE; AND AN AGREEMENT WITH THE TIMMONS GROUP IN AN AMOUNT NOT-TO-EXCEED $370,000 FOR IMPLEMENTATION SERVICES FOR THE REPLACEMENT OF THE DISTRICT’S WORK MANAGEMENT SYSTEM (STEVENS) [5 minutes] 9. AWARD A CONTRACT TO AN ACCOUNTING FIRM TO SERVE AS THE DISTRICT’S AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 2014; THE CONTRACT WILL BE FOR ONE (1) YEAR WITH FOUR (4) ONE-YEAR OPTIONS SUBJECT TO BOARD REVIEW AND APPROVAL (KOEPPEN) [1.5 hours] RECESS TO CLOSED SESSION 10. CLOSED SESSION a) CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION [GOVERNMENT CODE §54956.9] 1 CASE RETURN TO OPEN SESSION 11. ADJOURNMENT BOARD MEMBERS ATTENDING: Mitch Thompson, Chair Jose Lopez 3 All items appearing on this agenda, whether or not expressly listed for action, may be deliberated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the District’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 Secre- tary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to participate 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 December 6, 2013 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time be- ing 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 December 6, 2013. ______/s/_ Susan Cruz, District Secretary _____ STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 7, 2014 SUBMITTED BY: Wales Benham Senior Accountant PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Director’s Expenses for the 1st Quarter of Fiscal Year 2014 GENERAL MANAGER’S RECOMMENDATION: This is an informational item only. COMMITTEE ACTION: Please see Attachment A. PURPOSE: To inform the Board of the Director’s expenses for the 1st quarter of Fiscal Year 2014. ANALYSIS: The Directors’ expense information is being presented in order to comply with Otay’s Board of Directors Policy 8, requiring staff to create a quarterly report showing expenses for the Directors. In addition, California Government Code Section 53065.5 requires special districts, at least annually, to disclose any reimbursement paid by a district within the immediately preceding fiscal year. The disclosure requirement shall be fulfilled by including the reimbursement information in a document published or printed, at least annually by 2 a date determined by that district, and shall be made available for public inspection. (See Attachment B for the Summary and C-H for Details.) FISCAL IMPACT: None. STRATEGIC GOAL: Prudently manage District funds. LEGAL IMPACT: Compliance with state law. Attachments: Attachment A Committee Action Attachment B Director’s Expenses and per Diems Attachment C-H Director’s Expenses Detail ATTACHMENT A SUBJECT/PROJECT: Director’s Expenses for the 1st Quarter of Fiscal Year 2014 COMMITTEE ACTION: This is an informational item only. 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: January 7, 2014 SUBMITTED BY: Armando Buelna, Communications Officer W.O./G.F. NO: DIV. NO. All APPROVED BY: SUBJECT: 2014 Legislative Program Guidelines GENERAL MANAGER’S RECOMMENDATION: That the Board of Directors adopt the 2014 Otay Water District Legislative Program Guidelines. PURPOSE: To provide direction to staff and the District’s Legislative Advocates in the formulation of the District’s response to legislative initiatives on issues affecting the District during the 2014 legislative session. COMMITTEE ACTION: See Attachment A BACKGROUND The Otay Water District maintains a set of legislative policy guidelines to direct staff and legislative advocates on issues important to the District. The legislative guidelines are updated annually with the proposed updates presented to the Otay Water District’s Board of Directors for review and adoption. The attached draft 2014 Legislative Program represents policy positions on legislation for the Board’s consideration. Each legislative session, representatives to the California Legislature sponsor some 2,000 or more bills or significant resolutions. While many fail to make it out of their respective house of origin, many of these bills are signed by the governor, become law and can affect special districts in substantive ways. The same is true with each session of the House of Representatives and the U.S. Senate. The draft 2014 Legislative Program establishes guidelines and policy direction that can be used by staff in monitoring legislative activity to facilitate actions that can be taken quickly in response to proposed bills. The guidelines provide a useful framework for staff when evaluating the potential impact of state or federal legislation on the District. This is particularly helpful when a timely response is necessary to address a last minute amendment to legislation and should calls or letters of support or opposition be needed. While the Legislative Program provides useful guidelines, sensitive or controversial policy matters will nevertheless be brought to the full Board of Directors for its deliberation and direction. FISCAL IMPACT: None. LEGAL IMPACT: None. General Manager Attachments: A - Committee Action Report B – 2014 Otay Water District Legislative Program C – 2014 Otay Water District Legislative Program Redline ATTACHMENT A SUBJECT/PROJECT: 2014 Legislative Program Guidelines COMMITTEE ACTION: The Finance, Administration and Communications Committee reviewed this item at a meeting held on December 10, 2013 and supported staff’s recommendation. 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 Legislative Program 2014   Effective Date: 01/08/2014 Legislative Policy Guidelines The Otay Water Legislative Policy Guidelines for the 2014 Legislative Session includes the following: Sacramento-San Joaquin Bay Delta (Bay-Delta) Support efforts to: a. Finalize and implement the Bay-Delta Conservation Plan to address Bay-Delta environmental and water quality issues. b. Analyze or support a “Portfolio Approach”, “Around-the-Delta”, “right-sized”, or other alternatives that feature smaller conveyance facilities as a way to improve water quality, water transport, and reduce the possibility or impacts of levee failure, lower costs to water users and the public, reduce the level of environmental impacts, while potentially facing fewer legal and political challenges. c. Finalize Bay-Delta planning work and ongoing studies of new water storage facilities, and support efforts to promote additional surface and underground water storage infrastructure that are cost effective ensure water availability and quality. d. Resolve conflicts between urban and rural water users, water management and the environment in the Bay-Delta. e. Provide ongoing federal and state funding for the Bay-Delta, and those which focus attention to Bay-Delta financing, affordability, commitments to pay, and the demand for Bay-Delta Water. f. Equitably allocates costs of the Bay-Delta solution to all those benefiting from improvements in proportion to the benefits they receive. g. Fast-track design, permits and construction for pilot projects in the Bay-Delta to create barriers to keep fish away from Bay-Delta water pumps, improve water quality and supply reliability. h. Provide deliberative processes that are designed to ensure meaningful dialogue with all stakeholders in an open and transparent process in order to reduce future conflicts and challenges in implementing a Bay-Delta solution. i. Provide a Bay-Delta solution that acknowledges, integrates and supports the development of water resources at the local level. j. Improve the ability of water-users to divert water from the Bay-Delta during wet periods when impacts to fish and the ecosystem are lower and water quality is higher. k. Improve the existing Bay-Delta water conveyance system to increase flexibility and enhance water supply, water quality, levee stability and environmental protection. l. Evaluate long-term threats to the Bay-Delta levees and conveyance system and pursues actions to reduce risks to the state’s water supply and the environment. m. Improve coordination of the Central Valley Project and State Water Project Operations. n. Provide a Bay-Delta solution and facilities that are cost-effective when compared with other water supply development options for meeting Southern California’s water needs. Otay Water District Legislative Program 2014   o. Identify the total cost or perform appropriate cost studies to estimate consumer financial impact as well as the expected yield of any Bay-Delta solution before financing and funding decision are made to determine whether the solution is worth the expense. p. Provide the State Water Project (SWP) with more flexibility to operate their systems to maximize water deliveries while avoiding unacceptable impacts to third parties, habitat or the environment. q. Require a firm commitment and funding stream by all parties to pay for the proportional benefits they will receive from a Bay-Delta solution through take-or-pay contracts or the legal equivalent, and identify the impact to the remaining contractors if one or more contractors default or back out. r. Provide “right-sized” facilities to match firm commitments to pay for the Bay-Delta solution. s. Provide SWP contractors and their member agencies access to all SWP facilities to facilitate water transfers. t. Continue state ownership and operation of SWP as a public resource. u. Improve efficiency and transparency of all SWP operations. v. Focus on statewide priorities, including construction of an approved method of conveyance of water through or around the Delta that provides water supply reliability to the Delta water uses, promotion of greater regional and local self sufficiency, surface storage and promotion of water use efficiency. w. Provides for the state’s share of funding for Bay-Delta conveyance projects. x. Consider complementary investments in local water supply sources, regional coordination, and south of Delta storage as part of an overall comprehensive Bay-Delta solution. Oppose efforts that: a. Require additional reviews or approvals of Delta conveyance options beyond those provided by SBX7-1 (2009). Otay Water District Legislative Program 2014   Recycled Water Support efforts to: a. Reduce restrictions on recycled water usage or promote consistent regulation of recycled water projects to reduce impediments to the increased use of recycled water. b. Reduce restrictions on injecting recycled water into basins where there is no direct potable use. c. Provide financial incentives for recharge of groundwater aquifers using recycled water. d. Make recycled water regulations clear, consolidated, and understandable to expedite related project permitting. e. Promote recycled water as a sustainable supplemental source of water. f. Allow the safe use of recycled water. g. Facilitate development of technology aimed at improving water recycling. h. Increasing funding for water recycling projects. i. Increase awareness of the ways recycled water can help address the region’s water supply challenges. Oppose efforts that: a. Restrict use of recycled water for groundwater recharge. b. Establish new water or recycled water fees solely to recover State costs without also providing some benefit. c. Create regulatory schemes that alter or limit the existing authority to reuse and recycle water. Otay Water District Legislative Program 2014   Water Services Support efforts to: a. Provide for a comprehensive state water plan that balances California’s competing water needs, achieves the co-equal goals of water supply reliability and environmental restoration, and results in a reliable supply of high-quality water for the San Diego region. b. Provide financial support to projects designed to mitigate the potential negative impacts of Global Climate Change on water supply reliability. c. Promote the coordination and integration of local, state and federal climate change policies and practices to the greatest extent feasible. d. Support ongoing implementation of the Quantitative Settlement Agreement. e. Provide reliable water supplies to meet California’s short and long-term needs. f. Support legislation that reduces impediments for willing sellers and buyers to engage in water transfer agreements. g. Promote desalination pilot studies and projects. h. Encourage feasibility studies of water resource initiatives. i. Increase funds for infrastructure and grant programs for construction, modernization or expansion of water, wastewater treatment, reclamation facilities and sewer systems including water recycling, groundwater recovery and recharge, surface water development projects and seawater desalination. j. Mandate uniform or similar regulations and procedures by state agencies in the processing and administering of grants and programs. k. Streamline grant application procedures. l. Promote or assist voluntary water transfers between willing buyers and willing sellers and move those transactions through without delay. m. Streamline the permitting and approval process for implementing water transfers. n. Establish reasonable statewide approaches to sewer reporting standards. o. Generate greater efficiencies, better coordinate program delivery, and eliminate duplication in programs for source water protection without lessening the focus on public health of the state’s Drinking Water Program. p. Target efforts to fix specific issues with water supplies within the state’s Drinking Water Program. Oppose efforts that: a. Make urban water supplies less reliable or substantially increase the cost of imported water without also improving the reliability and/or quality of the water. b. Create unrealistic or costly water testing or reporting protocol. c. Disproportionately apportion the cost of water. d. Create undo hurtles for seawater desalination projects. e. Create unreasonable or confusing sewer reporting standards. f. Create administrative or other barriers to sales between willing buyers and willing sellers that delay water transfers. g. Create a broad-based user fee that does not support a specific program activity; any fee must provide a clear nexus to the benefit the fee would provide. h. Create unrealistic or costly to obtain water quality standards for potable water, recycled water or storm water runoff. Otay Water District Legislative Program 2014   i. Change the focus of the state’s Drinking Water Program or weaken the parts of the program that work well. j. Lessen the focus on public health of the state’s Drinking Water Program. Otay Water District Legislative Program 2014   Financial Support efforts to: a. Require the federal government and State of California to reimburse special districts for all mandated costs or regulatory actions. b. Give special districts the discretion to cease performance of unfunded mandates. c. Provide for fiscal reform to enhance the equity, reliability, and certainty of special district funding. d. Provide incentives for local agencies to work cooperatively, share costs or resources. e. Provide for the stable, equitable and reliable allocation of property taxes. f. Continue to reform workers compensation. g. Authorize financing of water quality, water security, and water supply infrastructure improvement programs. h. Promote competition in insurance underwriting for public agencies. i. Establish spending caps on State of California overhead when administering voter approved grant and disbursement programs. j. Require disbursement decisions in a manner appropriate to the service in question. k. Encourage funding infrastructure programs that are currently in place and that have been proven effective. l. Produce tangible results, such as water supply reliability or water quality improvement. m. Provide financial incentives for energy projects that increase reliability, diversity, and reduce green house gasses. n. Continue energy rate incentives for the utilization of electricity during low-peak periods. o. Provide loan or grant programs that encourage water conservation for water users who are least able to pay for capital projects. Oppose efforts that: a. Impose new, unfunded state mandates on local agencies and their customers. b. Undermine Proposition 1A - Protection of Local Government Revenues – and the comprehensive reform approved by voters in 2004. c. Reallocate special district reserves in an effort to balance the state budget. d. Reallocate special district revenues or reserves to fund infrastructure improvements or other activities in cities or counties. e. Usurp special district funds, reserves, or other state actions that force special districts to raise rates, fees or charges. f. Complicate or deter conservation-based rate structures. g. Establish funding mechanisms that put undue burdens on local agencies or make local agencies de facto tax collectors for the state. h. Complicate compliance with SB 610 and SB 221. i. Adversely affect the cost of gas and electricity or reduce an organization’s flexibility to take advantage of low peak cost periods. j. Add new reporting criteria, burdensome, unnecessary or costly reporting mandates to Urban Water Management Plans. k. Add new mandates to the Department of Water Resources (DWR) to review and approve Urban Water Management Plans beyond those already addressed in DWR guidelines. Governance/Local Autonomy Otay Water District Legislative Program 2014   Support efforts to: a. Expand local autonomy in governing special district affairs. b. Promote comprehensive long-range planning. c. Assist local agencies in the logical and efficient extension of services and facilities to promote efficiency and avoid duplication of services. d. Streamline the Municipal Service Review Process or set limits on how long services reviews can take or cost. e. Establish clear and reasonable guidelines for appropriate community sponsorship activities. f. Reaffirm the existing “all-in” financial structure, or protect the San Diego County Water Authority voting structure based on population. Oppose efforts that: a. Assume the state legislature is better able to make local decisions that affect special district governance. b. Create one-size-fits-all approaches to special district reform. c. Unfairly target one group of local elected officials. d. Usurp local control from special districts regarding decisions involving local special district finance, operations or governance. e. Limit the board of directors’ ability to govern the district. f. Create unfunded local government mandates. g. Create costly, unnecessary or duplicative oversight roles for the state government of special district affairs. h. Create new oversight roles or responsibility for monitoring special district affairs. i. Change the San Diego County Water Authority Act regarding voting structure, unless it is based on population. j. Shift the liability to the public entity and relieve private entities of reasonable due diligence in their review of plans and specifications for errors, omissions and other issues. k. Place a significant and unreasonable burden on public agencies, resulting in increased cost for public works construction or their operation. l. Impair the ability of water districts to acquire property or property interests required for essential capital improvement projects. m. Increase the cost of property and right-of-way acquisition, or restricts the use of right-of- ways. n. Work to silence the voices of special districts and other local government associations on statewide ballot measures impacting local government policies and practices, including actions that could prohibit special districts and associations from advocating for positions on ballot measures by severely restricting the private resources used to fund those activities. Otay Water District Legislative Program 2014   Conservation Support efforts to: a. Provide funding for water conservation programs. b. Encourage the installation of water conserving fixtures in new and existing buildings. c. Promote the environmental benefits of water conservation. d. Enhance efforts to promote water awareness and conservation. e. Offer incentives for landscape water efficiency devices such as ET controllers and soil moisture sensors. f. Develop landscape retrofit incentive programs and/or irrigation retrofit incentive programs. g. Permit or require local agencies to adopt ordinances that require or promote water wise landscape for commercial and residential developments. h. Create tax incentives for citizens or developers who install water wise landscapes. i. Create tax incentives for citizens who purchase high efficiency clothes washers, dual flush and high-efficiency toilets and irrigation controllers above the state standards. j. Expand community-based conservation and education programs. k. Develop incentives for developers and existing customers to install water wise landscape in existing developments or new construction. l. Encourage large state users to conserve water by implementing water efficient technologies in all facilities both new and retrofit. m. Create higher incentives for solar power. n. Encourage large state water users to conserve water outdoors. o. Educate all Californians on the importance of water, and the need to conserve, manage, and plan for the future needs. p. Encourage technological research targeted to more efficient water use.Give local agencies maximum discretion in selecting conservation programs that work for their customers and the communities they serve. Oppose efforts that: a. Weaken federal or state water efficiency standards. b. Introduce additional analytical and reporting requirements that are time-consuming for local agencies to perform and result in additional costs to consumers, yet yield no water savings. Otay Water District Legislative Program 2014   Safety, Security and Information Technology Support efforts to: a. Provide funding for information security upgrades to include integrated alarms, access/egress, and surveillance technology. b. Provide incentives for utilities and other local agencies to work cooperatively, share costs or resources. c. Provide funding for communication enhancements, wireless communications, GIS or other technological enhancements. d. Encourage or promote compatible software systems. e. Fund infrastructure and facility security improvements that include facility roadway access, remote gate access and physical security upgrades. f. Protect state, local and regional drinking water systems from terrorist attack or deliberate acts of destruction, contamination or degradation. g. Provide funds to support training or joint training exercises to include contingency funding for emergencies and emergency preparedness. h. Equitably allocate security funding based on need, threats and/or population. i. Encourage or promote compatible communication systems. j. Encourage and promote funding of Department of Homeland Security Risk Mitigation programs. k. Recognizes water agencies as emergency responders to damage and challenges caused by wildfires, earthquakes, and other natural disasters, as well as terrorist and other criminal activities that threaten water operations, facilities and supplies. Oppose efforts that: a. Create unnecessary, costly, or duplicative security mandates. b. Require expanded water system descriptions or additional public disclosure of public water systems details for large water suppliers in Urban Water Management Planning documents, potentially compromising public water systems and creating a conflict with the Department of Homeland Security’s recommendation to avoid reference to water system details in plans available to the general public. Otay Water District Legislative Program 2014   Optimize District Effectiveness Support efforts to: a. Give utilities the ability to avoid critical peak energy pricing or negotiate energy contracts that save ratepayers money. b. Develop reasonable Air Pollution Control District engine permitting requirements. c. Reimburse or reduce local government mandates. d. Allow public agencies to continue offering defined benefit plans. e. Result in predictable costs and benefits for employees and taxpayers. f. Eliminate abuses. g. Retain local control of pension systems. h. Be constitutional, federally legal and technically possible. Oppose efforts that: a. Restrict the use of, or reallocate, district property tax revenues to the detriment of special districts. b. Create unrealistic ergonomic protocol. c. Micromanage special district operations. d. Balance the state budget by allowing regulatory agencies to increase permitting fees. e. Tax dependent benefits. f. Require new reporting criteria on emergency intensity involved in water supply. Otay Water District Legislative Program 2014   Bi-National Initiatives Support efforts to: a. Promote and finance cross-border infrastructure development such as water pipelines, desalination plants or water treatment facilities to serve the border region. b. Develop cooperative and collaborative solutions to cross-border issues. c. Develop and enhance communications and understanding of the interdependence of communities on both sides of the border with the goal of improved cross-border cooperation. Oppose efforts that: a. Usurp local control over the financing and construction of water supply and infrastructure projects in the San Diego/Baja California region. Otay Water District Legislative Program 2014   Water Bonds Support efforts to: a. Provide an equitable share of funding to San Diego County, with major funding categories being divided by county and funded on a per-capita basis to ensure bond proceeds are distributed throughout the state in proportion to taxpayers’ payments on the bonds. b. Provide fund for water infrastructure that resolves conflicts in the state’s water system and provides long-term benefits to statewide issues including water supply, reliability, water quality and ecosystem restoration. c. Give primary consideration to funding priorities established by local and regional entities through their IRWM planning process. d. Ensure that the application process for funding is not unnecessarily burdensome and costly, with an emphasis on streamlining the process. e. Fund emergency and carryover storage projects including those in San Diego County. f. Consolidate administration of all voter-approved water-related bond funding in one place, preserves existing expertise within the state bureaucracy to manage bond funding processes, and provides consistent application and evaluation of bond funding applications. g. Provides the state’s share of funding for projects that advance the achievement of the co-equal goals of water supply reliability and Delta ecosystem restoration. Oppose efforts that: a. Do not provide an equitable share of funding to San Diego County, based on the San Diego County taxpayers’ proportional contribution to repayment of the bond. b. Do not provide funding for infrastructure that resolves statewide or regional conflicts of water supplies. c. Do not provide funding that result in net increases in real water supply and water supply reliability.  d. Commit a significant portion of bond funding to projects that do not result in net increases in real water supply or water supply reliability.  Otay Water District Legislative Program 2014   Effective Date: 01/08/2014 Legislative Policy Guidelines The Otay Water Legislative Policy Guidelines for the 2014 Legislative Session includes the following: Sacramento-San Joaquin Bay Delta (Bay-Delta) Support efforts to: a. Finalize and implement the Bay- Delta Conservation Plan to address Bay-Delta environmental and water quality issues. b. SupportAnalyze or support a “Portfolio Approach”, “Around-the-Delta”, “right-sized”, or other alternatives that feature smaller conveyance facilities as a ways to improve water quality, or water transport, and reduce the possibility or impacts of levee failure, lower costs to water users and the public, reduce the level of environmental impacts, while potentially facing fewer legal and political challenges. c. Finalize Bay-Delta planning work and ongoing studies of new water storage facilities, and support efforts to promote additional surface and underground water storage infrastructure that are cost effective ensure water availability and quality. d. Resolve conflicts between urban and rural water users, water management and the environment in the Bay-Delta. e. Provide ongoing federal and state funding for the Bay-Delta, and those which focus attention to Bay-Delta financing, affordability, commitments to pay, and the demand for Bay-Delta Water. f. Equitably allocates costs of the Bay-Delta solution to all those benefiting from improvements in proportion to the benefits they receive. g. Fast-track design, permits and construction for pilot projects in the Bay-Delta to create barriers to keep fish away from Bay-Delta water pumps, improve water quality and supply reliability. h. Provide deliberative processes that are designed to ensure meaningful dialogue with all stakeholders in an open and transparent process in order to reduce future conflicts and challenges in implementing a Bay-Delta solution. i. Provide a Bay-Delta solution that acknowledges, integrates and supports the development of water resources at the local level. j. Improve the ability of water-users to divert water from the Bay-Delta during wet periods when impacts to fish and the ecosystem are lower and water quality is higher. k. Improve the existing Bay-Delta water conveyance system to increase flexibility and enhance water supply, water quality, levee stability and environmental protection. l. Evaluate long-term threats to the Bay-Delta levees and conveyance system and pursues actions to reduce risks to the state’s water supply and the environment. m. Improve coordination of the Central Valley Project and State Water Project Operations. n. Provide a Bay-Delta solution and facilities that are cost-effective when compared with other water supply development options for meeting Southern California’s water needs. Otay Water District Legislative Program 2014   o. Identify the total cost or perform appropriate cost studies to estimate consumer financial impact impact as well as the expected yield of any Bay-Delta solution before financing and funding decision are made to determine whether the solution is worth the expense. p. Provide the State Water Project (SWP) with more flexibility to operate their systems to maximize water deliveries while avoiding unacceptable impacts to third parties, habitat or the environment. q. Require a firm commitment and funding stream by all parties to pay for the proportional benefits they will receive from a Bay-Delta solution through take-or-pay contracts or the legal equivalent, and identify the impact to the remaining contractors if one or more contractors default or back out.. r. Provide “right-sized” facilities to match firm commitments to pay for the Bay-Delta solution. s. Provide SWP contractors and their member agencies access to all SWP facilities to facilitate water transfers. t. Continue state ownership and operation of SWP as a public resource. u. Improve efficiency and transparency of all SWP operations. v. Focus on statewide priorities, including construction of an approved method of conveyance of water through or around the Delta that provides water supply reliability to the Delta water uses, promotion of greater regional and local self sufficiency, surface storage and promotion of water use efficiency. w. Provides for the state’s share of funding for Bay-Delta conveyance projects. w.x. Consider complementary investments in local water supply sources, regional coordination, and south of Delta storage as part of an overall comprehensive Bay-Delta solution. Oppose efforts that: a. Require additional reviews or approvals of Delta conveyance options beyond those provided by SBX7-1 (2009). Otay Water District Legislative Program 2014   Recycled Water Support efforts to: a. Reduce restrictions on recycled water usage or promote consistent regulation of recycled water projects to reduce impediments to the increased use of recycled water. b. Reduce restrictions on injecting recycled water into basins where there is no direct potable use. c. Provide financial incentives for recharge of groundwater aquifers using recycled water. d. Make recycled water regulations clear, consolidated, and understandable to expedite related project permitting. e. Promote recycled water as a sustainable supplemental source of water. f. Allow the safe use of recycled water. g. Facilitate development of technology aimed at improving water recycling. h. Increasing funding for water recycling projects. c.i. Increase awareness of the ways recycled water can help address the region’s water supply challenges. Oppose efforts that: a. Restrict use of recycled water for groundwater recharge. b. Establish new water or recycled water fees solely to recover State costs without also providing some benefit. c. Create regulatory schemes that alter or limit the existing authority to reuse and recycle water. Otay Water District Legislative Program 2014   Water Services Support efforts to: a. Provide for a comprehensive state water plan that balances California’s competing water needs, achieves the co-equal goals of water supply reliability and environmental restoration, and results in a reliable supply of high-quality water for the San Diego region. b. Provide financial support to projects designed to mitigate the potential negative impacts of Global Climate Change on water supply reliability. c. Promote the coordination and integration of local, state and federal climate change policies and practices to the greatest extent feasible. d. Support ongoing implementation of the Quantitative Settlement Agreement. e. Provide reliable water supplies to meet California’s short and long-term needs. f. Support legislation that reduces impediments for willing sellers and buyers to engage in water transfer agreements. g. Promote desalination pilot studies and projects. h. Encourage feasibility studies of water resource initiatives. i. Increase funds for infrastructure and grant programs for construction, modernization or expansion of water, wastewater treatment, reclamation facilities and sewer systems including water recycling, groundwater recovery and recharge, surface water development projects and seawater desalination. j. Mandate uniform or similar regulations and procedures by state agencies in the processing and administering of grants and programs. k. Streamline grant application procedures. l. Promote or assist voluntary water transfers between willing buyers and willing sellers and move those transactions through without delay. m. Streamline the permitting and approval process for implementing water transfers. n. Establish reasonable statewide approaches to sewer reporting standards. o. Generate greater efficiencies, better coordinate program delivery, and eliminate duplication in programs for source water protection without lessening the focus on public health of the state’s Drinking Water Program. n.p. Target efforts to fix specific issues with water supplies within the state’s Drinking Water Program. Oppose efforts that: a. Make urban water supplies less reliable or substantially increase the cost of imported water without also improving the reliability and/or quality of the water. b. Create unrealistic or costly water testing or reporting protocol. c. Disproportionately apportion the cost of water. d. Create undo hurtles for seawater desalination projects. e. Create unreasonable or confusing sewer reporting standards. f. Create administrative or other barriers to sales between willing buyers and willing sellers that delay water transfers. g. Create a broad-based user fee that does not support a specific program activity; any fee must provide a clear nexus to the benefit the fee would provide. h. Create unrealistic or costly to obtain water quality standards for potable water, recycled water or storm water runoff. Otay Water District Legislative Program 2014   i. Change the focus of the state’s Drinking Water Program or weaken the parts of the program that work well. h.j. Lessen the focus on public health of the state’s Drinking Water Program. Otay Water District Legislative Program 2014   Financial Support efforts to: a. Require the federal government and State of California to reimburse special districts for all mandated costs or regulatory actions. b. Give special districts the discretion to cease performance of unfunded mandates. c. Provide for fiscal reform to enhance the equity, reliability, and certainty of special district funding. d. Provide incentives for local agencies to work cooperatively, share costs or resources. e. Provide for the stable, equitable and reliable allocation of property taxes. f. Continue to reform workers compensation. g. Authorize financing of water quality, water security, and water supply infrastructure improvement programs. h. Promote competition in insurance underwriting for public agencies. i. Establish spending caps on State of California overhead when administering voter approved grant and disbursement programs. j. Require disbursement decisions in a manner appropriate to the service in question. k. Encourage funding infrastructure programs that are currently in place and that have been proven effective. l. Produce tangible results, such as water supply reliability or water quality improvement. m. Provide financial incentives for energy projects that increase reliability, diversity, and reduce green house gasses. n. Continue energy rate incentives for the utilization of electricity during low-peak periods. o. Provide loan or grant programs that encourage water conservation for water users who are least able to pay for capital projects. Oppose efforts that: a. Impose new, unfunded state mandates on local agencies and their customers. b. Undermine Proposition 1A - Protection of Local Government Revenues – and the comprehensive reform approved by voters in 2004. c. Reallocate special district reserves in an effort to balance the state budget. d. Reallocate special district revenues or reserves to fund infrastructure improvements or other activities in cities or counties. e. Usurp special district funds, reserves, or other state actions that force special districts to raise rates, fees or charges. f. Complicate or deter conservation-based rate structures. g. Establish funding mechanisms that put undue burdens on local agencies or make local agencies de facto tax collectors for the state. h. Complicate compliance with SB 610 and SB 221. i. Adversely affect the cost of gas and electricity or reduce an organization’s flexibility to take advantage of low peak cost periods. j. Add new reporting criteria, burdensome, unnecessary or costly reporting mandates to Urban Water Management Plans. i.k. Add new mandates to the Department of Water Resources (DWR) to review and approve Urban Water Management Plans beyond those already addressed in DWR guidelines. Otay Water District Legislative Program 2014   Governance/Local Autonomy Support efforts to: a. Expand local autonomy in governing special district affairs. b. Promote comprehensive long-range planning. c. Assist local agencies in the logical and efficient extension of services and facilities to promote efficiency and avoid duplication of services. d. Streamline the Municipal Service Review Process or set limits on how long services reviews can take or cost. e. Establish clear and reasonable guidelines for appropriate community sponsorship activities. f. Reaffirm the existing “all-in” financial structure, or protect the San Diego County Water Authority voting structure based on population. Oppose efforts that: a. Assume the state legislature is better able to make local decisions that affect special district governance. b. Create one-size-fits-all approaches to special district reform. c. Unfairly target one group of local elected officials. d. Usurp local control from special districts regarding decisions involving local special district finance, operations or governance. e. Limit the board of directors’ ability to govern the district. f. Create unfunded local government mandates. g. Create costly, unnecessary or duplicative oversight roles for the state government of special district affairs. h. Create new oversight roles or responsibility for monitoring special district affairs. i. Change the San Diego County Water Authority Act regarding voting structure, unless it is based on population. j. Shift the liability to the public entity and relieve private entities of reasonable due diligence in their review of plans and specifications for errors, omissions and other issues. k. Place a significant and unreasonable burden on public agencies, resulting in increased cost for public works construction or their operation. l. Impair the ability of water districts to acquire property or property interests required for essential capital improvement projects. m. Increase the cost of property and right-of-way acquisition, or restricts the use of right-of- ways. n. Work to silence the voices of special districts and other local government associations on statewide ballot measures impacting local government policies and practices, including actions that could prohibit special districts and associations from advocating for positions on ballot measures by severely restricting the private resources used to fund those activities. m. Otay Water District Legislative Program 2014   Conservation Support efforts to: a. Provide funding for water conservation programs. b. Encourage the installation of water conserving fixtures in new and existing buildings. c. Promote the environmental benefits of water conservation. d. Enhance efforts to promote water awareness and conservation. e. Offer incentives for landscape water efficiency devices such as ET controllers and soil moisture sensors. f. Develop landscape retrofit incentive programs and/or irrigation retrofit incentive programs. g. Permit or require local agencies to adopt ordinances that require or promote water wise landscape for commercial and residential developments. h. Create tax incentives for citizens or developers who install water wise landscapes. i. Create tax incentives for citizens who purchase high efficiency clothes washers, dual flush and high-efficiency toilets and irrigation controllers above the state standards. j. Expand community-based conservation and education programs. k. Develop incentives for developers and existing customers to install water wise landscape in existing developments or new construction. l. Encourage large state users to conserve water by implementing water efficient technologies in all facilities both new and retrofit. m. Create higher incentives for solar power. n. Encourage large state water users to conserve water outdoors. o. Educate all Californians on the importance of water, and the need to conserve, manage, and plan for the future needs. p. Encourage technological research targeted to more efficient water use. p. Give local agencies maximum discretion in selecting conservation programs that work for their customers and the communities they serve. Oppose efforts that: a. Weaken federal or state water efficiency standards. a.b. Introduce additional analytical and reporting requirements that are time-consuming for local agencies to perform and result in additional costs to consumers, yet yield no water savings. Otay Water District Legislative Program 2014   Safety, Security and Information Technology Support efforts to: a. Provide funding for information security upgrades to include integrated alarms, access/egress, and surveillance technology. b. Provide incentives for utilities and other local agencies to work cooperatively, share costs or resources. c. Provide funding for communication enhancements, wireless communications, GIS or other technological enhancements. d. Encourage or promote compatible software systems. e. Fund infrastructure and facility security improvements that include facility roadway access, remote gate access and physical security upgrades. f. Protect state, local and regional drinking water systems from terrorist attack or deliberate acts of destruction, contamination or degradation. g. Provide funds to support training or joint training exercises to include contingency funding for emergencies and emergency preparedness. h. Equitably allocate security funding based on need, threats and/or population. i. Encourage or promote compatible communication systems. j. Encourage and promote funding of Department of Homeland Security Risk Mitigation programs. k. Recognizes water agencies as emergency responders to damage and challenges caused by wildfires, earthquakes, and other natural disasters, as well as terrorist and other criminal activities that threaten water operations, facilities and supplies. Oppose efforts that: a. Create unnecessary, costly, or duplicative security mandates. a.b. Require expanded water system descriptions or additional public disclosure of public water systems details for large water suppliers in Urban Water Management Planning documents, potentially compromising public water systems and creating a conflict with the Department of Homeland Security’s recommendation to avoid reference to water system details in plans available to the general public. Otay Water District Legislative Program 2014   Optimize District Effectiveness Support efforts to: a. Give utilities the ability to avoid critical peak energy pricing or negotiate energy contracts that save ratepayers money. b. Develop reasonable Air Pollution Control District engine permitting requirements. c. Reimburse or reduce local government mandates. d. Allow public agencies to continue offering defined benefit plans. e. Result in predictable costs and benefits for employees and taxpayers. f. Eliminate abuses. g. Retain local control of pension systems. h. Be constitutional, federally legal and technically possible. Oppose efforts that: a. Restrict the use of, or reallocate, district property tax revenues to the detriment of special districts. b. Create unrealistic ergonomic protocol. c. Micromanage special district operations. d. Balance the state budget by allowing regulatory agencies to increase permitting fees. e. Tax dependent benefits. e.f. Require new reporting criteria on emergency intensity involved in water supply. Otay Water District Legislative Program 2014   Bi-National Initiatives Support efforts to: a. Promote and finance cross-border infrastructure development such as water pipelines, desalination plants or water treatment facilities to serve the border region. b. Develop cooperative and collaborative solutions to cross-border issues. c. Develop and enhance communications and understanding of the interdependence of communities on both sides of the border with the goal of improved cross-border cooperation. Oppose efforts that: a. Usurp local control over the financing and construction of water supply and infrastructure projects in the San Diego/Baja California region. Otay Water District Legislative Program 2014   Water Bonds Support efforts to: a. Provide an equitable share of funding to San Diego County, with major funding categories being divided by county and funded on a per-capita basis to ensure bond proceeds are distributed throughout the state in proportion to taxpayers’ payments on the bonds. b. Provide fund for water infrastructure that resolves conflicts in the state’s water system and provides long-term benefits to statewide issues including water supply, reliability, water quality and ecosystem restoration. c. Give primary consideration to funding priorities established by local and regional entities through their IRWM planning process. d. Ensure that the application process for funding is not unnecessarily burdensome and costly, with an emphasis on streamlining the process. e. Fund emergency and carryover storage projects including those in San Diego County. f. Consolidate administration of all voter-approved water-related bond funding in one place, preserves existing expertise within the state bureaucracy to manage bond funding processes, and provides consistent application and evaluation of bond funding applications. f.g. Provides the state’s share of funding for projects that advance the achievement of the co-equal goals of water supply reliability and Delta ecosystem restoration. Oppose efforts that: a. Do not provide an equitable share of funding to San Diego County, based on the San Diego County taxpayers’ proportional contribution to repayment of the bond. b. Do not provide funding for infrastructure that resolves statewide or regional conflicts of water supplies. c. Do not provide funding that result in net increases in real water supply and water supply reliability.  c.d. Commit a significant portion of bond funding to projects that do not result in net increases in real water supply or water supply reliability.  STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 7, 2014 SUBMITTED BY: Kevin Koeppen, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Adopt Ordinance No. 540 Amending the District’s Code of Ordinances Section 3.06(C), Withdrawal of Funds, to Allow for Delegates Approval of the Release of Payments Which Will Increase the Efficiency and Practicality of District Operations GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Ordinance No. 540 amending the District’s Code of Ordinances Section 3.06(C), Withdrawal of Funds, to allow for delegates approval of the release of payments which will increase the efficiency and practicality of District operations. COMMITTEE ACTION: See Attachment A. PURPOSE: To request that the Board amend Section 3.06(C), as presented in Exhibit 1, to increase the efficiency and practicality of District operations. In addition, the amendment will grant the General Manager and Chief Financial Officer the authority to delegate approval to release payments in situations when they are unavailable to complete the task. ANALYSIS: The District reviews and amends the Code of Ordinances and related policies from time to time to keep them current. A recent review of the Code of Ordinances has identified changes to Section 3.06(C) that 2 are needed to allow for efficiency and practicality of District operations. The code states, “Checks will not be released until approved by the General Manager and the Chief Financial Officer.” Language has been added to authorize the General Manager and Chief Financial Officer to designate alternative individuals with authorization to approve the release of checks. The revised language will establish an alternative approval process allowing the continued release of payments in the event that the General Manager or Chief Financial Officer are unavailable to approve the release of checks. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: Eliminate process inefficiencies. LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Attachment B - Ordinance No. 540 Exhibit 1 – Strike-through Section 3.06(C) Exhibit 2 – Proposed Section 3.06(C) 3 ATTACHMENT A SUBJECT/PROJECT: Adopt Ordinance No. 540 Amending the District’s Code of Ordinances Section 3.06(C), Withdrawal of Funds, to Allow for Delegates Approval of the Release of Payments Which Will Increase the Efficiency and Practicality of District Operations COMMITTEE ACTION: That the Board approve the Finance, Administration and Communications Committee’s recommendation to adopt Ordinance No. 540 amending the District’s Code of Ordinances Section 3.06(C), Withdrawal of Funds, to allow for delegates approval of the release of payments which will increase the efficiency and practicality of District operations. 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 ORDINANCE NO. 540 AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING SECTION 3.06(C), WITHDRAWAL OF FUNDS, OF THE DISTRICT’S CODE OF ORDINANCES BE IT ORDAINED by the Board of Directors of Otay Water District that the District’s Code of Ordinances Section 3.06(C), Withdrawal of Funds, be amended as per Exhibit 1 (attached). NOW, THEREFORE, BE IT RESOLVED that the new proposed Section 3.06(C), Withdrawal of Funds, (Exhibit 2) of the Code of Ordinances shall become effective January 7, 2014. PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay Water District at a regular meeting duly held this 7th day of January 2014, by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: ________________________________ President ATTEST: _____________________________ District Secretary Attachment B 3-1 CHAPTER 3 DISTRICT FINANCIAL MATTERS SECTION 3 DISTRICT BANKING AND OTHER FINANCIAL MATTERS 3.01 DESIGNATION OF DEPOSITORY The Board of Directors shall designate a depository or depositories to have custody of District funds, which depositories shall give the District sufficient collateralization to secure the District against possible loss, as required by law. Only such person or persons authorized by the Board may sign checks to withdraw funds from any of such depositories. The General Manager, Secretary, Treasurer, Chief Financial Officer, and all other employees or assistants of the District who may be required to do so by the Board of Directors, shall give such fidelity or performance bonds to the District as the Board may from time to time require. The premium for such bonds shall be paid by the District. 3.02 DEPOSIT OF CASH All funds received by the District from any source whatsoever shall be promptly deposited in one of the time or demand bank accounts established by resolution of the Board of Directors. It shall be the responsibility of the Chief Financial Officer of the District and of his/her deputies, who have been or may be appointed, to assure such prompt deposit of funds. 3.03 TYPES OF ACCOUNTS AND INVESTMENT ACCOUNTS A. The following types of bank accounts and investment accounts shall be established and maintained for District funds as directed or approved by the Board of Directors: 1. Demand Deposit Account. All funds, when first received, shall be deposited in one of the demand deposit accounts established under Section 3.02. However, the-- Chief Financial Officer, or his/her designee, shall cause those funds for which an early demand is not foreseen, to be transferred to a time deposit account or to an investment account to produce an interest return as soon as practicable. 2. Time Deposit Account. Funds for which an early demand is not foreseen shall be transferred from a demand deposit account to a time deposit account or invested in an investment authorized under 3 of this Section 3.03. Exhibit 1 3-2 3. Investments. As an alternative to placing funds in a time deposit account, funds may be invested in the form of securities authorized by Section 53601 of the California Government Code and District Policy No. 27. 3.04 CLASSES OF BANK ACCOUNTS A. The following classes of accounts shall be estab-lished and maintained for the District: 1. General Accounts. All District funds shall be placed in one or more of the types of accounts or investments listed under Section 3.03. Such funds shall be designated "Otay Water District, General Account" except for funds which are to be placed in special accounts as may be directed by the Board of Directors or as otherwise authorized in this Section 3.04. Such special accounts may be any one of the types listed in Section 3.03. 2. Payroll Account. One special demand deposit account, designated "Otay Water District, Payroll Account," shall be maintained for the sole purpose of paying wages, salaries and taxes for District employees. No funds shall be deposited in this account except funds withdrawn by check or transfer from a General Account. 3.05 TRANSFER OF FUNDS FROM ONE ACCOUNT TO ANOTHER A. The Chief Financial Officer of the District or his/her designee is authorized and is delegated the responsibility of directing banking institutions to transfer funds from one type of account to another type in a financial institution which has been approved by the Board of Directors. For the purpose of such transfers the types of accounts designated "Demand Deposits," "Time Deposits," and "Investment Accounts" shall be interchangeable at the direction of the Chief Financial Officer or his/her designee with after-the-fact approval of the Board. 3.06 WITHDRAWAL OF FUNDS A. Funds may be withdrawn from any class of demand deposit by issuance of a check or by means of a wire transfer which must be approved by two authorized signers. B. All checks drawn against the General Accounts shall be listed in numerical order on a list of demands that shall be included in a report to the Board of Directors on a regular basis. 3-3 C. All checks drawn against the General Accounts or payroll account must be executed using a facsimile signature or require the signatures of two signers. Checks will not be released until approved by the General Manager and the Chief Financial Officer.; or individuals designated by the General Manager or Chief Financial Officer. 3.07 DIRECTIONS PERTAINING TO DEMAND DEPOSITS Each demand deposit account shall be established only by resolution which shall contain directions therein as to the persons who may sign checks on the account. 3.08 FISCAL YEAR The fiscal year of the District shall be the period beginning July 1 of each calendar year through June 30 of the next calendar year. 3.09 CLOSING OF BOOKS OF ACCOUNT Within 30 days after the last day of each fiscal year, the Chief Financial Officer shall cause all final entries for such fiscal year to be made in the District books of account, prepare them for examination by the external Auditor, and notify the Auditor that the books of account are ready for audit. 3.10 APPOINTMENT OF AN AUDITOR FOR ANNUAL AUDIT OF BOOKS OF ACCOUNT The Auditor for the District shall be appointed by the Board of Directors and shall serve thereafter until such time as the Auditor may resign, the appointment may be revoked by the Board, or a successor has been appointed by the Board. Within 60 days after the books of account have been prepared for the Auditor's use, as provided in Section 3.09, the Auditor shall perform and submit the annual audit of said books of account to the District. 3-1 CHAPTER 3 DISTRICT FINANCIAL MATTERS SECTION 3 DISTRICT BANKING AND OTHER FINANCIAL MATTERS 3.01 DESIGNATION OF DEPOSITORY The Board of Directors shall designate a depository or depositories to have custody of District funds, which depositories shall give the District sufficient collateralization to secure the District against possible loss, as required by law. Only such person or persons authorized by the Board may sign checks to withdraw funds from any of such depositories. The General Manager, Secretary, Treasurer, --Chief Financial Officer, and all other employees or assistants of the District who may be required to do so by the Board of Directors, shall give such fidelity or performance bonds to the District as the Board may from time to time require. The premium for such bonds shall be paid by the District. 3.02 DEPOSIT OF CASH All funds received by the District from any source whatsoever shall be promptly deposited in one of the time or demand bank accounts established by resolution of the Board of Directors. It shall be the responsibility of the Chief Financial Officer of the District and of his/her deputies, who have been or may be appointed, to assure such prompt deposit of funds. 3.03 TYPES OF ACCOUNTS AND INVESTMENT ACCOUNTS A. The following types of bank accounts and investment accounts shall be established and maintained for District funds as directed or approved by the Board of Directors: 1. Demand Deposit Account. All funds, when first received, shall be deposited in one of the demand deposit accounts established under Section 3.02. However, the-- Chief Financial Officer, or his/her designee, shall cause those funds for which an early demand is not foreseen, to be transferred to a time deposit account or to an investment account to produce an interest return as soon as practicable. 2. Time Deposit Account. Funds for which an early demand is not foreseen shall be transferred from a demand deposit account to a time deposit account or invested in an investment authorized under 3 of this Section 3.03. Exhibit 2 3-2 3. Investments. As an alternative to placing funds in a time deposit account, funds may be invested in the form of securities authorized by Section 53601 of the California Government Code and District Policy No. 27. 3.04 CLASSES OF BANK ACCOUNTS A. The following classes of accounts shall be estab-lished and maintained for the District: 1. General Accounts. All District funds shall be placed in one or more of the types of accounts or investments listed under Section 3.03. Such funds shall be designated "Otay Water District, General Account" except for funds which are to be placed in special accounts as may be directed by the Board of Directors or as otherwise authorized in this Section 3.04. Such special accounts may be any one of the types listed in Section 3.03. 2. Payroll Account. One special demand deposit account, designated "Otay Water District, Payroll Account," shall be maintained for the sole purpose of paying wages, salaries and taxes for District employees. No funds shall be deposited in this account except funds withdrawn by check or transfer from a General Account. 3.05 TRANSFER OF FUNDS FROM ONE ACCOUNT TO ANOTHER A. The Chief Financial Officer of the District or his/her designee is authorized and is delegated the responsibility of directing banking institutions to transfer funds from one type of account to another type in a financial institution which has been approved by the Board of Directors. For the purpose of such transfers the types of accounts designated "Demand Deposits," "Time Deposits," and "Investment Accounts" shall be interchangeable at the direction of the Chief Financial Officer or his/her designee with after-the-fact approval of the Board. 3.06 WITHDRAWAL OF FUNDS A. Funds may be withdrawn from any class of demand deposit by issuance of a check or by means of a wire transfer which must be approved by two authorized signers. B. All checks drawn against the General Accounts shall be listed in numerical order on a list of demands that shall be included in a report to the Board of Directors on a regular basis. 3-3 C. All checks drawn against the General Accounts or payroll account must be executed using a facsimile signature or require the signatures of two signers. Checks will not be released until approved by the General Manager and the Chief Financial Officer; or individuals designated by the General Manager or Chief Financial Officer. 3.07 DIRECTIONS PERTAINING TO DEMAND DEPOSITS Each demand deposit account shall be established only by resolution which shall contain directions therein as to the persons who may sign checks on the account. 3.08 FISCAL YEAR The fiscal year of the District shall be the period beginning July 1 of each calendar year through June 30 of the next calendar year. 3.09 CLOSING OF BOOKS OF ACCOUNT Within 30 days after the last day of each fiscal year, the Chief Financial Officer shall cause all final entries for such fiscal year to be made in the District books of account, prepare them for examination by the external Auditor, and notify the Auditor that the books of account are ready for audit. 3.10 APPOINTMENT OF AN AUDITOR FOR ANNUAL AUDIT OF BOOKS OF ACCOUNT The Auditor for the District shall be appointed by the Board of Directors and shall serve thereafter until such time as the Auditor may resign, the appointment may be revoked by the Board, or a successor has been appointed by the Board. Within 60 days after the books of account have been prepared for the Auditor's use, as provided in Section 3.09, the Auditor shall perform and submit the annual audit of said books of account to the District. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 7, 2014 W.O./G.F. NO: DIV. NO. SUBMITTED BY: Adolfo Segura, Information Technology Manager APPROVED BY: Geoff Stevens, Chief Information Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: REPLACEMENT OF NETWORK EQUIPMENT AND SERVICES GENERAL MANAGER’S RECOMMENDATION: That the Board approve the issuance of a purchase order to Nexus Inc. in the amount of $204,850 for purchase of IT network equipment and services. Committee Action: See “Attachment A”. Purpose: To authorize the purchase of replacement of network equipment and services. Analysis: The District’s network infrastructure is the backbone for all essential day-to-day data, voice, video, security and customer services. One of the most critical elements of this network is core network switching and connectivity equipment, which allows electronic information to reliably and securely flow throughout the District’s Offices, remote sites and to-and-from the external environment. This is a tactical upgrade with network equipment being replaced only where needed and limited professional services. Equipment with existing useful life will remain. The District’s current switch and general connectivity equipment was purchased incrementally beginning in 2004. Network management best practices recommend upgrades of enterprise network equipment at five, seven and ten years of life. Vendor support costs for this equipment past the recommended lifecycle stage is at a premium, with replacement parts typically being recycled or refurbished with limited performance and reliability warranty offerings. With the District’s ever-growing need and dependency of technology services, maintaining the network infrastructure current is essential to sustain current and future electronic service demands. Another critical item is the District’s manual tape back-up mode process, which is labor intensive, costly, and does not properly leverage new storage alternatives such as the cloud and incremental backup. The 2012 – 2014 Strategic Plan identified the need to “Improve the operating cost and efficiency of data center and network services” (3.1.2.10); in order to achieve this objective, staff conducted an extensive analysis of current and future networking requirements and developed a list of specifications. Staff solicited quotes from six (6) vendors for the required equipment and services and only received one (1) qualified quote from Nexus Inc., $204,850. Staff also evaluated the quote against both the California Multiple Award Schedules (CMAS) and Regional Public Pricing Agreement through Western State Contracting Alliance (WSCA) to ensure the District received adequate quotes. In both cases, the quote received in the Nexus Inc. bid was lower than the quote the District would have received just following the competitively approved contracts available to public agencies. CMAS quoted $228,159.99, and WSCA quoted $235,182.49. Fiscal Impact Joe Beachem, Chief Financial Officer The approved capital budget is $350,000 for FY14 for CIP P2469 Information Technology Network and Hardware. Current expenditures are $28,150.00, leaving an available balance of $321,850.00. This expenditure of $204,850 will leave a remaining balance of $110,699.50 in CIP P2469. The Project Manager anticipates, based on financial analysis, that the budget will be sufficient to support this project. Finance has determined that 60% of the funding is available from the Replacement Fund and 40% from the Expansion Fund. Strategic Goal This project will, in part, achieve the strategic objective “Improve the operating cost and efficiency of data center and network services” (3.1.2.10). LEGAL IMPACT: None. Attachments: Attachment A – Committee Action ATTACHMENT A SUBJECT/PROJECT: REPLACEMENT OF NETWORK EQUIPMENT AND SERVICES COMMITTEE ACTION: The Finance, Administration and Communications Committee met on December 10, 2013 to review this item. The Committee supports presentation to the full Board for their consideration. 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: January 7, 2014 SUBMITTED BY: Adolfo Segura Information Technology Manager W.O./G.F. NO: DIV. NO. APPROVED BY: Geoff Stevens, Chief Information Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: REPLACEMENT OF SCADA SYSTEM GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to negotiate and enter into agreement with Techknowsion Inc., for a three year licensing agreement for GE iFIX SCADA system and implementation services for the replacement of the District’s SCADA system in an amount not-to-exceed $415,000.00. Committee Action: See “Attachment A”. Purpose: To obtain Board authorization for the General Manager to negotiate into an agreement for the purchase of license fees and implementation services to replace the District’s SCADA information system. Analysis: The SCADA system, which is one of the District’s most critical systems, provides direct electronic connection and monitoring services to all essential District water infrastructures, and in particular, major equipment responsible for managing, moving, treating, and distribution of water for potable, recycled and wastewater. The original SCADA system (Factory Link) was installed in 1994 and since then, staff has updated and managed that system but it has now reached end of life. Consequently, staff recognized, as part of the 2012-2014 Strategic Plan, that it was necessary to replace the SCADA system (3.1.2.16 - Replace SCADA Software). The District conducted extensive research into potential SCADA system replacements. The market is mature and there are many vendors and systems capable of providing quality systems and services. In consultation with industry experts and the District’s Purchasing Department, staff determined that the best approach was to conduct a competitive RFP process allowing system integrators to propose what they believe is the best solution based on Otay’s requirements. The District hired CGR Management Consultant LLC to assist in the development of a detailed “requirements” matrix as well as in the vendor selection process. A cross-functional selection team from Operations and IT was also assembled to help validate and complete the scope and “requirements” matrix. In turn, the scope document was made available to any system vendor that wished to be considered. The RFP was also placed on the District’s web site. The District initially received eight proposals, but through a scoring criteria, narrowed it down to four vendors. Staff reached consensus on a recommended vendor after conducting on-site interviews, scripted software demonstrations and a final scoring process, to include reference checks. (See Attachment B). After scoring results, staff recommends the selection of Technowsion as the vendor of choice and General Electric (GE) iFIX as the desired solution. Technowsion has extensive knowledge of Otay’s existing SCADA system, as they have maintained it during the last ten years. Besides offering the highest rated proposal, Techknowsion also provided the lowest overall project cost. The GE iFIX solution has desired work order management system integration capabilities and the ability to use existing field monitoring devices, therefore, minimizing additional hardware expenditures. This benefit reinforces the recommendation of GE iFIX as a best fit for Otay’s technology needs. While Technowsion is the smallest firm among the vendors, they have a strong support relationship with GE iFIX software division, and they are able to provide additional support from their large technical bench if needed. In addition, given the large market share of the GE iFIX solution, future support can be provided by other vendors should we desire. Software license fees will be paid directly to Technowsion and are included in the proposal. This is being done primarily to leverage the vendor’s integration buying power and associated discounts, which will benefit Otay. Post implementation support costs for SCADA will be an O&M budget item in FY15 and beyond. Fiscal Impact Joe Beachem, Chief Financial Officer The approved capital budget is $1,846,000.00 for CIP P2485 (SCADA Replacement Project). Planned expenditures to date are $823,746.00 leaving an existing balance of $1,022,253.00. Total costs will be $415,000.00 leaving a balance of $607,253.00. The Project Manager anticipates, based on financial analysis, that the budget will be sufficient to support this project. Finance has determined that 60% of the funding is available from the Replacement Fund and 40% from the Expansion Fund. Strategic Goal This project will achieve objective 3.1.2.16 Replace Scada System. Legal Impact: None. Attachments: Attachment A – Committee Action Attachment B – Matrix Attachment C – PowerPoint Presentation ATTACHMENT A SUBJECT/PROJECT: REPLACEMENT OF SCADA SYSTEM COMMITTEE ACTION: The Finance, Administration and Communications Committee met on December 10, 2013 to review this item. The Committee supports presentation to the full Board for their consideration. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full Board. SCORING CRITERIA Systems Int. Telvent Trimax Glenmount TECHKNOWSION HydroScientific Wunderlich South Coast Firms Qualifications Project Team Proposal Score (70%) 3.7 3.4 3.6 3.8 4.0 2.8 2.9 3.4 Project Approach Cost Score (30%) 4.3 3.8 4.6 3.9 4.9 1.0 2.6 5.0 Organization Fit Vendor Presentation Weighted Score 3.9 3.5 3.9 3.9 4.3 2.3 2.8 3.8 Project Cost Rank 3 6 2 4 1 8 7 5 Interview Score (85%) 4.0 3.4 3.6 4.3 Clarifications Score (5%) 3.8 3.7 3.7 4.4 References Score (10%) 4.3 4.6 4.2 4.8 Weighted Score 4.0 3.6 3.7 4.3 Rank 2 4 3 1 Final Combined Score 3.9 3.7 3.8 4.3 Final Rank 2 4 3 1 ID Company Software Hardware Services Total Year 1 Year 2 Year 33 Year Total A South Coast Systems, Inc. 122,367$            ‐$                170,578$           292,945$           ‐‐‐292,945$          B TECHKNOWSION, Inc. 94,720$             2,300$           195,620$           292,640$           18,200$            19,040$          19,935$         349,815$          C Trimax 49,973$               ‐$                324,480$           374,453$           33,432$            33,432$          33,432$         474,749$          D Systems Integrated 64,275$               ‐$                498,900$           563,175$           4,275$              4,275$            4,275$            576,000$          E Glenmount Global Solutions 10,100$              134,350$       512,320$           656,770$           29,110$            34,110$          37,140$         757,131$          F Telvent USA, LLC 101,548$           8,928$            614,224$           724,700$           24,108$            24,853$          25,599$         799,260$          G Wunderlich‐Malec 121,500$            ‐$                968,425$           1,089,925$        52,350$            56,250$          59,750$         1,258,275$       H HydroScientific West 387,298$            ‐$                1,245,760$        1,633,058$        98,687$            98,687$          98,687$         1,929,119$       SCADA PROPOSAL COST SUMMARY OTAY WATER DISTRICT SUMMARY OF SCADA PROPOSAL RANKINGS IT SYSTEMS REPLACEMENT PROJECTS SCADA OTAY WATER DISTRICT BOARD PRESENTATION JANUARY 7, 2014 BACKGROUND •SCADA FIRST COMPUTERIZED IN EARLY 1990’S WITH IMPLEMENTATION OF FACTORY LINK. •PRODUCT PERFORMED WELL BUT IS HAS REACHED END OF LIFE AND LOSING VENDOR SUPPORT . •SYSTEM REPLACEMENT PROVIDES OPPORTUNITY FOR ADDED FUNCTIONALITY: •SUPPORT FOR AUTOMATION •SOPHISTICATED DATA MONITORING •ENHANCED DECISION MAKING AND ANALYTICAL SUPPORT WHAT IS SCADA? Ability to conduct remote collection, monitoring and control function of water assets SCADA SYSTEM BENEFITS DELIVERED BY GE-IFIX (PROFICY) •Flexibility and reliability of connecting and presenting data •Scalability from isolated sensor to company-wide integration •Best-in-class information analysis, real-time data management and control •Adherence to industry standards for improved consistency, quality & compliance •A foundational platform that enables tools for advanced analysis, work process management, operational excellence & more COST •APPLICATION INTEGRATION SERVICES $415,000.00, INCLUDING SOFTWARE LICENSE FEE (YEAR ONE) •SELECTED SOLUTION IS THE LOWEST COST OPTION •ORIGINAL CIP ESTIMATE $600,000.00 + •THIS IS A BUDGETED ITEM FOR 2012-2014 STRATEGIC PLAN WHY TECHKNOWSION •LOWEST COST BID •BEST OVERALL PRESENTATION TO COMMITTEE •EXTENSIVE KNOWLEDGE OF EXISTING SYSTEM (TEN YEARS) •LOCAL AND SMALLER FIRM, BUT A DEEP BENCH SUPPORT FROM GE QUESTIONS ? STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 7, 2014 PROJECT: Various DIV. NO: ALL SUBMITTED BY: Adolfo Segura Information Technology Manager APPROVED BY: Geoff Stevens, Chief Information Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: REPLACEMENT OF WORK MANAGEMENT SYSTEM GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to negotiate and enter into agreements with: 1) Azteca Systems Inc., for a three (3) year licensing agreement in an amount not-to-exceed $230,000, for a Cityworks software license; and 2) The Timmons Group, in an amount not-to-exceed $370,000, for implementation services for the replacement of the District’s work management system. COMMITTEE ACTION: See “Attachment A”. PURPOSE: To obtain Board authorization for the General Manager to negotiate and enter into agreements for the purchase of license fees and implementation services to replace the District’s work management information system. 2 ANALYSIS: Work management is a critical discipline for a water utility. The District implemented its initial Computerized Maintenance Management System (CMMS) in 2006 (GBA Work Master). Although this system has served us well, the District continues to experience growing issues with lack of integration capabilities, slowly making it a legacy stand- alone system. Given limited integration capabilities and enterprise asset management needs, GBA is no longer meeting the District’s emerging needs of work order management, permitting, financial integration, and overall asset management. Industry best practice strongly recommends a central geographic database architecture, which includes precise position and related data for all water distribution assets as the foundation for a work management system. In anticipation of this system change, the District established objective 3.1.2.9 to implement a Geographic Information System (GIS) based work management system in the 2012 – 2014 Strategic Plan. The District has conducted extensive research in GIS-based work management systems. While there are a number of different work order systems in the market targeting small to large client base, staff concluded that Cityworks by Azteca is a proven and good fit for the District. As reinforcement and alignment of our recommendation, Azteca is a key partner of ESRI, our GIS system vendor, and Cityworks has also been integrated with the District’s existing financial system, Eden. Following staff’s research and conclusion, an RFP was prepared for this service and software, targeting capable system integration vendors with extensive experience implementing Cityworks in water utilities. To that end, staff conducted a formal RFP process for the implementation services. Staff solicited proposals from five (5) vendors, however, ultimately received only three (3). A cross-functional panel from Operations, Engineering and IT staff evaluated the three (3) qualified proposals, and interviewed and evaluated two (2) finalists. The selection committee recommends The Timmons Group, which had the overall highest ratings for both proposal and presentation, and the added benefit of being the lowest cost provider (see attachment B for evaluation and pricing). Staff also negotiated a three (3) year licensing agreement with Cityworks as the software license fee is a separate annual cost and is paid directly to Cityworks, not the implementation vendor. While the off the shelf price for a three (3) year agreement is $360,000, staff negotiated a 37% discount of $230,000 with Cityworks, payable in three (3) payments of $65,000, $75,000, and $90,000 over three (3) years. 3 FISCAL IMPACT: Joe Beachem, Chief Financial Officer The approved budget is $700,000 for CIP P2540 (Work Management System Replacement) for FY 2014 - 2016. Planned expenditures to date are $0. The license fee will be charged to the capital budget in year one (1) as it is part of the implementation process, but will become operational and utilized in years two (2) and three (3), which will be charged directly to the operating budget. Consequently, total costs will be $435,000 ($370,000 for implementation fees and $65,000 for year one [1] licensing), leaving a balance of $265,000. The Project Manager anticipates, based on financial analysis, that the budget will be sufficient to support this project. In anticipation of this replacement, the District discontinued software maintenance fees and consulting support for the existing GBA work order system, with minimal break/fix cost being incurred. This action achieved a savings of approximately $100,000. In addition, the District also saved approximately $100,000 by not contracting for GBA system customization and data correction for the purpose of GIS integration. Finance has determined that 60% of the funding is available from the Replacement Fund and 40% from the Expansion Fund. STRATEGIC GOAL: This project will achieve objective 3.1.2.9, “Implement a GIS based work order system.” LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Report Attachment B – Evaluation/Pricing Matrix Attachment C – PowerPoint Presentation ATTACHMENT A SUBJECT/PROJECT: REPLACEMENT OF WORK MANAGEMENT SYSTEM COMMITTEE ACTION: The Finance, Administration and Communications Committee reviewed this item at a meeting held on December 10, 2013, and supports presentation to the full Board for their consideration. 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. Woolpert* Power Engineer TIMMONS  Group*OneGIS Westin SCORING CRITERIA:N/A N/A Firms Qualifications Proposal Score (70%) 3.2 2.5 3.9    Project Team Cost Score (30%) 3.0 1.0 4.5    Project Approach Weighted Score 3.1 2.1 4.1    Project Cost Rank 2 3 1    Organization Fit Vendor Presentation Interview Score (85%) 3.0 4.0    Clarifications Score (5%) 3.5 4.0 References Score (10%) 4.0 4.2 Weighted Score 3.1 4.0 Rank 2 1 Final Combined Score 3.1 4.1 Final Rank 2 N/A 1 N/A N/A *Final interviewees ID Company Software Services Total A Woolpert $65,000 $645,141 $710,141 B Power Engineer $65,000 $908,111 $973,111 C TIMMONS Group $65,000 $370,000 $435,000 D OneGIS   E Westin   CITYWORKS' PROPOSAL COST SUMMARY OTAY WATER DISTRICT SUMMARY OF CITYWORKS' PROPOSAL RANKINGS IT SYSTEMS REPLACEMENT PROJECTS Cityworks OTAY WATER DISTRICT BOARD PRESENTATION JANUARY 7, 2014 BACKGROUND •WORK MANAGEMENT PROCESS FIRST COMPUTERIZED IN 2005 WITH IMPLEMENTATION OF GBA MASTER SERIES SOFTWARE •PRODUCT HAS WORKED WELL AND MET ALL INITIAL NEEDS IN CONVERTING FROM PAPER BASED/CARD BASED SYSTEM •SINCE 2005, OTAY HAS GREATLY EXPANDED ITS GIS CAPABILITIES AND IMPLEMENTED AN ASSET MANAGEMENT PROGRAM •CURRENT SYSTEM IS AT END-OF-LIFE AND DOES NOT SUPPORT CURRENT REQUIREMENTS WATER INDUSTRY BEST PRACTICE CRITICAL IMPORTANCE OF A WORK MANAGEMENT SYSTEM •FY12-14 STRATEGIC PLAN IDENTIFIED THIS NEED AS CRITICAL FOR FUTURE OPERATIONAL SUCCESS •WORK MANAGEMENT TRACKS ALL COSTS AND ALL ACTIVITIES RELATED TO UTILITY WATER ASSETS •WORK ORDERS ARE THE PRIMARY DAILY PLANNING TOOL FOR ORGANIZING WORK •LINKAGE BETWEEN GIS AND WORK ORDERS ENABLES HIGH QUALITY ASSET MANAGEMENT PRACTICES •MOBILE COMMUNICATION AND HIGH QUALITY WORK RELATED INFORMATION ARE ESSENTIAL FOR FIELD STAFF WHY CHANGE SYSTEMS? •EXISTING SYSTEM DOES NOT LEVERAGE SHARED GIS DATABASE BUT MUST SYNCHRONIZE ITS OWN DATABASE TO GIS (LABOR INTENSIVE AND EXPENSIVE) •WORK ORDERS DO NOT CURRENTLY TRACK ENGINEERING OR PERMITTING ACTIVITIES •EXISTING SYSTEM DOES NOT ADEQUATELY SUPPORT IN-FIELD WORK (IF NOT CONNECTED TO NETWORK, WORK IS LOST OR HAS TO BE ENTERED AT END OF DAY •VENDOR HAS NO PLANS TO CONVERT EXISTING SYSTEM TO GIS CENTRIC MODEL WHY Cityworks? •BEST IN CLASS SYSTEM, BUILT DIRECTLY TO USE GIS DATABASE AS THE CORE WORK MANAGEMENT DATABASE (ONE DATABASE, NO SYNCHRONIZING) •ENDORSED BY ESRI AS SYSTEM OF CHOICE FOR CMMS (WORK MANAGEMENT) •OVER 20 YEARS OF EXPERIENCE IN GIS BASED WORK MANAGEMENT SYSTEM •FINANCIALLY STRONG SOFTWARE VENDOR WITH EXCELLENT REFERENCES Cityworks HIGHEST RATED CMMS BY WATER FOUNDATION RESEARCH ORGANIZATION (WFRO) Software Functional Score Price Score* Cityworks 99 91 Oracle 94 79 Maximo 93 78 Accela 92 82 Infor/Hansen 89 79 Energov 88 82 Cartegraph 87 81 Lucity (GBA) 82 78 Pubworks 65 68 Maintenance 61 61 Vueworks 61 61 Agile Assets 52 58 Elements 50 56 Cityview 33 42 WHY TIMMONS GROUP? ACCOMPLISHED VENDOR/EXCELLENT WATER INDUSTRY EXPERIENCE COST •APPLICATION INTEGRATION SERVICES: $370,000 •SOFTWARE LICENSE FEES YEARS 1, 2, 3: $65,000, $75,000, $90,000 RESPECTIVELY •2ND PLACE BID: $650,000, 3RD PLACE BID: $1.1 MIL •APPROXIMATELY $200,000 OF AVOIDED COSTS (STOPPED SPENDING ON GBA IN FY11) •37% LICENSE DISCOUNT ($230,000 VS PUBLISHED RATE OF $360,000) •ORIGINAL CIP ESTIMATE: $700,000 •BUDGETED ITEM IN 2012-2014 STRATEGIC PLAN QUESTIONS ? STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 7, 2014 SUBMITTED BY: Kevin Koeppen, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Selection of Auditor for Fiscal Year Ending June 30, 2014 GENERAL MANAGER’S RECOMMENDATION: That the Board approve the Finance, Administration and Communications (FA&C) Committee’s selection of an accounting firm to serve as the District’s auditors for the fiscal year ending June 30, 2014. The contract 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 retain the services of an accounting firm to serve as the District’s auditors for the fiscal year ending June 30, 2014. 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 FA&C Committee also serves the Board as the Audit Committee (the Committee). The purpose of the Committee is to review the reports of external auditors, to include management letters and internal control 2 recommendations, and ensure implementation by management. The Committee also has the opportunity to recommend an accounting firm to the Board to perform the annual audit. Staff has reviewed proposals from four accounting firms and is recommending that the Committee interview the four firms, and select one firm to be recommended as the District’s auditor for the fiscal year ending June 30, 2014. The interview process is an opportunity for committee members to personally speak to the accountants who will be working on the audit. ANALYSIS: For the past five years, the District has retained the services of White Nelson Diehl Evans LLP. The District’s practice, which is also a sound business practice, is to rotate auditors every five years. Therefore, the District has issued Request for Proposals (RFP) for services related to the fiscal year 2014 financial audit. The services related to the financial audit include performing the financial audit procedures, preparation of the audited financial statements, preparation of the State Controller’s Report and performing Agreed upon Procedures related to the District’s Investment Policy. On October 14, 2013, staff sent an RFP to five accounting firms to solicit interest in performing the audit of the District’s financial statements for the fiscal year ending June 30, 2014, along with related services stated in the preceding paragraph. All five firms confirmed receipt of the RFP. The District received proposals from four audit firms. Macias, Gini & O’Connell, LLP did not respond to the District’s request for proposal. Below is a brief summary of each firm that the District received a proposal from. Leaf & Cole, LLP – A small San Diego based CPA firm was founded in 1960 and employs approximately 30 individuals. They have experience serving similar water districts in Southern California and San Diego County. The engagement partner, Michael Zizzi, has experience auditing other CWA member agencies. Leaf & Cole was engaged previously by the District to perform audit procedures in fiscal years 1996-2000 with Mr. Zizzi serving on the engagement. The District was satisfied with their performance. Moss Adams LLP – A mid-size national CPA firm, with a local office in San Diego, was founded in 1913 and employs over 2,000 individuals across the country. They have broad experience auditing municipal-owned utilities throughout the west coast. 3 The engagement partner, Julie Desimone, is Moss Adams’ National Practice Leader for energy and utility services. Moss Adams has not been engaged previously by the Otay Water District to perform auditing services. Rogers, Anderson, Malody & Scott, LLP – A small Southern California CPA firm, which was founded in 1948 and is based in San Bernardino. The firm employs approximately 38 individuals and has experience auditing similar agencies in Southern California and San Diego County. The engagement partner, Scott Manno, has experience auditing other CWA member agencies. Anderson, Malody & Scott has not been engaged previously by the Otay Water District to perform auditing services. Teaman, Ramirez & Smith, Inc. – A small Southern California CPA firm, which was founded around 1929 and is based in Riverside. The firm employs approximately 30 individuals and has experience auditing similar agencies in Southern California and San Diego County. Teaman, Ramirez & Smith was engaged previously by the District to perform audit procedures in fiscal years 2004-2008 with Mr. Teaman serving on the engagement. The District was satisfied with their performance. Technical proposals representing each of the four firms were reviewed and they are all qualified to perform the requested services. The result of this process is our recommendation that the Committee interview the four firms to select which firm to recommend to the Board as the District’s auditor for the fiscal year ending June 30, 2014. The following is a tentative planning schedule for the major activities involved in completing the FY-2014 financial audit:  Apr-2014: Interim field work (5 days).  Aug-2014: Final field work (5 days).  Oct-2014: Finance Committee presentation of audited financials.  Nov-2014: Board presentation of audited financials.  Dec-2014: Completed CAFR. 4 FISCAL IMPACT: Joe Beachem, Chief Financial Officer Audit services for the previous audit performed for Fiscal Year 2013 were $35,000. Below is a listing of the four firms along with their proposed fees for performing the Fiscal Year 2014 financial audit and related services. $33,300 Leaf & Cole, LLP $48,254 Moss Adams LLP $36,000 Rogers, Anderson, Malody & Scott, LLP $25,800* Teaman, Ramirez & Smith, Inc. *Teaman’s proposed fees of $29,300 included $3,500 for fees associated with performing a single audit. The other firms’ fee proposals excluded single audit fees; therefore, the $3,500 was removed from Teaman’s proposal for purposes of this comparison. The District currently does not anticipate that a single audit will be required for FY2014. STRATEGIC GOAL: Required by law. LEGAL IMPACT: Compliance with the laws governing the District. Attachments: Attachment A – Committee Action Attachment B – Leaf & Cole, LLP Audit & Fee Proposal Attachment C - Moss Adams LLP Audit & Fee Proposal Attachment D - Rogers, Anderson, Malody & Scott, LLP Audit & Fee Proposal Attachment E - Teaman, Ramirez & Smith, Inc. Audit & Fee Proposal ATTACHMENT A SUBJECT/PROJECT: Selection of Auditor for Fiscal Year Ending June 30, 2014 COMMITTEE ACTION: That the Board approve the Finance, Administration and Communications Committee’s selection of an accounting firm to serve as the District’s auditors for the fiscal year ending June 30, 2014. The contract 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. OTAY WATER DISTRICT AUDIT PROPOSAL FOR THE YEARS ENDED JUNE 30, 2014 THROUGH 2018 PREPARED BY LEAF & COLE, LLP CERTIFIED PUBLIC ACCOUNTANTS CONTACT PARTNER MICHAEL J. ZIZZI 2810 CAMINO DEL RIO SOUTH, SUITE 200 SAN DIEGO, CALIFORNIA 92108 (619) 294-7200 mjzizzi@leaf-cole.com NOVEMBER 4, 2013 Certified Public Accountants C L & Leaf & Cole, LLP LEAF & COLE, LLP CERTIFIED PUBLIC ACCOUNTANTS REQUEST FOR PROPOSALS TABLE OF CONTENTS i Page Transmittal Letter ii - iii Independence 1 License to Practice in California 1 Firm Qualifications and Experience 1 Partner and Supervisory Staff Qualifications 2 - 8 Similar Engagements With Other Special Districts or Government Entities 9 - 10 Specific Audit Approach: Planning the Audit 11 Audit Objectives 11 Audit Sampling 12 Internal Control 12 Experience With Computer System Controls 12 Analytical Procedures 12 Audit and Analytical Procedures 13 Scope of the Audit 14 Identification of Anticipated Potential Audit Problems 14 Proposer Guarantees - Appendix C 15 Proposer Warranties - Appendix D 16 Peer Review Report 17 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com ii Steven W. Northcote, C.P.A. Michael S. Schreibman, C.P.A. Michael J. Zizzi, C.P.A. Julie A. Firl, C.P.A. Nicholas M. Gines, C.P.A. Members American Institute of Certified Public Accountants California Society of Certified Public Accountants Certified Public Accountants A Partnership of Professional Corporations C L & Leaf & Cole, LLP November 4, 2013 To the Board of Directors Otay Water District Thank you for giving us the opportunity to submit our proposal for the audit of Otay Water District. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America, the standards set forth for financial audits contained in Government Auditing Standards issued by the Comptroller of the United States of America and the State Controller’s minimum audit requirements for California Special Districts. Leaf & Cole, LLP is committed to completing these services within a time frame that will meet your needs. Our proposal includes the audit of the Otay Water District, as well as the reports on internal control and compliance anticipated under Government Auditing Standards. In addition we will issue a report applying agreed-upon procedures on the District’s compliance with its investment policy as described in the District’s request for proposal. We will assist with the preparation of the annual report of financial transactions to the State Controller and offer technical assistance with the preparation of the comprehensive annual financial report. We feel uniquely qualified to provide the services required by the Otay Water District.  Since 1960 Leaf & Cole, LLP has developed a reputation for being responsive to its clients needs while providing a quality product. We believe our high ratio of partners to staff allows us to better understand and anticipate our clients’ needs.  The partners of Leaf & Cole, LLP have made a strategic commitment to devote top quality talent and the resources necessary to ensure that the firm is viewed as a leader for accounting professionals in the special district industry. Our special district practice is charged with keeping our clients and our own professionals informed of significant developments in the industry. This is accomplished through participation in industry associations and conferences, continuing education and special programs.  Over the past thirty years Leaf & Cole, LLP has provided services similar to those required by Otay Water District to other special districts in the Amador, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, San Diego and San Luis Obispo counties.  Currently, Leaf & Cole, LLP provides accounting and auditing services to approximately fifteen special districts. We are proud of our commitment to staying abreast of emerging issues and providing our clients with timely reporting. However, our experience in the industry is not limited to auditing financial statements. Services we provide to our clients include single audit reports, agreed-upon procedures, arbitrage rebate calculations, State Controller’s report, parity (net revenue) calculations, Government Finance Officers Association award assistance and guidance and bond offering-official statement preparation assistance. To the Board of Directors November 4, 2013 Otay Water District Page 2 iii  We have completed our seventh peer review. This review included services provided to similar districts.  Turnover of audit staff is one of the strongest objections voiced by auditees. At the date of this proposal, all staff scheduled have previous experience with similar special districts, including key personnel assigned to this engagement. This should dramatically reduce the time required and burden placed upon the District’s staff. Leaf & Cole, LLP is proud of its history of service provided to the special districts of California, and has included references for you to call upon. We feel the items noted above render us unsurpassed in the quality of service provided to our clients. This proposal is a firm and irrevocable offer until March 4, 2014. Any questions concerning this proposal should be directed to Michael J. Zizzi who will be happy to meet with district representatives to provide additional information. Very truly yours, LEAF & COLE, LLP Michael J. Zizzi 1 INDEPENDENCE Leaf & Cole, LLP is independent of the Otay Water District as defined by the standards established by the American Institute of Certified Public Accountants, as well as the standards set forth for financial audits in the U.S. General Accounting Office Government Auditing Standards. For the past five years, Leaf & Cole, LLP has provided no services to Otay Water District. Therefore this engagement does not constitute a conflict of interest. LICENSE TO PRACTICE IN CALIFORNIA Leaf & Cole, LLP and all professional staff assigned to the Otay Water District audit are properly licensed to practice in the State of California. Following is a list of current licenses with the State Board of Accountancy of the firm and key personnel: Leaf and Cole PAR 984 Steven W. Northcote 28780E Michael J. Zizzi 55110E Joseph D. Spence 111165 FIRM QUALIFICATIONS AND EXPERIENCE Leaf & Cole, LLP is one of the largest single office accounting firms in San Diego with a staff of approximately 30 individuals, including over 20 professionals and 5 partners. This high ratio of partners to professional staff permits us to be extremely responsive to our clients while providing a quality product. Our governmental audit staff consists of fifteen accountants, including three partners. Our experience in the industry and particularly with the water districts of California allows us to be quite certain of our staffing needs. Fieldwork will be completed by an audit partner or manager, with a staff accountant. Every staff accountant at Leaf & Cole, LLP has substantial special district experience. We believe that by assigning partners or managers who will participate in the fieldwork on the engagement, our clients receive the highest quality of service. Steven W. Northcote, the managing partner, has extensive experience with similar districts and devotes time as needed for planning, research and review. Steven W. Northcote has successfully completed the American Institute of Certified Public Accountants, AICPA’s Governmental Accounting and Auditing Certificate of Educational Achievement Program. This program includes reporting requirements for the Government Finance Officers Association Certificate of Achievement award. Michael J. Zizzi has attended the American Institute of Certified Public Accountant’s national governmental and not-for-profit training program. Michael J. Zizzi has also received the Certificate of Professional Development from the Government Finance Officers Association of the United States and Canada. This program includes the reporting requirements for the Government Finance Officers Association Certificate of Achievement Award. Leaf & Cole, LLP believes this type of continued education provides our governmental clients with the best quality of service available. Leaf & Cole, LLP successfully completed a seventh peer review. This peer review did include specific examination of our governmental auditing practice. A copy of our most recent peer review report has been included in this proposal. Leaf & Cole, LLP has not been the object of any disciplinary action in the entire history of the firm. 2 PARTNER AND SUPERVISORY STAFF QUALIFICATIONS Effective and efficient client service depends upon the strength of the engagement team. We believe the key factors of that strength are the availability, responsiveness, experience and commitment of the team members. Leaf & Cole, LLP is committed to providing an exceptional level of service to all clients. We have outlined the qualifications and experience of the key personnel assigned to Otay Water District. The quality of staff assigned to the job can most certainly be assured. All individuals mentioned in the following pages have been assigned to similar special district audits for several years. Since turnover of audit staff is one of the strongest objections voiced by auditees, we believe Leaf & Cole, LLP can offer a unique and beneficial continuity vital to a successful audit, by assigning partners and managers to play a significant role, in the fieldwork of the engagement. STEVEN W. NORTHCOTE MANAGING PARTNER ___________________________________________________________________________________________ 3 Education San Diego State University, Bachelor of Science in Accounting, 1975. Professional Organizations American Institute of Certified Public Accountants, Licensed 1979. Former Board Vice-Chairman, Finance Chairman and Director of the United Way of San Diego County. Former Chairman of the Board, Treasurer and Director of the Combined Health Agencies of San Diego. Former Officer and Director of the American Lung Association of San Diego and Imperial Counties. Work Experience Leaf & Cole, LLP (36 years). Professional Experience Director of the accounting and auditing department of Leaf & Cole, LLP which includes the preparation and review of compiled, reviewed and audited financial statements. Responsible for the firm’s quality control and peer review functions. Professional experience includes supervision and preparation of audited financial statements with a concentration in nonprofit organizations, governmental agencies and federally assisted housing projects. Extensive experience in the compliance with single audits in accordance with OMB Circular A-133 AAudits of States, Local Governments and Nonprofit Organizations@. Provides management advisory services to clients on topics such as governmental financing, taxation of nonprofit organizations and agreed-upon procedures. Instructor for the Special District Board Management Institute which provides professional education for board members and managers of California Special Districts. Continuing Education Exceeds 120 hours during the past three years including the AICPA’s National Governmental Training Program. Specific courses included Financial Accounting Standards Board Pronouncements (FASB), Governmental Accounting Standards Board Pronouncements (GASB) and Emerging Issues With the Office of Management and Budget (OMB). Successful completion of both the AICPA’s Governmental Accounting and Auditing and Nonprofit Accounting and Auditing Certificate of Educational Achievement Programs. 4 Special District Experience Templeton Community Services District (20 years) Rancho California Water District (16 years) West and Central Basin Financing Authority (13 years) Otay Water District (12 years) Central Basin Municipal Water District (10 years) West Basin Municipal Water District (10 Years) Vallecitos Water District (9 years) Padre Dam Municipal Water District (7 years) Community Services District No. 88-3 of the Rancho California Water District (7 years) Santa Rosa Community Services District (7 years) Joshua Basin Water District (7 years) Pico Water District (7 years) Trabuco Canyon Water District (6 years) Arcade Water District (5 years) Mesa Consolidated Water District (4 years) Rainbow Municipal Water District (3 years) Murrieta County Water District (3 years) Amador Water Agency (3 years) Orange County Water District (3 years) Descanso Community Water District (2 years) Riverview Water District (2 years) Yorba Linda Water District (2 years) Templeton Cemetery District (2 years) MICHAEL J. ZIZZI AUDIT PARTNER ___________________________________________________________________________________________ 5 Education California Polytechnic University San Luis Obispo, Bachelor of Science in Accounting, 1986. Professional Organizations American Institute of Certified Public Accountants, Licensed 1990. Work Experience Leaf & Cole, LLP (22 years). KPMG, Peat Marwick (3 years). Professional Experience Specializes in audits of special districts such as water and housing authorities and nonprofit organizations, including compliance with OMB Circular A-133 AAudits of States, Local Governments and Nonprofit Organizations@. Also has done extensive work for federally assisted real estate projects and small business auditing, accounting and consulting. Responsible for the firm’s quality control and peer review functions. Instructor for the Special District Board Management Institute which provides professional education for board members and managers of California Special Districts. Coordinates the calculating or rebateable arbitrage earnings for clients with bond offerings subject to the appropriate regulations. Assists special districts in the gathering and preparation of data in bond offering documents. Continuing Education Exceeds 120 hours during the last three years including extensive concentration in the statements issued by the Governmental Accounting Standards Board (GASB), Analysis of U.S. General Accounting Office Government Auditing Standards (Yellow Book) and Statements of Auditing Standards issued by the American Institute of Certified Public Accountants. MICHAEL J. ZIZZI AUDIT PARTNER ___________________________________________________________________________________________ 6 Special District Experience De Luz Community Services District (18 years) Joshua Basin Water District (13 years) Pico Water District (9 years) Otay Water District (9 years) Encina Wastewater Authority (9 years) Valley Center Municipal Water District (9 years) Arcade Water District (8 years) South Coast Water District (8 years) Carmichael Water District (7 years) San Elijo Joint Powers Authority (7 years) Vallecitos Water District (6 years) Amador Water Agency (6 years) Santa Fe Irrigation District (6 years) Otay Water District (5 years) Rainbow Municipal Water District (5 years) Vista Irrigation District (5 years) Rancho California Water District (4 years) Community Service District No. 88-3 of the Rancho California Water District (4 years) Lake Arrowhead Community Services District (3 years) Fairbanks Ranch Community Services District (3 years) Descanso Water District (2 years) Southeast San Diego Redevelopment Agency (2 years) Trabuco Canyon Water District (2 years) Yorba Linda Water District (1 year) JOSEPH D. SPENCE AUDIT SENIOR ___________________________________________________________________________________________ 7 Education University of California, Santa Barbara, Bachelor of Arts in Business Economics with an Emphasis in Accounting, 2007. Professional Organizations California Society of Certified Public Accountants. American Institute of Certified Public Accountants, Licensed 2011. Work Experience Leaf & Cole, LLP (2 years) Green, Hasson & Janks, LLP (4 years). Professional Experience Focuses on audits of special districts such as water and wastewater authorities, performing compliance testing for OMB Circular A-133 “Audits of States, Local Governments and Nonprofit Organizations”. Performs and presents a wide variety of financial audits and attestation services to management and Board of Directors including Government compliance testing, agreed upon procedures, forensic analysis and growth projections. Coordinates phases of audit and reporting process with management to provide effective and efficient audit procedures while ensuring proper due diligence with scope and objectives at hand. Continuing Education Exceeds 100 hours during the last three years including the AICPA’s national governmental and not-for-profit training program with an extensive concentration in Analysis of U.S. General Accounting Office Government Auditing Standards (Yellow Book) and Statements of Auditing Standards issued by the American Institute of Certified Public Accountants on compliance auditing applicable to governmental entities and other recipients of governmental financial assistance. JOSEPH D. SPENCE AUDIT SENIOR ___________________________________________________________________________________________ 8 Special District Experience Lake Arrowhead Community Services District (2 years) Carmichael Water District (2 years) Encina Wastewater Authority (2 years) San Elijo Joint Powers Authority (2 years) De Luz Community Services District (2 years) Southeast San Diego Redevelopment Agency (2 years) Fairbanks Ranch Community Services District (2 years) 9 SIMILAR ENGAGEMENTS WITH OTHER SPECIAL DISTRICTS OR GOVERNMENT ENTITIES Following is a detail of similar governmental engagements in the last five years:  Santa Fe Irrigation District Jeanne Deaver - Administrative Manager (858) 756-5970 Scope of Work - Audited Financial Statements and Agreed-Upon Procedures. Date - June 30, 2007 to Present Engagement Partner - Michael J. Zizzi Total Hours - Audit 250 Hours, Other Engagements as Required  Vista Irrigation District Eldon Boone - Director of Finance (760) 597-3139 Scope of Work - Audited Basic Financial Statements under GASB Statement No. 34. Engagement Partner - Michael J. Zizzi Date - June 30, 2000 to 2004  South Coast Water District Carolyn Rynda, Controller (949) 499-4555 Ext. 3151 Scope of Work - Accounting Services for the Joint Regional Water Supply System. Date - June 30, 2004 to Present Engagement Partner - Michael J. Zizzi Total Hours - Audit 150 Hours or as Needed 10 SIMILAR ENGAGEMENTS WITH OTHER SPECIAL DISTRICTS OR GOVERNMENT ENTITIES  De Luz Community Services District Cher Ruzek, Office Administrator (951696-0060 Ext. 201 Scope of Work - Audited Financial Statements, State Controller’s Report, Single Audit Reports. Date - June 30, 1993 to Present Engagement Partner - Michael J. Zizzi Total Hours - Audit 160 Hours, Other Engagements as Required  San Elijo Point Powers Authority Paul Kinkel, Finance Director (760) 753-6203 Ext. 73 Scope of Work - Audited Financial Statements, State Controller’s Report, Single Audit Reports. Date - June 30, 2005 to Present Engagement Partner - Michael J. Zizzi Total Hours - Audit 120 Hours, Other Engagements as Required 11 SPECIFIC AUDIT APPROACH Planning the Audit Audit planning involves developing an overall strategy for the expected conduct and scope of the audit. The nature, extent and timing of planning will be based on our experience. In planning the audit we will consider, among other matters: a. Reviewing correspondence files, prior auditor’s working papers, financial statements, annual budget reports, board of directors’ minutes, permanent files and current year’s budget. b. Discussing the type, scope and timing of the audit with management of the District and/or the board of directors. c. Discussing matters that may affect the audit with District personnel responsible for nonaccounting services. d. Considering the effect of applicable accounting and auditing pronouncements. e. Coordinating the assistance of District personnel in data preparation. f. Obtain from District personnel an understanding of internal control sufficient to plan the audit. Audit Objectives We will develop specific audit objectives for each material account balance or class of transactions listed below in the following broad categories: a. Existence of Occurrence: Reported assets and liabilities actually existed at the balance sheet date and transactions reported in the statement of revenues, expenses and changes in net position actually occurred during the period covered. b. Completeness: All transactions and accounts that should be included in the financial statements are included and there are no material undisclosed assets, liabilities or transactions. c. Rights and Obligations: The District owns and has clear title to the assets, the liabilities and obligations of the District, and the District was actually a party to reported transactions. d. Valuation or Allocation: The assets and liabilities are valued properly and the revenues and expenses are measured properly. e. Presentation and Disclosure: The assets, liabilities, revenues and expenses are properly described and disclosed in the financial statements. 12 SPECIFIC AUDIT APPROACH Audit Sampling Sampling is one of the principal methods used to control audit risk. From a statistical sample we are able to quantify the risk that conclusions drawn are correct within a specified level of precision. The Otay Water District has a multitude of transactions that could be sampled, however, not all populations are equally important. Therefore, we use a sampling approach that reasonably relates the extent of sampling to the audit risk involved. Our approach provides a method for assessing the principal sources of audit risk and deciding where sampling is needed and how much to do. Factors considered in this model include: the nature of audit procedures to be performed, the relative costs and benefits, and the potential for material error. Sample sizes are determined objectively and vary depending upon these factors. Sampling is used only where it is determined to be the most efficient way to meet the audit objectives. Our tests of laws and regulations will be designed to test the laws and regulations that if not complied with could have a direct and material effect on the financial statements under audit. We will obtain information on the applicable laws and regulations from the District’s management. We will review long-term debt covenants, and investment requirements from the California Government Code. We will assess for each material requirement, the risk that material noncompliance could occur. This includes consideration and assessment of the internal control in place to assure compliance with laws and regulations. Based on the assessment we will design steps and procedures to test compliance with laws and regulations to provide reasonable assurance of detecting both unintentional and intentional instances of non-compliance that could have a material effect on the financial statements. Internal Control Our approach to internal control is to obtain an understanding of each of the components of internal control sufficient to plan the audit, by performing procedures to understand the design of controls relevant to an audit of the financial statements and whether they have been placed in operation. In obtaining this understanding we consider such things as materiality, our knowledge of the industry, and the complexity and sophistication of your operations and systems. This information is compiled, and our procedures are tailored specifically to your organization. Experience With Computer System Controls As a normal part of planning, Leaf & Cole, LLP considers the methods used to process accounting information because such methods influence the design of the internal control structure. In every audit, we determine the extent to which computer processing is used in significant accounting applications, as well as the complexity of that processing; as these may influence the nature timing and extent of audit procedures. In a computerized financial reporting system, the decision to obtain further understanding of computer controls is based on the degree of the client’s dependence on the computer in its financial reporting system. If the client depends heavily on the computer in its financial reporting system, such as the computer initiating transactions or accounting entries or the computer processes and controls substantially all of the information in one or more significant applications with little user involvement, then we would need to obtain a further understanding of the computer controls. Analytical Procedures Analytical procedures are but one of many financial audit processes which help us to understand your organization and changes to your organization as well as help us identify potential risk areas and to plan other audit procedures. Analytical procedures are used as substantive tests whenever appropriate as determined by auditor judgment. 13 SPECIFIC AUDIT APPROACH Audit and Analytical Procedures In designing our audit program we need to select audit procedures necessary to achieve the specified objectives developed above. Factors that influence the procedures to be implemented, include the nature and materiality of the account, the reliance on internal accounting controls and the expected effectiveness of possible audit procedures. A representative listing of audit procedures, their description and an example of their use follows: Procedure Description Examples Physical Examination Identification of an item’s quantity and sometimes its quality. Tests counts of inventory, cash count, securities count, fixed assets count. Confirmation Correspondence directly with independent parties outside the District. Confirming accounts receivable, standard bank confirmations, notes payable and attorney’s letters. Vouching Inspection of documents that support recorded transactions or amounts. Agreeing recorded transactions with billing documents for revenues and invoices for disbursements. Tracing Tracing source documents to the amounts in the accounting records. Tracing vendor invoices to recorded disbursements in the accounting records. Reperformance Auditor repetition of client routines such as calculating and bookkeeping functions. Determining that journal entries have been posted to the proper accounts, re-computing client depreciation calculations. Scanning A visual scrutiny of accounting records, reports and schedules to detect unusual items or inconsistencies. Scanning the charges to the repairs expense account for capital items. Inquiry Questioning management and employees (response to which may be oral or written). Obtain a client representation letter, determining work order status. Inspection Looking at documents in other than vouching or tracing procedures. Inspection of notes, contracts, insurance policies, leases and board minutes. Analytical Procedures Systematical analysis and comparison of relationships among absolute amounts, trends and ratios. Comparing sales with budget and prior years. Observation Visually reviewing client activities or locations. Observation of bookkeeping routines, tour of facilities, etc. 14 SPECIFIC AUDIT APPROACH Scope of the Audit The audit of the District will be divided into separate and distinct phases. Preliminary fieldwork, the first phase, will be conducted by an audit manager and staff accountant and will take place at a mutually agreed-upon time prior to or near year end and will consist of the following areas: a. Internal control b. Cash disbursements and purchases c. Cash receipts d. Payroll e. Capital assets f. Noncurrent liabilities Next, year-end cutoff of selected accounts is a short but important step. Cash and investment cutoff, capital assets and inventory observation (if material), and purchase and sales cutoff should be completed by June 30 to adequately insure a proper cutoff of transactions. The fieldwork phase of an audit is the most comprehensive and time consuming portion of the audit. Leaf & Cole, LLP would begin fieldwork promptly upon completion of the District’s June 30, 2013 financial statements (currently anticipated to be August 25, 2014). During this phase our work will include the following accounts: a. Completion of testing started in June b. Cash and investments c. Accounts receivable d. Water sales e. Taxes and availability charges f. Accrued interest receivable g. Prepaid expenses h. Inventory i. Restricted assets j. Other noncurrent assets such as the net OPEB asset k. Accounts payable l. Accrued payroll and other liabilities m. Accrued interest payable n. Customer deposits o. Unearned revenue p. Payable from restricted assets (if any) q. Noncurrent liabilities, including general obligation bonds, COP’s and revenue bonds r. Contributed capital s. Net position t. Revenues and expenses In preparation of the supporting documentation, it is anticipated that the District will supply a supporting schedule for each and every balance sheet account and, where applicable, one that rolls forward from the previous year. Preparing the financial statements and issuing the report are the final product of an audit engagement. Although these steps are the last to be completed, they are evolving throughout the entire audit engagement. Based on the work schedule discussed above, Leaf & Cole, LLP will provide the District with a draft independent auditor’s report in sufficient time to present the final draft at the October 20, 2014 meeting of the audit committee. Identification of Anticipated Potential Audit Problems Leaf & Cole, LLP anticipates no potential problems in completing the 2014 audit. However, the District should be prepared to implement GASB Statement No. 68 “Accounting and Financial Reporting for Pensions. 15 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): Michael J. Zizzi Title: Partner Firm: Leaf & Cole, LLP Date: November 4, 2013 16 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 accurace. Signature of Official: Name (Typed): Michael J. Zizzi Title: Partner Firm: Leaf & Cole, LLP Date: November 4, 2013 17 SEALED DOLLAR COST BID PROPOSAL FOR OTAY WATER DISTRICT FOR PROFESSIONAL AUDITING SERVICES FOR THE FISCAL YEAR ENDING JUNE 30, 2014 PREPARED BY LEAF & COLE, LLP CERTIFIED PUBLIC ACCOUNTANTS CONTACT PARTNER MICHAEL J. ZIZZI 2810 CAMINO DEL RIO SOUTH, SUITE 200 SAN DIEGO, CALIFORNIA 92108 (619) 294-7200 mjzizzi@leaf-cole.com November 4, 2013 Certified Public Accountants C L & Leaf & Cole, LLP 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com Steven W. Northcote, C.P.A. Michael S. Schreibman, C.P.A. Michael J. Zizzi, C.P.A. Julie A. Firl, C.P.A. Nicholas M. Gines, C.P.A. Members American Institute of Certified Public Accountants California Society of Certified Public Accountants Certified Public Accountants A Partnership of Professional Corporations C L & Leaf & Cole, LLP November 4, 2013 To the Board of Directors Otay Water District Leaf & Cole, LLP’s fees are based on the estimated time spent on the engagement and the billing rates of the individuals assigned. We have strong credentials in the special district industry. Based on our experience with other special districts, our total all-inclusive maximum price for the 2014 engagement is $34,300. Our fees for the additional services would be billed at our standard hourly rates. Fees in future years would be adjusted to reflect changes in the Consumer Price Index, currently estimated to be 3% Michael J. Zizzi is entitled to represent Leaf & Cole, LLP, empowered to submit the proposal, and authorized to sign the contract with Otay Water District. Very truly yours, LEAF & COLE, LLP Michael J. Zizzi Page 1 APPENDIX E SWCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS GENERAL PURPOSE FINANCIAL STATEMENTS, AGREED UPON PROCEDURES AND CAFR REVIEW Hours Standard Hourly Rates Quoted Hourly Rates Total Partners 45 220 $ 220 $ 9,900 Managers 135 120 120 16,200 Staff 90 90 90 8,100 Word Processing 40 70 70 2,800 Subtotal 37,000 Professional Discount (3,700) Total All-inclusive Cost for 2014, Audit $ 33,300 Page 2 APPENDIX E SWCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR STATE CONTROLLER’S REPORT Hours Standard Hourly Rates Quoted Hourly Rates Total Partners 1 220 $ 220 $ 220 Managers 3 120 120 360 Staff 4 90 90 360 Subtotal 940 Word Processing 60 Total price for State Controller’s Report $ 1,000 Date: November 4, 2013 Prepared by: Olga Darlington, CPA, Senior Manager Julie Desimone, CPA, Partner Moss Adams LLP 9665 Granite Ridge Drive, Suite 600 San Diego, CA 92123 PROPOSAL FOR Otay Water District Proposal for Otay Water District TABLE OF CONTENTS COVER LETTER 1 INDEPENDENCE AND LICENSING 3 OUR FIRM’S INDEPENDENCE 3 RELATIONSHIPS WITH THE DISTRICT 3 FIRM LICENSING – CALIFORNIA 3 FIRM QUALIFICATIONS AND EXPERIENCE 4 MUNICIPAL WATER UTILITY EXPERIENCE 5 EXPERIENCE WITH GOVERNMENT ORGANIZATIONS 6 A-133 AUDIT EXPERIENCE 8 OUR LOCAL OFFICE AND ENGAGEMENT TEAM STAFFING PLANS 9 PEER REVIEW 9 FEDERAL AND STATE DESK REVIEWS 9 DISCIPLINARY ACTION 10 PARTNER, SUPERVISORY, AND STAFF QUALIFICATIONS AND EXPERIENCE 11 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES 16 SPECIFIC AUDIT APPROACH 17 INTEGRATED AUDIT APPROACH 17 A TIMELY WORK PLAN 22 INSIGHTS AND RESOURCES 24 ONLINE PUBLICATIONS 24 WEBCASTS 24 CONNECT WITH US 26 EXHIBIT A 27 PEER REVIEW 27 TABLE OF CONTENTS—CONTINUED Proposal for Otay Water District EXHIBIT B 29 RFP APPENDIX C 29 RFP APPENDIX D 30 RFP APPENDIX F 31 Proposal for Otay Water District | 1 November 1, 2013 Otay Water District Kevin Koeppen, Finance Manager 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978‐2004 Dear Mr. Koeppen: We are pleased to present this proposal for external audit services to the Otay Water District (“the District”) for the fiscal year ending June 30, 2014, with the possible option of auditing its financial statements for each of the four subsequent fiscal years. We believe our qualifications in serving utility entities are unmatched by any other firm, and we encourage you to contact our existing clients to discuss our capabilities. Moss Adams offers the following to the District:  Deep specialty in serving municipal‐owned utilities. Moss Adams is committed to serving municipal water utilities and governmental entities. We serve as independent auditor to many governments and municipal utilities, including the Southern California Public Power Authority, Imperial Irrigation District, Transmission Agency of Northern California, Northern California Power Agency, Seattle Public Utilities, Eugene Water & Electric Board, King County Water Quality Enterprise Fund, and City of Portland Water Fund. We understand Governmental Accounting Standards, the State of California reporting standards, and the accounting and operational issues facing the District.  Commitment to communication and on time delivery. We will meet with the District management prior to the start of the audit to determine the most effective communication method for the District, and we are committed to maintaining a high level of communication throughout the audit period and meeting your deadlines.  A strong local presence. The staff on our service team for the District are all local to this region. We have a strong presence in this industry group and a “deep bench” of experience. Proposal for Otay Water District | 2 The following proposal is a firm and irrevocable offer until March 4, 2014 (120days). We hope this proposal expresses our enthusiasm and desire to provide services to Otay Water District. We are confident that you will be pleased with our industry strength and business insights. We welcome any questions you may have about this proposal and thank you again for your consideration of Moss Adams. Sincerely, Olga Darlington, CPA, Senior Manager Julie Desimone, CPA, Partner For Moss Adams LLP For Moss Adams LLP 425‐551‐5712 503‐478‐2101 Olga.Darlington@mossadams.com Julie.Desimone@mossadams.com Proposal for Otay Water District | 3 INDEPENDENCE AND LICENSING OUR FIRM’S INDEPENDENCE Moss Adams has always worked to embody the highest ethical standards, and we demonstrate our commitment to such standards daily. As an independent audit firm properly licensed for public practice, Moss Adams meets the independence standards as defined by Generally Accepted Auditing Standards and the U.S. Government Accountability Office. Prior to accepting a client relationship with the District, we will conclude our initial review of independence. This review will include a circularization through the firm to ensure that there are no circumstances that might impair our independence. To ensure that we maintain our independence of the District, we will formally reassess our independence every year. Additionally, every year, each partner and client service staff, including associates and interns, is required upon initial employment and annually to acknowledge his or her independence with respect to our clients. The Independence Compliance Representation is focused on the independence of the individual, and is designed to result in personal representations about matters that may impair independence. In this way, we routinely monitor our firm’s independence from our attest clients. We welcome any questions you may have regarding our review of independence. RELATIONSHIPS WITH THE DISTRICT At this time, we are not aware of any relationships our firm has had involving the District for the past five (5) years. FIRM LICENSING – CALIFORNIA With offices in San Francisco, Silicon Valley, Los Angeles, Woodland Hills, San Diego, Sacramento, Stockton, Santa Rosa, and Irvine, Moss Adams LLP is duly licensed to practice public accountancy in the state of California. All members of the audit team who reside in California are individually licensed in California. All members of the audit team who do not reside in California are duly licensed in their state of residence and have appropriate designation to practice in California. All team members proposed are full‐time employees. Our firm’s California State License number is 4524. Proposal for Otay Water District | 4 FIRM QUALIFICATIONS AND EXPERIENCE Firm Background Moss Adams LLP provides accounting, tax, and consulting services to public and private middle‐ market enterprises in many different industries. Founded in 1913 and headquartered in Seattle, Moss Adams has 22 locations in Washington, Oregon, California, Arizona, New Mexico, and Kansas. Our assurance services include audits, accounting, internal controls, business risk management, royalty compliance, and employee benefit plans. Our tax services include federal, state, and local tax planning and compliance; international tax planning and compliance; cost segregation; and research and development tax credits. We also provide consulting and advisory services for mergers and acquisitions, corporate finance, valuations, business owner succession, business planning, litigation and forensic accounting, information technology integration and reviews, and compensation. We offer additional services such as investment banking and asset management by drawing on our two affiliate companies, Moss Adams Capital LLC and Moss Adams Wealth Advisors LLC. Moss Adams is one of the 15 largest accounting and consulting firms in the United States. Our staff of more than 2,000 includes approximately 265 partners. Moss Adams is also a founding member of Praxity, AISBL, a global alliance of independent accounting firms providing clients with local expertise in the major markets of North America, South America, Europe, and Asia. Proposal for Otay Water District | 5 MUNICIPAL WATER UTILITY EXPERIENCE Our Energy and Utility Practice is focused on delivering high‐level accounting, tax, and consulting services for municipal water, wastewater, solid waste utilities, and public power generation, transmission, and distribution markets. We currently serve public utility districts, municipal entities, mutual corporations, joint powers entities, independent power producers, and cooperative organizations in California, Washington, Oregon, Hawaii, Idaho, Alaska, Arizona, and New Mexico. Our utility practice professionals are well versed in the issues pertaining to municipal water utilities such as GASB 62 Regulatory Assets and Liabilities (formerly known as SFAS 71); environmental remediation liabilities; large construction projects of infrastructure and the related issues such as construction in progress accounting, classification and tracking, capitalized interest, application of overhead, and depreciation; and bond‐related accounts such as arbitrage liability, debt defeasance and refundings, and covenant compliance. Virtually all of our large public utilities face similar issues. We’ll provide the District with a dedicated team of utility specialists on your engagement that is up‐to‐speed on all the latest trends and occurrences in your industry. In addition to our core audit and tax services, our Moss Adams Advisory Services consulting group offers information technology, business feasibility, rate work, restructuring and workflow design, performance audits, and strategic planning. Clients include public utility districts, regional utility planning associations, and cooperatives. Below is a representative sampling of our water utility clients: Partial List of Moss Adams’ Water Utility Clients  City of McMinnville Water & Light  Imperial Irrigation District  City of Portland–Water Fund  King County Metro Water Quality Fund  City of Riverside Public Utilities  Klickitat County Public Utility District  City of Seattle Public Utilities  Pend Oreille County Public Utility District  City of Tacoma Public Utilities  Southern California Public Power Authority  Clark County Public Utilities  Springfield Utility Board  Eugene Water and Electric Board  Truckee Donner Public Utility District  Firgrove Mutual Inc.  Tualatin Valley Water District Proposal for Otay Water District | 6 EXPERIENCE WITH GOVERNMENT ORGANIZATIONS Our Government, Not‐for‐Profit & Regulated Entities Group is a firm‐wide team of more than 200 professionals, the vast majority of whom specialize primarily—if not exclusively—in serving governmental entities. Our robust and ever‐growing Government Audit and Accounting Service Practice offers experienced partners and senior managers who lead audit engagements for state agencies, cities and counties, special purpose governments, public retirement funds, and others. Listed below is a summary of our experience with governments: Service Our Experience Audits of Financial Statements & CAFRs / Management Recommendation Letters Over 1,100 tax-exempt organizations, including more than 200 governmental entities OMB Circular A-133 Audit Over 2,200 Single Audits conducted for clients since 1997 Audits of Bond Funds, expertise with tax- exempt municipal debt Audit numerous entities in several states, including many cities, ports and airports, counties, and universities that issue bonds GFOA Certificate of Excellence in Financial Reporting program We have assisted all our clients involved in the CAFR program, including City of Riverside, City of Portland, and Port of Seattle Implementation of Governmental Accounting Standards Board (GASB) Pronouncements We have assisted many of our clients with early implementation of new accounting standards, including GASB Statement No. 45, 49, 51, 60, 61, 62, and 63. We are not recommending that our clients early implement GASB No. 68, because as a result of our national involvement, we are aware of the significant implementation concerns that will be faced first by State pension systems, and it is not likely they will be able to provide all the information necessary for individual employers that will be required for them to successfully implement GASB No. 68. Proposal for Otay Water District | 7 Our Involvement in the Industry The firm is a member of the American Institute of Certified Public Accountants (AICPA)’s Government Audit Quality Center (GAQC). The GAQC is responsible for assisting practitioners nationwide in delivering the highest quality governmental audits. One of our partners, Erica Forhan, is an executive member of the GAQC’s steering committee. Other Moss Adams partners served in this role from 2006 to 2012. Jim Lanzarotta, national leader of our City and State Government Practice, recently accepted an appointment to the Financial Accounting Foundation’s Government Accounting Standards Advisory Council (GASAC) as the AICPA representative responsible for working with GASB on setting their agenda, and providing feedback on all proposed standards. In addition, Jim just completed six years as a member and chair of the AICPA State & Local Government Expert Panel (SLG Panel), which is responsible for working with the GASB, Auditing Standards Board, and Government Accountability Office (GAO) on proposed governmental accounting and auditing issues. It is responsible for discussing all proposed governmental accounting and auditing standards, as well as other current practice issues, and provides feedback to the GASB and the GAO. Another national policy‐setting entity we have been affiliated with is the Government Finance Officers Association (GFOA). Laurie Tish, leader of our firm’s Government, Not‐for‐Profit & Regulated Entities Group, currently serves as a special technical reviewer of the Comprehensive Annual Financial Reports Certificate of Excellence in Financial Reporting for the GFOA and also serves on the GASB Recognition and Measurement Task Force. Two of your other proposed service team members, Julie Desimone and Olga Darlington, also currently serve on the GFOA Special Review Committee as technical reviewers. Jeff Bridgens, a senior manager, recently completed a two‐year term with the GASB as a Practice Fellow. While at GASB, he was responsible for research, writing, and presentation of accounting and financial reporting issues for the board’s consideration of incorporating into authoritative guidance for state and local governments. Expertise with Municipal Debt As a nationally recognized firm, we are accustomed to addressing issues pertaining to the capital markets and, specifically, the tax‐exempt bond market. We have extensive local experience assisting our clients with tax‐exempt and municipal bond offerings, and with the audit and accounting issues related to the tax‐exempt debt. Issues pertaining to tax‐exempt bonds have become increasingly complex in recent years and include such items as arbitrage liability, debt defeasance and refundings, conduit debt disclosure and reporting, interest rate swaps on variable Proposal for Otay Water District | 8 rate debt, testing of covenant compliance, and capitalized interest, just to name a few. A significant number of our government clients hold more than $1 billion in municipal debt. The professionals who will serve the District are intimately familiar with these issues and continually receive technical updates and education on these complicated topics. Many of our partners and senior managers, including those on your service team, are nationally recognized speakers, instructors, and practitioners in this specific area. A-133 AUDIT EXPERIENCE Moss Adams is an experienced firm in conducting audits in accordance with the Single Audit Act and Office of Management and Budget (OMB) Circular A‐133 (A‐133 Audit). According to the U.S. Census Bureau’s Single Audit Database, as of 2012 we had performed more than 2,240 A‐133 Audits for our clients in the last 16 years. The vast majority of these audits have been conducted by the 200‐plus members of our firm‐wide Government, Not‐for‐Profit & Regulated Entities Group, which includes all of the members of the audit team that would be serving you. A Firm Highly Experienced With A-133 Audits The table below shows the number of A‐133 audits conducted by our firm since 1997 (the year the federal government began record keeping of these audits). This information can be found on the Web at the Single Audit Database: http://harvester.census.gov/sac. Fiscal Year Single Audits Conducted Total Federal Expenditures Audited 1997–2004 1,038 $10.7 billion 2005 146 $2.6 billion 2006 153 $5.5 billion 2007 142 $5.7 billion 2008 138 $8.9 billion 2009 140 $9.5 billion 2010 156 $11.5 billion 2011 173 $12.1 billion 2012* 158 $6.9 billion (reported to date) 16-Year Total 2,244 $73.4 billion *as of July 31, 2013 Proposal for Otay Water District | 9 Our professionals have conducted A‐133 Audits for many types of organizations and program types. This makes them well‐suited to anticipate and solve potential problems and complete these audits in a timely manner. OUR LOCAL OFFICE AND ENGAGEMENT TEAM STAFFING PLANS We plan to staff your engagement with one partner, one senior manager, one senior, and one staff—all of whom will be involved with the audit on a full‐time basis and have governmental audit experience. You can read about key members of your engagement team in the “Partner, Supervisory, and Staff Qualifications and Experience” section of this proposal. Our San Diego office will be the primary office dedicated to your engagement; however, because we have a “firm without walls” philosophy, we are pulling in technical professionals from other locations who have expertise in the governmental utility industry. The San Diego office is home to 48 professionals who provide a variety of services within the business assurance, tax, and consulting areas. We serve many industries and service groups, specializing in not‐for‐profits, governments, higher education, manufacturing and distribution, technology, construction, real estate, and auto dealers. PEER REVIEW Moss Adams participates in the AICPA Peer Review Program, as administered by the AICPA National Peer Review Committee. Through the peer review program, our system of quality control over the accounting and auditing practice applicable to non‐SEC issuers is reviewed by another CPA firm every three years. We were first subject to a peer review under the AICPA Peer Review Program in 1980 and have been reviewed every third year since 1986. We do not maintain specific records of the engagements selected for review; however, every year, at least one (typically several) government audit has been selected for review. Since the inception of the AICPA’s Peer Review Program, we have always achieved a “pass” opinion. A full copy of our most recent report is provided in Appendix A of this proposal. FEDERAL AND STATE DESK REVIEWS Similar to other accounting firms that provide audit services to entities receiving government funds, Moss Adams’ work for such clients is occasionally subject to quality control reviews by applicable state and federal authorities. To date, none of these reviews have generated any adverse results, nor have there been any findings that would affect Moss Adams’ ability to provide the requested services. Proposal for Otay Water District | 10 DISCIPLINARY ACTION As with any large firm, Moss Adams is occasionally involved in addressing legal and regulatory issues. However, no action, suit, proceeding, inquiry, or investigation before or by any court or federal, state, municipal, or other governmental authority is pending, or to our knowledge is threatened against Moss Adams, related to or which would have a material effect upon the services contemplated herein. Proposal for Otay Water District | 11 PARTNER, SUPERVISORY, AND STAFF QUALIFICATIONS AND EXPERIENCE Julie Desimone, Business Assurance Partner and National Practice Leader for Energy and Utility Services Role: Concurring Reviewer Currently has designation to practice public accounting in California Julie Desimone is a business assurance partner and national practice leader for Energy and Utility Services. Julie graduated from Washington State University with a Bachelor of Arts, Accounting in 2000 and since that time has been working in public accounting and serving utility entities. In addition to being a licensed certified public accountant, Julie has recently been appointed to serve on the Moss Adams Assurance Services Committee, is a member of the Washington State University Business Advisory Board, serves as an AICPA peer reviewer, and is a member of the American Institute of Certified Public Accountants and Washington Society of Certified Public Accountants. She is also a regular contributor of articles to the NWPPA Bulletin and a presenter for Northwest Public Power Authority courses on subjects including utility accounting and utility budgeting. Julie is responsible for numerous audit engagements, and has performed many consulting projects and speaking engagements covering technical and operational issues. Some specific areas of her professional experience include advanced utility accounting and cooperative matters, technical auditing services including A‐133, FERC chart of accounts, technical accounting issues, contracting issues, and internal control evaluation. In addition to her work in the energy and utility industry, Julie has extensive experience in retirement plan audits. A representative list of the clients Julie continues to serve include Southern California Public Power Authority; Riverside Public Utilities; Tacoma Public Utilities; City of Portland – Water and Hydro Funds; McMinnville Water & Light; Public Utility District No. 1 of Clark County; and Eugene Water & Electric Board. CPE: In the last three years Julie has completed in excess of the required continuing professional education necessary to maintain her license. Proposal for Otay Water District | 12 Olga A. Darlington, Business Assurance Senior Manager Role: Engagement Senior Manager Currently has designation to practice public accounting in California Olga has practiced public accounting since 1997 and started with Moss Adams in 2005. Olga’s practice includes audit and consulting projects of municipal utilities, transit agencies, and port districts. She manages all phases of complex assurance engagements, recognizes technical accounting issues, identifies alternatives for accounting treatment and reporting, and communicates resolutions with client personnel. She also has extensive experience leading large and complex A‐133 audits. She is recognized for her technical expertise and has assisted many clients with implementation of new accounting standards. Olga serves as a technical reviewer of the comprehensive annual financial reports for the Government Finance Officers Association. She also serves on the Government Accounting and Auditing Committee for the Washington Society of CPAs. A representative list of the clients Olga continues to serve include Tacoma Public Utilities, Public Utility District No. 1 of Pend Oreille County, Northern California Power Agency, Firgrove Water Mutual, Inc., Public Utility District No. 1 of Clark County; and Eugene Water & Electric Board. CPE: In the last three years, Olga has completed in excess of the required continuing professional education necessary to maintain her license. Proposal for Otay Water District | 13 Matthew Dinsdale, CPA, Senior Role: Engagement In‐Charge Currently is licensed to practice public accounting in California Matt graduated from San Diego State University and has been in public accounting since 2008 and with Moss Adams LLP since 2010. His focus is providing assurance services to not‐for‐profit organizations, foundations, universities, research institutions, and government entities. He has significant experience conducting audits in accordance with Government Auditing Standards and the Single Audit Act, as well as providing assurance services for various types of employee benefit plans. Matt’s experience includes working with universities such as University of San Diego, Vanguard University, Thomas Jefferson School of Law, and San Diego Jewish Academy, as well as research institutes such as Salk Institute, The J. David Gladstone Institute, and La Jolla Institute of Allergy and Immunology. Matt is a member of the American Institute of Certified Public Accountants and California Society of Certified Public Accountants. CPE: In the last three years, Matthew has completed in excess of the required continuing professional education necessary to maintain his license. Audit Staff We will use audit staff from our San Diego office who are knowledgeable with respect to governmental accounting standards and municipal utilities. Proposal for Otay Water District | 14 Quality Service and Staff At Moss Adams, our goal is to hire and keep people who believe in, and demonstrate, a sincere passion for excellence in their work, and a deep commitment to interacting with every colleague and client with respect. This goal cannot be achieved without well‐trained, highly motivated people who are continually challenged and growing in their professional abilities. We have improved our capacity and capabilities by becoming more effective at recruiting, performance feedback and coaching programs, retaining our best people, and training a new generation of leaders. In recent years, we have made progress as demonstrated by an ever‐increasing number of newly admitted partners who have spent many years at Moss Adams. Our firm values a balance between ambitious professional goals and a well‐lived life. We know these values have helped us to retain quality staff, and make us different from other firms. Engagement Team Continuity Less turnover means less time wasted retraining a new engagement team and more time spent focusing on your day‐to‐day business during the audit. By keeping your audit team consistent from year to year, we can complete the audit more efficiently and in a timely manner because the team members already know the details of the District through their past experience. Our policy is to not rotate staff from an engagement team unless absolutely necessary. Typically, this would happen because the staff member has left the firm or has elected to change his or her professional focus to a different industry group. Neither situation is very common, especially since we have a high retention rate. Below are retention statistics for our firm for the past three years: Group 2012 Retention 2011 Retention 2010 Retention Client Service Professionals 78.3% 80.4% 74.6% Administrative Staff 81.8% 85.6% 85.5% Audit team continuity is the hallmark of a stable and efficient audit firm and, with an overall retention rate averaging over 80 percent firm‐wide over the past three years, we are in a strong position to maintain your engagement team continuity. Still, if it were to become necessary to change members of your engagement team, we pledge to:  Discuss any changes with you first Proposal for Otay Water District | 15  Replace departing staff members with people of comparable skill and experience  Take all the steps we can to lessen the change’s impact on you Continuing Professional Education At Moss Adams, we have a rigorous continuing education expectation in which staff members are regularly enrolled in programs to continuously stay on top of the latest technical updates while increasing their understanding of standards, policies, and trends in the industry. The required Continuing Professional Education (CPE) sessions hosted by our internal training and development team include the annual Government, Not‐for‐Profit & Regulated Entities Group conference featuring timely and relevant topics on audits of governments, not‐for‐profit organizations, higher education institutions, and other tax‐exempt entities. These sessions have been presented by representatives from the AICPA, the GASB, the Financial Accounting Standards Board (FASB), the (GAO), and other standard‐setting institutions. Our Energy and Utility Services Practice requires at least 16 hours of industry‐specific training annually, as well as the required industry reading. Training and Development Topics Annual A-133 Audit Technical Update Internal Controls Annual FASB Update International Operations, Taxes & Investments Annual GASB Update IRS Form 990 Changes and Amendments Annual Yellow Book Update National Single Audit Sampling Project Auditing Alternative Investments Not-for-Profit Tax Issues Auditing Investments OMB: Single Audit Update Common Financial Reporting Deficiencies Performance Auditing Overview Compensation Reporting Project Management Consolidation for Related Entities Quality Control and GA Standards Employee Benefit Plans for Nonprofits Risk Assessment Standards Ethics Sustainability Executive Compensation UPMIFA Review and Clarification Fraud Investigation and Forensic Accounting Yellowbook Updates Proposal for Otay Water District | 16 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES The final measure of an accounting firm’s capability to deliver on its promises lies not in what is said in its proposal but in the testimony of the companies it has served. We encourage you to contact our references for feedback about the quality of service we provide and level of satisfaction. Each of these clients have been with Moss Adams for more than four years and receive similar services as those proposed to the District: Client Name / Contact Information Relevant Funds Scope of Work Reference for Imperial Irrigation District, California Greg Broeking, CFO; Ph: (760) 339-9304 Total staff hours: 500; Client since 2009  Electric Fund  Water Fund  Financial Audit  Internal Control Review  A-133 Single Audit  401(a) Audit Julie Desimone Tacoma Public Utilities Bill Gaines, Utility Director; Ph: (253) 502–8100 Total staff hours: 1,025; Client since 2003  Electric Fund  Water Fund  Sewer Fund  Solid Waste Fund  Financial statement audit  Agreed-upon procedures  Accounting training Julie Desimone Olga Darlington King County Metro Water Quality Fund Tim Aratani, Finance Manager; Ph: (206) 263-6565 Total staff hours: 800, Client since 2009  Water Fund  Financial statement audit Olga Darlington Southern California Public Power Authority, California Therese Savery, CFO; Ph: (626) 793-9364 Total staff hours: 1,100; Client since 2005  Electric Fund  Renewable Energy Fund  Natural Gas Fund  Financial audit  A-133 audit  General consulting  GASB training Julie Desimone Proposal for Otay Water District | 17 SPECIFIC AUDIT APPROACH INTEGRATED AUDIT APPROACH The District will benefit from our customized, risk‐based audit approach that emphasizes a top‐ down approach and timely and effective communication and coordination of audit activities. With dedicated and ongoing involvement from our senior‐level professionals, the audit will be planned and executed by an experienced team that understands your industry. During the audit, your Moss Adams audit partner will be in the field to review the work in progress and address any issues with management. This reduces time spent on post‐audit procedures and wrap‐up. Our emphasis on tailoring an integrated audit to focus on the areas of significant risks allows us to complete the audit in an efficient and effective manner. Our audit will include the following:  Plan the engagement based on a thorough understanding of your business risks and transactions  Communicate and coordinate activities with management based on an agreed-upon timeline  Conduct continuous audit procedures to increase efficiency and reduce the burden on your personnel at year-end  Work with management to resolve any complex accounting or reporting issues as early as possible in the audit process  Provide recommendations to management of areas for improvement Segmentation Service Segmentation Partner Senior Manager Manager Senior In-Charge Staff Total Planning 2 3 5 10 8 28 Interim & Internal Controls Testing 1 8 13 20 34 76 Substantive Testing 2 18 20 42 48 130 Reporting 1 8 12 10 5 36 Agreed-Upon Procedures 1 2 5 0 7 15 State Controller Report 1 1 5 0 8 15 Total 8 40 60 82 110 300 Proposal for Otay Water District | 18 Sampling We will select a sample of transactions in order to perform tests of your internal controls. Our sample sizes generally range from 3 walkthroughs for a low level of assurance to 75 for a high level of assurance with 3 deviations tolerated. Our most common approach for internal control testing is moderate assurance on controls with no expected deviations, which is a sample size of 18. For A‐133 control testing, we use sample sizes that allow us to achieve a low control risk assessment, usually 25 to 40 items. For substantive compliance testing, we use the same sample sizes or alternatively use stratified testing or approaches. Sampling in other areas will be dependent on the results of control testing, evidence gained through substantive analytical procedures, and our ability to use automated tools to audit balances and/or transactions. Our general audit approach is to gain as much assurance from internal controls, analytical procedures, and directed testing. Our general audit process does not include a great degree of assurance on statistical sampling, although this will be dependent on the the District’s internal controls and ability to produce financial information. Analytical Procedures As required, analytical procedures are conducted during the planning and final phases of the audit. In addition, we use analytical procedures in order to test several financial statement balances. In particular, we use analytical procedures in testing revenue and certain costs. For example, in the utility funds, we plan on evaluating your revenue and costs by customer and CCF. This is an efficient and effective means of obtaining audit evidence and providing useful feedback to management. Internal Control Assessment The main objective of this phase of testing is to assess the adequacy of the District’s internal controls including financial, operational, and general computer controls. As required, we obtain an understanding of the design and implementation of the control environment; perform risk assessment; and test control activities, information, communication, and monitoring as appropriate. The results of these tests enable us to determine the number and level of substantive tests to use. This assessment includes:  Obtain knowledge of the design and implementation of controls relevant to financial reporting and compliance with laws and regulations that have direct and material effect on determination of financial statement amounts. Proposal for Otay Water District | 19  Obtain copies of system, policy, and procedure documentation from various departments. We retain these copies in our permanent working paper files and update them annually.  Our tests of internal controls will be conducted in the most efficient manner possible and combined into the work order/utility plant section as much as possible. For example, when testing additions to utility plant, we will incorporate tests of the payroll, accounts payable, purchasing, overhead, and capitalized interest systems.  Our information technology audit specialists will evaluate general computer controls. General computer controls provide assurance that data and programs that process the data are protected from unauthorized modification and processed in accordance with management’s intentions, and that confidentiality is maintained. For a water district like Otay Water District, we would anticipate testing and obtaining some level of assurance from the following transaction cycles: cash management, customer billing and collections; disbursements and expenditures; payroll; workorder and utility plant; and budgeting and rate setting. Any significant matters relating to the internal control structure that are noted during the audit will be communicated to management and will be included in our letter of recommendations that will be provided to the board and management at the completion of our audit. Additionally, if we identify areas where controls could be strengthened or where we have seen other best practices with similar utilities, we will share these insights with management during the course of the audit. Laws and Regulations For State laws, we review the sections of the California Government Code, California Public Utilities Code, and California Administrative Code, as well as the applicable California statutes, public purchasing, local budget law, and certain other sections addressing fiscal matters. We supplement this with management inquiries and a review of internal controls in place for each program. Audit guides and practice aids from national and state accounting bodies are also reviewed. Substantive Testing The extent of substantive testing is dependent upon the results of our internal control assessment and testing. This testing includes tests of balances and/or transactions, confirmations, etc., and certain testing will be performed before year‐end to ensure that we meet your delivery expectations. Proposal for Otay Water District | 20 In an audit for a utility like Otay Water District, we typically find it is efficient and effective to complete certain substantive procedures, principally confirming balances or activity with third parties, for certain account balances like cash, investments, bonds and notes payable, revenue, and derivative instruments. Additionally, we perform other substantive procedures, such as testing subsequent‐year cash receipts and cash disbursements, to obtain evidence related to the existence and completeness of receivables, payables, and accrued balances. We would anticipate using a similar approach with Otay Water District, depending on our overall audit plan. Identification of Anticipated Potential Audit Problems Based on our previous audit experience with similar governmental audits, there may be potential problems relating to accounting consistency, record availability, other accounting audit trail difficulties, as well as resource issues. The following are a few examples: Problem 1: Delays in obtaining “Provided By Client” lists in locating source documentation, or providing adequate assistance due to personnel shortages. Solution 1: We train our personnel to always be polite and flexible in working with client personnel and to keep our management team apprised of any difficulties encountered that could potentially delay a project. Once we identify the need for additional assistance, we contact and work with the audit coordinator. Despite some delays, we have built flexibility into our schedule and have the ability to add personnel to complete the audit on time. Problem 2: Project personnel needs fluctuate from low to high levels with little notice because of unforeseen project delays. For example, the audit identifies a control weakness that requires additional research and documentation. Solution 2: We have experience where an audit area is delayed or postponed until additional support can be obtained. In these instances, we may shift work to other audit steps that were scheduled for a later date or reduce staffing levels temporarily, and then increase staffing when additional documentation is provided. To ensure quality work for each major audit area, we will assign a core management team (managers, seniors, and staff, as appropriate) to supervise, train, and provide timely review. We understand that problems may arise or project needs may change. We believe that our audit approach, hands‐on management team, internal quality control review procedures, and budget and milestone monitoring procedures allow us to properly plan and manage resources throughout each engagement to ensure that the most efficient means of contract execution are applied. Proposal for Otay Water District | 21 Management Letters It is one of our own best practices to generate a comprehensive management letter communicating certain matters of concern to your leadership team. In it, we will highlight every point unless the matter is clearly inconsequential. Among the items we typically include are best practices to follow, exceptions we encountered during our testing, deficiencies in internal control that are not reportable conditions, immaterial violations of contracts or grant agreements, immaterial abuse, and recommended areas of improvement. Proposal for Otay Water District | 22 A TIMELY WORK PLAN Audit Schedule Proposed Timing Auditor Transition Schedule to meet with your prior auditor to review their working papers. March/April 2014 Audit Planning Meet with management for pre-audit planning, and to obtain an understanding of systems, internal controls, and current-year issues. March/April 2014 Provide management with a detailed listing of items needed to perform the audit, including the timing of when items are needed. March/April 2014 Audit Fieldwork Perform interim audit fieldwork and tests of internal controls. May/June 2014 Send confirmations of cash, investment, and other accounts as deemed necessary. May/June 2014 Perform substantive audit fieldwork. August 25–29, 2014 Report Preparation Present draft of financial statements, audit report, and management letter to senior management. September 3, 2014 Issuance of auditor and agreed-upon procedures reports. October 3, 2014 Present financial statements, audit report, and management letter to the audit committee. October 20, 2014 Board Communications Present final audit report, financial statements, and management letter to the board. November 5, 2014 *This timeline is a tentative outline of the key milestones for your audit. It can be modified as appropriate to meet your needs. Proposal for Otay Water District | 23 Open, Timely, and Effective Communication Part of the value we provide to your organization is a commitment to maintaining close and regular contact with you throughout the year. We’re not once‐a‐year auditors who disappear for many months, only to return in time for the next audit. We’re a constant resource for questions and advice, with a quick response time. We want you to notice a superior level of service based on your expectations—not on our assumptions. From the initial transition to Moss Adams to routine phone calls about immediate issues of concern, we’re hands‐on partners with a bias for action. We won’t keep you waiting or wondering. Instead, we’ll take the lead in suggesting meetings with you, setting up training sessions with your internal accounting staff, and delivering presentations to management. In addition, you require proactive communications about our engagement findings. We’ll raise any issues as we find them, and not when it’s too late for you to act on them. We’ll also notify the District immediately of any emerging accounting, tax, and regulatory matters or concerns, further helping to ensure there are no surprises. Proposal for Otay Water District | 24 INSIGHTS AND RESOURCES ONLINE PUBLICATIONS Keeping you informed about changes in the financial landscape is one of our top priorities. We closely monitor regulatory agencies, participate in industry and technical forums, and write about a wide range of general as well as industry‐specific accounting, tax, and business issues. The goal? To provide you with actionable information and guidance to help your organization succeed. This information comes in three main forms:  Alert. Time-sensitive news about accounting and regulatory changes e-mailed to you.  Insight. The big picture on accounting and business topics delivered to your inbox.  Moss Adams Insights. A roundup of articles, videos, and more on our free app for iOS and Android. We also offer government‐specific newsletters: Government Finance Quarterly delivers updates on state and local government issues, webcasts, and Moss Adams–sponsored or –hosted events. WEBCASTS Continuing education is vitally important to us, and we’re happy to share our knowledge with you and your staff. We frequently offer a wide range of topical online seminars, many of which are archived and available on demand, allowing you to watch them on your schedule. Play, pause, or resume later—no log‐in required. Currently available on demand:  Fraud: The Other Fringe Benefit  Government Accounting, Auditing, and Regulatory Update  Government Pension Standards  Managing Cash Flow in a Difficult Economy Proposal for Otay Water District | 25 Visit www.mossadams.com/nfpeducation for dates and registration or for the on‐demand versions. The 2013 Government webcast series offers the following topics:  AICPA State & Local Government Audit Guide review  Annual Government A&A update  Mobile computing  Government pension standards Other topics covered in the 2012 webcast series included:  Cloud computing  Construction audits  Forensic accounting  Performance audits Seminars and Events You’ll be invited to attend a number of conferences and networking events presented by Moss Adams and distinguished guest speakers. Our events are an opportunity for you and your staff to meet our professionals, share best practices with industry peers, and earn CPE. Upcoming events: In 2013, professionals from our Government Practice have and will participate in the following events:  AICPA Governmental A&A conference  AICPA Governmental and Not-for-Profit Training Program  AICPA National Governmental A&A Update conference  American Public Power Association Business and Financial Conference  Association of Government Accountants – local chapters  GFOA annual conference Proposal for Otay Water District | 26 CONNECT WITH US We offer a variety of fast and easy ways to help you stay up to date on accounting topics, events, webcasts, and more, right from your PC, tablet, or smartphone: Like us on Facebook to stay informed about events, seminars, webcasts, and more: www.facebook.com/mossadamsllp We frequently tweet about events, regulatory changes, and more. Follow us: @Moss_Adams Connect with our firm and our people on the world’s largest professional network: www.linkedin.com/company/moss-adams-llp Get the latest insights, resources, and event announcements from Moss Adams, delivered right to your inbox: www.mossadams.com/subscribe Insights, resources, and more, available through your RSS reader: www.mossadams.com/RSS Watch educational whiteboard sessions, webcasts, and other informative videos: http://www.youtube.com/mossadamsllp Your phone may be smart, but does it have Insights? Read articles, watch videos, and more on our free app for iOS and Android: http://www.mossadams.com/app Proposal for Otay Water District | 27 EXHIBIT A PEER REVIEW Proposal for Otay Water District | 28 Peer Review Report (Cont.) Proposal for Otay Water District | 29 EXHIBIT B RFP APPENDIX C Proposal for Otay Water District | 30 RFP APPENDIX D Proposal for Otay Water District | 31 RFP APPENDIX F Proposal for Otay Water District | 32 RFP Appendix F (continued) Prepared by: Olga Darlington, Senior Manager Julie Desimone, Partner Moss Adams LLP 9665 Granite Ridge Drive, Suite 600 San Diego, CA 92123 SEALED COST SUBMITTAL Otay Water District For Professional Auditing Services Proposal for Otay Water District | November 1, 2013 Otay Water District Kevin Koeppen, Finance Manager 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978‐2004 Dear Mr. Koeppen: I, Julie Desimone, am entitled to represent the firm, empowered to submit the bid, and authorized to sign a contract with the District. Moss Adams is committed to competitive fees that are commensurate with the experience and necessary level of service described in this proposal. At all times, we want you to feel that the dollars you spend for our professional services bring you exceptional value. Our fees are based upon our assessment of the audit scope, our knowledge of the industry issues, the risks inherent in your business, and the effort required to complete a thorough audit. Based on our understanding of your service needs and the nature of your operations we have prepared the following fee estimate. The total all‐inclusive maximum price for the 2014 engagement is $48,254. We acknowledge that changing auditors can be disruptive to your staff’s routine, since a new audit team needs to spend time learning your systems. Because of this assimilation period, fees associated with the first year with a new audit firm tend to be higher than normal. We have absorbed the first‐ year start‐up costs of our fee estimate. Thank you for your consideration. Sincerely, Olga Darlington, CPA, Senior Manager Julie Desimone, CPA, Partner For Moss Adams LLP For Moss Adams LLP 425‐551‐5712 503‐478‐2101 Olga.Darlington@mossadams.com Julie.Desimone@mossadams.com Proposal for Otay Water District | 2 RATES BY PARTNER, SPECIALIST, AND SUPERVISORY STAFF SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014, FINANCIAL STATEMENTS GENERAL PURPOSE FINANCIAL STATEMENTS, AGREED‐UPON PROCEDURES & CAFR REVIEW Hours Standard Hourly Rates Quoted Hourly Rates Total Partner 7 425 288 2,016 Senior Manager 39 335 228 8,892 Manager 55 250 170 9,350 Senior 82 185 125 10,250 Staff 102 160 108 11,016 Subtotal 285 $41,524 SUPPORTING SCHEDULE FOR STATE CONTROLLER’S REPORT Hours Standard Hourly Rates Quoted Hourly Rates Total Partner 1 425 288 288 Senior Manager 1 335 228 228 Manager 5 250 170 850 Staff 8 160 108 864 Subtotal 15 $2,230 Any costs incurred by us to become acquainted with the systems, records, and procedures will be borne by Moss Adams because we consider these costs to be an investment in our clients. Out‐of‐Pocket Expenses: Estimated not‐to‐exceed $4,500 Meals and lodging: Most of the audit team will be coming from our San Diego office, so we will have limited lodging costs. Transportation: Most of the audit team will be coming from our San Diego office, so the transportation costs will be limited to mileage and parking. Other (specify): Our out‐of‐pocket expenses are billed using per diem rates. Proposal for Otay Water District | 3 ADDITIONAL INFORMATION Year Round Service Part of the value we provide to your business is a commitment to maintaining close and regular contact with you throughout the year. We’re not once‐a‐year auditors who disappear for many months, only to return in time for the next audit. We’re a constant resource for questions and advice, with a quick response time. Our policy is to not charge for short telephone calls seeking miscellaneous advice, unless those consultations require significant additional work or research. If a matter requires further follow‐up, we will discuss a fee estimate with you before incurring significant time. Our fee also includes board presentations. Subject The Details Client Acceptance Procedures The scope of work and fee quotes are subject to our client acceptance process, which 1) verifies that all parties understand the specific services we are being asked to perform, 2) ensures contract terms are acceptable to both parties and in agreement with professional standards, and 3) confirms that we have staffed the engagement with individuals qualified with the necessary experience to fulfill our commitments to our prospective client. Cost Overruns During the course of the audit, we will measure our progress against our planned budget. If situations arise that are significantly different than our expectations, we will bring them to your attention immediately and discuss various options before we proceed. We meet weekly during the course of fieldwork with the appropriate parties to ensure there are open lines of communication between our organizations. Progress Billing Progress billings are based on hours and expenses completed at the time of billing. Bills are due upon receipt. A one-percent finance charge accrues monthly for accounts over 30 days. Routine Phone Calls and E-mails Our policy is to not charge for short telephone calls seeking miscellaneous advice, unless those consultations require significant additional work or research. If a matter requires further follow-up, we will discuss a fee estimate with you before incurring significant time. Minor Research and Consultation If we are requested to provide minor research or consultation service, we will estimate the number of hours necessary to provide the requested services. We will then provide a fee quote for your approval before commencing any work. Our fees for these services are generally at our standard billing rates. This Proposal is contingent upon completion of the Moss Adams new client acceptance process, satisfaction of applicable professional standards (including SAS 84 communications with the prior auditors), and negotiation of a mutually acceptable contract. We have successfully signed professional services agreements with thousands of clients, including many public utility districts, and we commit to issuing an engagement agreement on a timely basis should we be awarded this contract. Proposal for Otay Water District | 4 APPENDIX E Proposal for Otay Water District | 5 OTAY WATER DISTRICT PROPOSAL TO PERFORM ANNUAL AUDITS November 4, 2013 Proposal to Perform Annual Audits for the OTAY WATER DISTRICT Submitted by: Contact – Richard A. Teaman, CPA 4201 Brockton Avenue, Suite 100 Riverside, California 92501 Telephone No. (951) 274-9500 E-mail: rteaman@trscpas.com November 4, 2013 TABLE OF CONTENTS Page Number Letter of Transmittal 1 - 2 Firm Profile 3 License and Independence 3 Participation in Peer Review Program 4 Range of Activities 4 Audit Staff Technical Qualifications and Experience 4 - 5 Prior Engagements with the Otay Water District 5 Current Municipal Audit Clients and References 5 - 10 Single Audits 10 GFOA Award Programs for Financial Statements 11 Audit Approach 11 - 15 Scope of Services 16 Identification of Anticipated Potential Audit Problems 16 Appendix A - Peer Review Report 17 Appendix B - Audit Team Resumes 18 - 22 Appendix C – Proposer Guarantees 23 Appendix D – Proposer Warranties 24 OTAY WATER DISTRICT 3 Firm Profile Teaman, Ramirez & Smith, Inc., founded in approximately 1929, has specialized in auditing governmental agencies in excess of eighty years. The firm’s audit partners have over 35 years of combined experience auditing California governments. The firm is a local firm based in Riverside, California and totals thirty people, including 3 partners. The government audit staff consists of eight members who devote approximately 80% of their time to government audits. Our goal is to maintain continuity of staff throughout the audit contract. The audit for the District will be conducted by the following full-time audit staff: 1 - Municipal Audit Partner 1 - Municipal Audit Manager 1 - Municipal Audit Senior Accountant 2 - Municipal Staff Accountants License and Independence Our firm, all partners and key professional staff are licensed by the California State Board of Accountancy to practice in the State of California. Our firm is independent of the Otay Water District and its component units in accordance with generally accepted auditing standards as promulgated by Rule 101 of the American Institute of Certified Public Accountants Code of Professional Ethics, generally accepted government auditing standards promulgated by the U.S. General Accounting Office (GAO), and the rules of the California State Board of Accountancy and Accounting Oversight Board. We will provide the District with written notice of any professional relationships entered into during the period of our engagement that may impair our independence. We have not had any professional relationships involving the Otay Water District for the past five years. We will provide the District with written notice of any professional relationships entered into during the period of our engagement that may impair our independence, if necessary. As part of the firm’s quality control system, the firm maintains a library which contains the authoritative rules on independence. All professional employees are required to review the firm’s client list and sign a representation letter annually that acknowledges their familiarity and compliance with the firm’s independence, integrity and objectivity policies and procedures. New clients are announced periodically as new clients are obtained. OTAY WATER DISTRICT 4 Participation in Peer Review Program Our firm underwent peer reviews by the American Institute of Certified Public Accountants in July 1990, August 1993, June 1996, July 1999, June 2002, June 2005, August 2008, and November 2011, and the State Controller’s Office in August 1990 and received unqualified opinions on each review, which included reviews of specific government engagements. There have been no disciplinary or regulatory actions taken against our firm. A copy of our most recent peer review report is included in Appendix A. Range of Activities The firm's range of activities, besides municipal audits, includes commercial audits, reviews, compilations, fraud examinations, financial services, all types of tax returns and tax planning, accounting systems assistance, and management advisory services. In addition, over the years, our firm has advised local governments on various issues including real estate transactions, self-insurance reserves, bond issues and the implementation of new accounting standards. We compiled financial statements for 22 assessment districts and community facilities districts for the County of Riverside during the late 1990s and early 2000 years. Our firm has advised many local governments on various issues, including the implementation of new accounting pronouncements, along with a variety of other services, including the following:  Agreed upon procedure engagements relating to dissolution of RDA’s.  Special agreed upon procedures engagements relating to golf course receipts and other activities.  Audit of contract refuse hauler companies seeking rate increases.  Special gross receipts audits for compliance with City business license tax.  Special audits of motels and hotels for compliance with payment of transient occupancy tax.  Assistance with payroll tax related matters.  Assistance with recording activities resulting from the issuance of bonds.  Preparation of appropriations limit resolutions and documentation relative to Government Code Section 7902 (a) and 7910.  Preparation of street reports, and various State Controller’s Reports.  Internal Control evaluations and recommendations, assistance with fraud prevention programs. Audit Staff Technical Qualifications and Experience We plan to provide continuity of audit staff from year to year, which is in the best interest of the District and is most efficient from our firm’s perspective. Additionally, the audit partner assigned to this engagement is a working partner and therefore will be involved with much of the engagement each year. OTAY WATER DISTRICT 5 The audit staff represents highly trained government auditors. While staff training is a continual process, because of our high level of audit supervision, we avoid putting our clients in a position of having to “train” the auditors. All audit staff are required to complete at least 80 hours of continuing education every 2 years, with a majority of these hours relating specifically to government accounting and auditing subjects. Continuing education requirements are met through classes put on by professional organizations, such as the CSCPA, GFOA, the AICPA, along with an intensive in-house training program devoted to government accounting and auditing subjects. Resumes for the key individuals serving your District are included at Appendix B. Prior Engagements with the Otay Water District Although not currently under contract, we have been the District’s auditor in the past. We have not had any professional relationships involving the Otay Water District for the past five years. We will provide the District with written notice of any professional relationships entered into during the period of our engagement that may impair our independence, if necessary. Current Municipal Audit Clients and References The Otay Water District understandably desires that its auditors have proven experience, in-depth knowledge and technical expertise in dealing with the unique issues facing governmental entities. Our practice has been active in the audit of governmental entities for over 80 years. The following is a partial list of current municipal audit clients: City of Adelanto Town of Apple Valley* Apple Valley Redevelopment Agency City of Banning* City of Buena Park*@ Banning Redevelopment Agency Banning Transit System City of Big Bear Lake* Big Bear Lake Fire Protection District Big Bear Lake Improvement Agency City of Blythe*# Blythe Financing Authority# Blythe Redevelopment Agency City of Capitola@ Capitola Redevelopment Agency Carpinteria Sanitary District# Central Basin Municipal Water District*@ Channel Islands Beach Community Services District# City of Chino* Chino Redevelopment Agency Citrus Pest Control District No. 2# City of Coachella* Coachella Fire Protection District Coachella Redevelopment Agency Coachella Sanitary District Coachella Valley Association of Governments Coachella Valley Joint Powers Insurance Authority Coachella Valley Mosquito and Vector Control District Coachella Valley Public Cemetery District# Coachella Valley Recreation and Park District Coachella Valley Resource Conservation District Coachella Water Authority City of Colton* OTAY WATER DISTRICT 6 Colton Redevelopment Agency City of Corona*@ City of Corona Dial-A-Ride Fund Corona Parking Authority Corona Redevelopment Agency Cove Communities Public Safety Commission City of Dana Point*@ City of Desert Hot Springs Desert Hot Springs Redevelopment Agency Desert Resorts Regional Airport Authority City of Diamond Bar* City of Eastvale@# East Valley Resource Conservation District City of El Segundo*@ Elsinore Valley Municipal Water District*@ Encina Wastewater Authority@ City of Escondido*@ Escondido Community Development Commission Fern Valley Water District# City of Galt@ Galt Redevelopment Agency Goleta Sanitary District City of Grand Terrace* Grand Terrace Redevelopment Agency City of Hemet*@ Hemet Redevelopment Agency City of Highland Home Gardens Sanitary District Idyllwild Water District City of Indian Wells Indian Wells Redevelopment Agency City of Indio* Indio Civic Center Authority Indio Public Financing Authority Indio Redevelopment Agency Inland Empire West Resource Conservation District* City of King City* King City Redevelopment Agency City of Lake Elsinore*@ Lake Elsinore Public Financing Authority Lake Elsinore Recreation Authority Lake Elsinore Redevelopment Agency Lake Elsinore Transit System City of La Puente*@ La Puente Redevelopment Agency Lee Lake Water District City of Loma Linda* Loma Linda Redevelopment Agency Mammoth Community Water District# March Inland Port Airport Authority# March Joint Powers Authority*# March Joint Powers – Caretaker March Joint Powers Redevelopment Agency March Joint Powers Utility Authority# Mojave Desert and Mountain Integrated Waste Management Authority City of Moorpark*@ Moorpark Redevelopment Agency City of Murrieta*@ City of Needles* Needles Public Financing Authority Needles Redevelopment Agency Newhall County Water District City of Norco OMNITRANS City of Ontario* Ontario Industrial Development Authority Ontario Redevelopment Agency Ontario Redevelopment Financing Authority Otay Water District@ City of Palm Desert* Palm Desert Redevelopment Agency Palm Springs Civic Center Authority Palo Verde Cemetery District Palos Verdes Peninsula Transit Authority Palos Verde Valley Transit Agency City of Perris*#@ Perris Housing Authority# Perris Joint Powers Authority# Perris Public Financing Authority# Perris Redevelopment Agency Perris Utility Authority# Pine Cove Water District Pinyon Pines County Water District City of Rancho Mirage*@ Rancho Mirage Redevelopment Agency Rancho Mirage Transit Fund City of Riverside*@ Riverside Redevelopment Agency County of Riverside* OTAY WATER DISTRICT 7 Riverside Civic Center Authority Riverside County A.D.s 159 & 161 Riverside County Asset Forfeiture Accounts Riverside County C.F.D.s 88-8 & 87-1 Riverside County Desert Judicial District Riverside County Economic Development Agency (RDA & Successor to RDA) # Riverside County Flood Control & Water Conservation District#@ Riverside County Habitat Conservation Agency Riverside County Judicial District Riverside County Money Purchase Pension Plan Riverside County Regional Park & Open Spaces District Riverside County Sheriff's Department Asset Forfeiture Accounts Riverside County Transportation Commission Riverside Parking Authority Riverside - San Bernardino Housing & Finance Agency Riverside Transit Agency* Riverside Transit Fund Running Springs Water District City of San Bernardino* San Bernardino Associated Governments San Bernardino County-Chino Civic Center Authority San Bernardino County-Needles Public Facilities Authority City of San Jacinto* San Jacinto Redevelopment Agency San Jacinto Mountain Area Water Study Agency* City of Santa Paula*@ Santa Paula Redevelopment Agency City of Santee*@# Santee Public Finance Authority# Saticoy Sanitary District City of Solvang@ City of South El Monte* South Orange County Wastewater Authority Southern Coachella Valley Community Services District# Sunline Transit Agency* City of Tehachapi* Tehachapi-Cummings County Water District@ Thermal Sanitary District Triunfo Sanitation District@ City of Twentynine Palms@ Twentynine Palms Water District Valley Sanitary District Van Horn Regional Treatment Facility Ventura Regional Sanitation District@ Victor Valley Economic Development Authority Victor Valley Wastewater Reclamation Authority* Water Replenishment District of Southern California West Valley Vector Control District Western Municipal Water District City of Yucaipa* Town of Yucca Valley*@ Yucca Valley Community Center Authority Yucca Valley Financing Authority Yucca Valley Redevelopment Agency * - Single Audit Procedures Performed (in accordance with OMB Circular A-133) # - Current Clients @ - Participated in CSMFO and/or GFOA award programs OTAY WATER DISTRICT 8 The following are audit client references for which similar services have been provided: 1) Ron Carr, Finance Director City of Perris (951) 943-2906 101 North D Street Perris, California 92570 Engagement partner: Rich Teaman Total Hours: Approx. 1200/year a. The City of Perris incorporated in 1911 as a General Law City and provides the following services: general administrative services, public safety (police and fire), highways and streets, culture-recreation, community development (planning, building, zoning), water, sewer and sanitation. Our firm conducted the annual audit of the City of Perris for the years ended June 30, 1998 through 2013 (including Single Audit in each of those years except 2005, 2006 & 2007), and provided assistance with the State Controller's Report preparation, Street Report preparation, implementation of GASB 34, conversion to a full CAFR format, assistance in obtaining the GFOA and CSMFO awards of excellence in financial reporting and other areas as requested by the City. b. The Perris Redevelopment Agency consisted of three project areas and annual expenditures of approximately $15 million. We performed the audit of the Agency for the years ended June 30, 1998 through 2011 including preparation of the Annual Report of Financial Transactions to the State Controller (State Controller's Report), Statement of Indebtedness preparation, implementation of GASB 34 and performance of agreed upon procedures engagements relating to the transfer to the successor agency. We audited the Successor Agency as part of the City upon dissolution of the RDA in January 2012 and for June 30, 2013. c. We have audited the Perris. Public Financing Authority since 1998. Our services included preparation of the Annual Report of Financial Transactions to the State Controller (State Controller's Report) and implementation of GASB 34. d. We have audited the Perris Utility Authority since 2009. Our services included preparation of the Annual Report of Financial Transactions to the State Controller (State Controller's Report) and implementation of GASB 34. e. We have audited the Perris Housing Authority for 2013, the year of its creation. Our services included preparation of the Annual Report of Financial Transactions to the State Controller (State Controller's Report) and implementation of GASB 34. OTAY WATER DISTRICT 9 f. We have audited the Perris Joint Powers Authority for 2013, the year of its creation. Our services included preparation of the Annual Report of Financial Transactions to the State Controller (State Controller's Report) and implementation of GASB 34. 2) Peggy Sanchez, Fiscal Manager Successor Agency to Riverside County Redevelopment Agency (951) 955-8916 4080 Lemon Street, 4th Floor Riverside, California 92501 Engagement Partner: Rich Teaman Total Hours: Approx. 260/year The Redevelopment Agency for the County of Riverside was formed under Section 33,000 ET. Seq. of the Health and Safety Code and consists of five separate project areas. The Agency assisted the County in elimination blight from designated areas and attempts to achieve desired development, reconstruction and rehabilitation including but not limited to: residential, commercial, industrial and retail. Our firm conducted the annual audit for the Agency for the years ended June 30, 1992 through January 31, 2012. Our services included assistance with the recording of certain bond issues and performance of agreed upon procedures engagements relating to the transfer to the successor agency. We have been contracted to perform an audit of the separate financial statements of the successor agency for June 30, 2013. 3) Mammoth Community Water District Sandra Hageman, Finance Manager (760) 934-2596 1315 Meridian Blvd Mammoth Lakes, CA 93546 Engagement Partner: Rich Teaman Total Hours: Approx. 320/year The Mammoth Community Water District was formed in 1957 for the purpose of providing water distribution services as well as wastewater collection and treatment facilities for the residents and businesses of the Mammoth Lakes area, serving more than 2,500 customers. Our firm conducted the annual audit for the District for the years ended March 31, 2005 through March 31, 2013. Our services included assistance in preparing the State Controller’s report and an appropriations review report. OTAY WATER DISTRICT 10 4) Fern Valley Water District Jessica Priefer, Accounting Manager (951) 659-2200 55790 South Circle Idyllwild, CA 92549 Engagement Partner: Rich Teaman Total Hours: Approx. 85/year The Fern Valley Water District was formed in 1958 under section 30,000 et. Seq. of the Water Code for the purpose of providing water and water treatment to the Idyllwild service area, serving more than 3,000 customers. Our firm conducted the annual audit for the District for the years ended June 30, 2004 through June 30, 2013. Our services included assistance in preparing the State Controller’s report and an appropriations review report. 5) Hamid Hosseini, Finance Director Carpinteria Sanitary District (805) 684-7214 5300 Sixth Street Carpinteria, California 93013 Engagement Partner: Rich Teaman Total Hours: Approx. 115/year The Carpinteria Sanitary District was formed in April 1928, for the purpose of operation and maintenance of sewer collection, transmission and treatment facilities serving the southern part of Santa Barbara County. Our firm conducted the annual audit for the District for the years ended June 30, 2006 through June 30, 2013. Our services included assistance in preparing the State Controller’s report, assistance in obtaining the GFOA award of excellence in financial reporting and an appropriations review report. Single Audits (in accordance with OMB Circular A-133) As indicated in the above list of clients, our firm performs single audits in accordance with OMB Circular A-133 for several clients each year. In addition to the above list, our firm has performed single audits for numerous other clients, involving many different federal programs. The Partner in charge of the District’s audits has 30 years of experience performing single audits. We will take into account the “ARRA” Single Audit requirements during our audit. OTAY WATER DISTRICT 11 GFOA Award Program for Financial Statements Our firm has been providing assistance to California governments in obtaining the GFOA and/or CSMFO awards for financial reporting for many years. We have helped various governments obtain the awards for the first time, and in addressing comments from previous years. We would be glad to assist the District in obtaining the GFOA award, if desired. To date, all of our clients’ attempts to obtain these awards have been successful. Audit Approach The engagement partner is a working partner and will be involved in much of the audit. He will assume overall responsibility for services provided to the District and its component units. He will also serve as a technical consultant to the Finance Department. He will provide overall guidance to the audit staff. The engagement partner will be responsible for the primary portion of the field audit, including preparation of all audit reports. The senior accountant and staff accountants will perform audit field work under the supervision of the manager and engagement partner. Our past experience, relating to our approach to the audits, has indicated that the most important service that can be rendered to clients is to be available at all times during the year. This approach allows the clients the opportunity to consult with the auditors about technical problems and alternative approaches to accounting issues that arise during the year. We take a customized approach to each and every audit. We will apply the recently adopted “Risk Assessment” audit standards to your audits. An overriding objective throughout the planning process is the identification of risks that should be assessed as to whether they could result in material misstatement of the financial statements. We perform risk assessment procedures to provide a satisfactory basis for the assessment of risks at the financial statement and relevant assertion levels. Obtaining an in-depth understanding of the entity and its environment, including its internal control, is an essential aspect of the consideration of risk. We use a variety of risk assessment procedures when obtaining this understanding, including observation and inspection (walkthroughs), and inquiries of management and others, discussions among the engagement team, and preliminary analytical procedures. Some aspects of the risk assessment procedures can only be determined after information is gathered about the entity and its environment; and therefore, we tailor our procedures in response to the information gathered. The results of our risk assessment determine of the nature, timing, and extent of further audit procedures to be performed in response to those risks. Additionally, we have incorporated SAS (Statement on Auditing Standard) No. 99, Consideration of Fraud in a Financial Statement Audit, into our audit process. As a result, we will specifically: 1) evaluate whether programs and controls address identified fraud risks and whether the controls are suitably designed and placed in operation and; 2) assess the fraud risks, taking into account our evaluation, to OTAY WATER DISTRICT 12 determine whether an audit response is required. As part of this assessment we will discuss how fraud could possibly occur and be prevented with various District personnel. Additionally, we will examine adjusting journal entries as part of our assessment. Under SAS 99 we are required to review and assess the District’s operations with regard to fraud. Realizing the sensitivity of such a subject, we will conduct our procedures in such a way as to not cause alarm. We will take the time to explain the reasoning of why we are asking such questions and that they are not meant to be accusatory but rather are necessary for us to complete our assignment. This requirement applies to all financial statement auditors but we believe our communicative approach is superior to others. Our sampling methods are designed to provide the most coverage possible without expending excess time where impractical. We also concentrate efforts towards those areas known to be susceptible to error. Sample sizes will depend upon our preliminary assessment of control risk and the extent of our planned substantive tests and analytical procedures. Shortly after our appointment as auditors, we will schedule a preaudit planning meeting during which we will discuss any special concerns, needs and the timing of the audit with appropriate members of the District’s staff. We will also schedule audit progress meetings and an exit conference with the appropriate District staff during our engagement to discuss any findings and issues we encountered during the audit. All of our recommendations will be discussed with appropriate personnel in a timely manner. Drafts of all financial reports and management letters will be submitted prior to the issuance of final reports. We are aware of the amount of additional work and inconvenience the annual audit brings to the District’s staff. However, we feel our service approach, and the experience level of the Partner and staff assigned to your audit, will eliminate many of the common problems experienced during an audit, such as:  recommendations made without a thorough understanding of the feasibility of the recommendation;  “year-end surprises;”  new and inexperienced audit staff each year, without adequate supervision. The fieldwork will normally be coordinated with District staff and begin as soon as the District’s books and records are in auditable form. This normally takes place in two stages. Each year we will update our knowledge of your major internal accounting control systems and test such systems (risk assessment). At the same time, District staff will be interviewed in order to assist in resolving any shortcomings before performing the field work portion of the audit. This generally is completed prior to year-end and often leads to worthwhile suggestions for improving internal controls as well as the efficiency and effectiveness of accounting operations and procedures. All of our recommendations will be discussed OTAY WATER DISTRICT 13 with appropriate District personnel in a timely manner, and if appropriate, in a formal written management letter at the conclusion of the audit. In addition, we will complete as much of the single audit compliance, if applicable, in this stage of the audit. We will review the minutes of the District Board meetings during both stages of the audit. We use models based on statistical sampling theories to help determine sample sizes using nonstatistical sampling methods as necessary for our substantive tests of balances and transactions, tests of controls and tests of compliance. The objective of tests of compliance is to determine whether an organization has complied with laws and regulations that may have a material effect on each major program. Therefore, we select samples that will provide sufficient evidence for that purpose. After defining the population, we determine sample sizes and select samples from each major program. Factors that may affect the sample sizes include the following: a) The amount of expenditures for the program and the individual awards; b) The newness of the program or changes in its conditions; c) Prior experience with the program, particularly as revealed in audits and other evaluations; d) The extent to which the program is carried out through subreceipients; e) The level to which the program is already subject to program reviews or other forms of independent oversight; f) The adequacy of controls for ensuring compliance; g) The expectation of adherence or lack of adherence to the applicable laws and regulations; and h) The potential impact of adverse findings. The audit team will have laptop computers onsite during the audit fieldwork utilizing state-of-the-art software. We utilize programs such as Microsoft Excel, CS Engagement, Checkpoint and Firm Flow to assist in our audit procedures and provide for greater efficiency and effectiveness. All audit staff have significant experience working with many various accounting systems in our government audits. Analytical procedures will be performed in the planning stage of the audit (risk assessment process) and in our substantive testing, based on the results of our risk assessment. These procedures will include comparing account balances to the prior year and to the current period’s budget, and consideration of expected relationships among the accounts and periods. Analytical procedures will also be performed in the overall review stage of the audit. OTAY WATER DISTRICT 14 Our audit approach recognizes the importance of laws and regulations in planning the audit of a local governmental entity. As a part of the audit, our firm obtains an understanding of those laws and regulations that have a direct and material effect on the determination of financial statement amounts. We then design the audit to provide reasonable assurance of detecting material instances of noncompliance. We obtain our understanding of applicable laws and regulations by becoming familiar with the following: The terms and provisions of grant agreements and contracts. State and federal restrictions affecting funding received by the District; i.e., gas tax law, etc. The Municipal Code of the District. State laws regarding authorized investments, spending limits, debt limits, etc. District policies regarding investments, purchasing, budgets, and the establishment of funds. Bond covenants of outstanding issues. Personnel Policies adopted by the District. Other laws and regulations as appropriate in the circumstances. Our review of the internal control will be by questionnaire and procedural write-up of your accounting system. Each of the approaches requires inquiry and observation of District personnel and operations. We will also utilize the District’s budget, organizational charts, financial reports, policies and procedures, and other applicable documents. Comments and recommendations relating to the accounting system will be discussed with appropriate District personnel and where appropriate they may be included in our reports. Our recommendations will be directed at safeguarding District assets, improving the effectiveness of District procedures, and improving the reporting of financial information, as applicable. The second stage of the audit is primarily concerned with auditing the final numbers and disclosures that will appear in the District’s financial statements and will begin as soon as the District’s books and records are ready for audit. Drafts of all financial reports and management letters will be submitted prior to the issuance of final reports. We have a proven track record of delivering reports on time. Each year we will initiate an exit conference to discuss any suggestions, which either of us may have for improving the conduct of the annual audit process, management letters, or any other matters of interest. Throughout the year we are always available for meetings or discussions in order to meet your needs. Findings and reports shall be kept confidential and reported only to the District. OTAY WATER DISTRICT 15 In the event that any irregularity in records indicates the District may have suffered or will suffer a monetary loss, we will report such loss to the appropriate District personnel immediately upon discovery in the form of a written report. Responses to District notifications will be prompt and all reports will be remitted in a timely manner to meet your needs. We make it a practice to be proactive in providing guidance and assistance to our audit clients throughout each fiscal year to ensure proper and timely implementation of new and significant accounting pronouncements, and also with laws and regulations. The following includes the proposed segmentation of the audit engagement, and the level of staff involved for each segment: Level of Estimated Description Staff Hours Preaudit planning with District staff. Detail audit plan provided. Partner, Senior 4 Entrance conferences and auditors perform interim audit procedures, including Single Audit procedures. Partner, Senior, Staff 143 Progress conference (interim work complete). Partner, Senior 2 Auditors mail all necessary audit confirmations. Senior, Staff 4 District Staff provides trial balances and supporting schedules for audit. Auditors commence final examination procedures. Partner, Senior, Staff 168 Exit conference where auditors propose AJE’s and discuss internal control and compliance findings from the audit, as applicable. Partner, Senior 1 Auditors prepare draft financial statements and reports, including single audit and management letter. Partner, Manager, Senior, Staff 50 District staff reviews draft financial statements and reports provided by auditors. Applicable District Staff N/A All reports are finalized and submitted. Partner, Senior 8 Presentations to Audit Committee and BOD Partner 4 Assistance expected from District staff will include providing us with documents and information included in our comprehensive request list provided at the start of the audit process, answering operational and procedural type questions, and preparing confirmation letters. OTAY WATER DISTRICT 16 Scope of Services The scope of the audits will be to perform the audits in accordance with generally accepted auditing standards; the A.I.C.P.A. industry audit guide, Audits of State and Local Governmental Units, as amended; the Government Finance Officers Publication, Governmental Accounting, Auditing and Financial Reporting, as amended; the standards for financial audits contained in the U.S. General Accounting Office publication Government Auditing Standards, the Single Audit Act, as amended, and the Office of Management and Budget Circular A-133, applicable State Audit Guides, as applicable to the issuance of the reports listed in the RFP. The engagement will include assistance with the preparation of Annual Report of Financial Transactions to the State Controller and a report on Applying Agreed Upon Procedures in relation to the District’s Investment Policy. Identification of Anticipated Potential Audit Problems We do not anticipate any significant audit problems for this engagement, other than the extra work normally required for a first-year audit in obtaining applicable documents and information. We will provide a detailed request list early in the audit process to ensure the audit progresses in a timely manner. Should any other issues arise, we will discuss them with appropriate District staff at that time. APPENDIX A APPENDIX B 18 AUDIT TEAM RESUMES Richard A. Teaman, CPA, CGFM, CGMA, Audit Partner Rich Teaman has thirty years’ experience auditing California organizations. He is a member of the American Institute of Certified Public Accountants, the Association of Government Accountants, the California Society of Municipal Finance Officers, the California Society of Certified Public Accountants (CSCPA), California Special Districts Association, the Government Finance Officers Association, the Association of Local Government Auditors, the Association of Certified Fraud Examiners and was the chairman of the Governmental Accounting and Auditing Committee of the Citrus Belt Chapter (now the Inland Empire Chapter) of the California Society of Certified Public Accountants from 1991 to April 1997. He was the chairman of the Governmental Accounting and Auditing committee of the California Society of Certified Public Accountants at the state level from 2004 to 2006. He was the Co-Chairman of the California Committee on Municipal Accounting (a joint committee of representatives of the League of California Cities and the California Society of Certified Public Accountants) from 2006 to 2009. He was part of a five-person final review board that evaluated financial statements under the California Award Program of the Professional and Technical Standards Committee of CSMFO and, as such, was responsible for the revision of the reviewer’s checklist from 1993 to 1996. He was also the President for the Citrus Belt Chapter of the California Society of Certified Public Accountant for the 1999-00 fiscal year, Vice President during the 1997-98 and 1998-99 fiscal years, Treasurer during the 1996-97 fiscal year and Board Member during the 1995-96 fiscal year. Mr. Teaman is also an instructor for our in-house continuing education program and has been an instructor for the California Society of Certified Public Accountants. Mr. Teaman received his Bachelor of Science Degree in Business Administration with a concentration in Accounting from California State University, San Bernardino. He is currently licensed to practice as a CPA in California. Mr. Teaman’s governmental auditing experience includes the following cities, redevelopment agencies and special districts: Client Name City of Banning* Fiscal Year(s) 94-95 thru 96-97 Client Name Mammoth Community Water District Fiscal Year(s) 04-05 thru 12-13Banning Redevelopment Agency 94-95 thru 96-97 March Inland Port Airport Authority 97-98 thru 11-12 City of Big Bear Lake* 83-84 thru 89-90 March Joint Powers Authority 94-95 thru 12-13 Big Bear Lake Fire Protection District 83-84 thru 89-90 March Joint Powers – Caretaker 96-97 thru 04-05 Big Bear Lake Improvement Agency 83-84 thru 89-90 March Joint Powers – RDA 96-97 thru 11-12 City of Blythe 92-93 thru 11-13 March Joint Powers Utility Authority 03-04 thru 12-13 Blythe Public Finance Authority 97-98 thru 11-13 City of Needles* 88-89 thru 92-93 Blythe Redevelopment Agency 92-93 thru 11-12 Needles Public Financing Authority 91-92 thru 92-93 Carpinteria Sanitary District 05-06 thru 12-13 Needles Redevelopment Agency 88-89 thru 92-93 Channel Islands Beach Community Services District 00-01 thru 11-13 City of Ontario* Ontario Redevelopment Agency 94-95 thru 96-97 94-95 thru 96-97 Citrus Pest Control District 98-99 thru 12-13 Ontario Redevelopment Financing City of Coachella* 06-07 and 07-08 Authority 94-95 thru 96-97 19 Coachella Fire Protection District 06-07 and 07-08 Otay Water District 03-04 thru 07-08 Coachella Redevelopment Agency 06-07 and 07-08 City of Palm Desert* 84-85 thru 90-91 Coachella Sanitary District 06-07 and 07-08 Palm Desert Redevelopment Agency 84-85 thru 90-91 Coachella Water Authority 06-07 and 07-08 Palm Springs Civic Center Authority 84-85 thru 88-89 Coachella Valley Association of Governments 83-84 thru 87-88 Palo Verde Cemetery District Palos Verdes Peninsula Transit Authority 02-03 thru 06-07 92-93 thru 93-94 Coachella Valley Joint Powers Insurance Authority 85-86 thru 88-89 City of Perris Perris Housing Authority 97-98 thru 12-13 12-13 Coachella Valley Mosquito Abatement District 84-85 thru 92-93 Perris Joint Powers Authority Perris Public Financing Authority 12-13 97-98 thru 12-13 Coachella Valley Mosquito and Vector Control District 96-97 thru 97-98 Perris Redevelopment Agency Perris Utility Authority 97-98 thru 11-12 08-09 thru 12-13 Coachella Valley Public Cemetery District 93-94 thru 06-07 Perris Valley Cemetery District Pine Cove Water District 08-09 thru 12-13 83-84 thru 07-08 Coachella Valley Recreation and Park District* 84-85 thru 90-91 City of Rancho Mirage* Rancho Mirage Parkview Villas 88-89 thru 90-91 90-91 thru 94-95 City of Colton* 84-85 thru 87-88 Rancho Mirage Redevelopment Agency 88-89 thru 90-91 Colton Redevelopment Agency City of Corona* 84-85 thru 87-88 83-84 thru 89-90 Retired Senior Volunteer Program City of Riverside* 1985 thru 1991 83-84 thru 86-87 Corona Redevelopment Agency City of Dana Point 83-84 thru 89-90 97-98 thru 99-00 Riverside Civic Center Authority Riverside County Desert Judicial District 96-97 thru 01-02 87-88 thru 88-89 Desert Resorts Regional Airport Authority 98-00 thru 05-06 Riverside County Flood Control & Water Conservation District 04-05 thru 07-08 & 12-13 City of Diamond Bar 89-90 thru 93-94 Riverside County Redevelopment Agency 91-92 thru 11-12 City of Eastvale & 12-13 Riverside County Judicial District 88-89 thru 89-90 East Valley Resource Conservation District 97-98 thru 99-00 Riverside County Regional Park & Open Space District 91-92 thru 07-08 City of El Sugundo Elsinore Valley Municipal Water 96-97 thru 98-99 Riverside County Transportation Commission 84-85 District 95-96 thru 02-03 Riverside Parking Authority 84-85 thru 85-86 City of Escondido Escondido Community Development 98-99 Riverside-San Bernardino Housing & Finance Agency 02-03 thru 85-86 Commission 98-99 Riverside Transit Agency* 84-85 thru 85-86 Fern Valley Water District City of Galt 02-03 thru 12-13 97-98 City of San Bernardino* San Bernardino County Chino Civic 83-84 thru 84-85 Galt Redevelopment Agency 97-98 Center Authority 84-85 thru 00-01 Goleta Sanitary District City of Grand Terrace 97-98 thru 11-12 92-93 thru 94-95 San Bernardino Associated Governments City of SanJacinto* 83-84 thru 85-86 83-84 thru 87-88 Grand Terrace Redevelopment Agency City of Hemet* Hemet Redevelopment Agency 92-93 thru 94-95 92-93 thru 94-95 84-85 thru 85-86 San Jacinto Redevelopment Agency San Jacinto Mountain Area Water Study Agency* 83-84 thru 87-88 83-84 thru 88-89 Home Gardens Sanitary District 84-85 thru 86-87 City of Santee 12-13 Idyllwild Water District 84-85 thru 88-89 Santee Public Finance Authority 12-13 City of Indian Wells 83-84 thru 86-87 City of Solvang 97-98 Indian Wells Redevelopment Agency City of Indio 83-84 thru 86-87 84-85 thru 90-91 Southern Coachella Valley Community Services District 87-88 thru 12-13 Indio Civic Center Authority Indio Redevelopment Agency 84-85 thru 88-89 84-85 thru 90-91 Successor Agency to Riverside County Redevelopment Agency 12-13 Jacqueline Cochran Regional Airport Sunline Transit Agency * 84-85 thru 87-88 Authority 03-04 thru 12-13 Twentynine Palms Water District 96-97 thru 07-08 City of Lake Elsinore* 93-94 thru 03-04 & 12-13 Valley Sanitary District Ventura Regional Sanitation District 91-92 thru 07-08 94-95 thru 00-01 Lake Elsinore Redevelopment Agency 93-94 thru 03-04 Victor Valley Wastewater Lake Elsinore Public Financing Authority 93-94 thru 03-04 & 12-13 Reclamation Authority Western Municipal Water District 89-90 thru 95-96 96-97 thru 98-99 20 Lake Elsinore Recreation Authority 96-97 thru 03-04 & 12-13 Town of Yucca Valley Yucca Valley Community Center 95-96 thru 00-01 City of Loma Linda* 83-84 thru 89-90 Authority 95-96 thru 00-01 Loma Linda Redevelopment Agency 83-84 thru 89-90 Yucca Valley Financing Authority 95-96 thru 00-01 Yucca Valley Redevelopment Agency 95-96 thru 00-01 Yuima Municipal Water District 07-08 thru 12-13 * = Single Audit Procedures performed Mr. Teaman has for the licensing period (licenses are renewed every two years) beginning September 1, 2012, 145 hours of continuing professional education (CPE) with 26 hours in government training. Included in this training were , the AICPA’s Government Audit Quality Center Annual Update, the AICPA’s class on The New Data Collection Form & Important Clearinghouse System Changes and California Society of Certified Public Accountants classes, Accounting and auditing Update, Fraud in the Governmental & Not for Profit Environments, A-133 Workshop, Employee Benefit Plans: Audit, Accounting Essentials, Audit Standards Update: Clarity Standards Overview, Governmental Accounting and Auditing Conference, Financial Statement Disclosures, Revised Auditing Standards, Audits of 401K Plans and Accounting and Auditing Conference. During the prior licensing period Mr. Teaman had 214 hours of continuing professional education (CPE) with 51 hours in governmental training. Included in this training was the GFOA Annual Governmental GAAP Update, the AICPA’s Government Audit Quality Center Annual Update, the AICPA’s Advanced Workshop; Practical Guidance for Peer Reviewers and California Society of Certified Public Accountants classes, California Fraud Case Studies, Accounting & Auditing Conference, Advanced Compilation & Review, The Basics of Accounting Analysis, Internal Control: Your #1 Defense Against Errors & Fraud, Fraud in the Government & Not For Profit Environments: What a Steal, FASB Update, The New Yellow Book: What you Need to Know, and Audit update 2012. More detailed information can be provided upon request. 21 Richard A. Gallo, Jr., Manager Mr. Gallo has eleven years of experience auditing California governmental agencies. Mr. Gallo serves as an instructor for our in-house continuing education program. Mr. Gallo received his Bachelor of Science Degree in Business Administration, with a concentration in accounting, from the University of California, Riverside. Mr. Gallo’s governmental auditing experience includes the following cities, redevelopment agencies and special districts: Client Name Fiscal Year(s)Client Name Fiscal Year(s) Apple Valley, Town of* 2002-03 Perris, City of* 2000-01 to 2012-13 Blythe, City of* 2001-02 & 2003-04 Perris Housing Authority 2012-13 to 2012-13 Perris Joint Powers Authority 2012-13 Blythe PFA, City of 2001-02 & 2003-04 Perris RDA, City of 2000-01 to 2011-12 to 2012-13 Perris PFA, City of 2000-01 to 2012-13 Blythe RDA, City of 2001-02 & 2003-04 Perris Utility Authority 2008-09 to 2012-13 to 2011-12 Perris Valley Cemetery District 2008-09 to 2009-10 Channel Islands Beach Community 2000-01, 2001-02, & Pine Cove Water District 2002-03 to 2003-04 Services District 2003-04 to 2011-13 Riverside Civic Center Authority 2000-01 to 2001-02 Chino Civic Center Authority 2000-01 Riverside City Hall Authority 2001-01 to 2001-02 Citrus Pest Control District No. 2 2003-04, 2004-05 Riverside County Economic Coachella Valley Public Cemetery Development Agency 2003-04 to 2011-12 District 2003-04 to 2006-07 Riverside County Flood & Water 2005-06 to 2007-08 Eastvale, City of 2012-13 Conservation District & 2012-13 Elsinore Valley Municipal Water Riverside County Open Space and District 2002-03 Park District 2005-06 Fern Valley Water District 2002-03 to 2011-12 San Bernardino County Library 2000-01 Goleta Sanitary District 2000-01 to 2001-02 San Jacinto Mountain Area Water Lake Elsinore, City of* 2001-02 to 2003-04 & 2012-13 Study Agency Santee, City of 2004-05 to 2005-06 2012-13 Lake Elsinore PFA, City of 2001-02 to 2003-04 & 2012-13 Santee Public Finance Authority Shafter, City of* 2012-13 2007-08 to 2009-10 Lake Elsinore RA, City of 2001-02 to 2003-04 &2012-13 Shafter Community Development Agency 2007-08 to 2009-10 Lake Elsinore RDA, City of 2001-02 to 2003-04 Shafter Joint Powers Financing Mammoth Community Water Authority 2007-08 to 2009-10 District 2004-05 to 2012-13 Solvang, City of 2002-03 March Inland Port Airport Authority 2000-01 to 2012-13 Southern Coachella Valley March Joint Powers Authority* 2000-01 to 2012-13 Community Services District 2002-03 to 2006-07 March Joint Powers Caretaker March Joint Powers RDA 2000-01 to 2001-02 2000-01 to 2010-11 Successor Agency to Riverside County Redevelopment Agency 2012-13 March Joint Powers Utility Twentynine Palms, City of* 2007-08 to 2009-10 Authority 2003-04 to 2012-13 Twentynine Palms Redevelopment Otay Water District* 2004-05 to 2007-08 Agency 2007-08 to 2009-10 Palo Verde Cemetery District 2003-04 to 2004-05 Twentynine Palms Water District 2001-02 thru 2003-04 Valley Sanitary District 2001-02 Western Municipal Water District 2000-01 Yuima Municipal Water District 2007-08 to 2012-13 * = Single Audit Procedures Performed Mr. Gallo has for the calendar year ending, as of December 31, 2012, 43 hours of CPE with 22 hours in governmental training. 22 Joshua Calhoun, Senior Accountant Joshua Calhoun has four years experience auditing governments in California. He is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants (CalCPA). Mr. Calhoun received his Bachelor of Science Degree in Business Administration with a concentration in Accounting and minor in Finance from California State University, San Bernardino. He is actively studying to be licensed to practice as a CPA in California. Mr. Calhoun’s governmental auditing experience includes the following cities, redevelopment agencies and special districts: Client Name Fiscal Year(s) Client Name Fiscal Year(s) City of Blythe* 08-09 thru 12-13 Perris Valley Cemetery District 08-09 thru 12-13 Blythe Public Financing Authority 08-09 thru 12-13 City of Perris* 08-09 thru 12-13 Blythe Redevelopment Agency 08-09 thru 11-12 Perris Redevelopment Agency 08-09 thru 11-12 Channel Islands Beach Community Service District 08-09 thru 11-12 Perris Public Financing Authority Perris Utility Authority 08-09 thru 12-13 08-09 thru 12-13 Citrus Pest Control District 12-13 Perris Valley Cemetery District 12-13 Jacqueline Cochrane Regional Airport Authority 08-09 thru 11-12 Riverside County Redevelopment Agency 08-09 thru 11-12 Fern Valley Water District 08-09 thru 12-13 City of Shafter 08-09 thru 09-10 March Joint Powers Authority 08-09 thru 10-11 Shafter Community Development March Joint Powers Redevelopment Agency 08-09 thru 10-11 Agency City of Twentynine Palms 08-09 thru 09-10 08-09 thru 09-10 March Joint Powers Utility Authority 08-09 thru 11-12 Twentynine Palms Redevelopment March Inland Port Airport Authority 08-09 thru 11-12 Agency 08-09 thru 09-10 Mammoth Community Water District 09-10 thru 10-11 Yuima Municipal Water District 08-09 thru 11-12 * = Single Audit Procedures performed Mr. Calhoun has over 205 hours of continuing professional education (CPE) with 130 hours in government training. Included in this training were the GFOA Annual Governmental GAAP Update, Accounting and Auditing with Excel updates, Audit Risk Assessment Standards, and the Governmental Accounting and Auditing Conference, and American Institute of Certified Public Accountant classes. More detailed information can be provided upon request. APPENDIX C APPENDIX D OTAY WATER DISTRICT November 4, 2013 DOLLAR COST BID 3 OTAY WATER DISTRICT SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS Standard Quoted Estimated Hourly Hourly Hours Rates Rates Total Partner 40 $ 170-250 $ 175 $ 7,000 Managers 10 121-165 130 1,300 Supervisory Staff 80 96-120 110 8,800 Staff 150 65-95 90 13,500 Subtotal 30,600 Out-of-Pocket Expenses 0 Fee Discount (8,600) Total all-inclusive maximum price for 2014 $ 22,000 4 OTAY WATER DISTRICT SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CAFR ASSISTANCE Standard Quoted Estimated Hourly Hourly Hours Rates Rates Total Partner 4 $ 170-250 $ 175 $ 700 Managers 0 121-165 130 0 Supervisory Staff 10 96-120 110 1,100 Staff 5 65-95 90 450 Subtotal 2,250 Out-of-Pocket Expenses 0 Fee Discount (750) Total all-inclusive maximum price for 2014 $ 1,500 5 OTAY WATER DISTRICT SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR SINGLE AUDIT Standard Quoted Estimated Hourly Hourly Hours Rates Rates Total Partner 4 $ 170-250 $ 175 $ 700 Managers 0 121-165 130 0 Supervisory Staff 25 96-120 110 2,750 Staff 30 65-95 90 2,700 Subtotal 6,150 Out-of-Pocket Expenses 0 Fee Discount (2,650) Total all-inclusive maximum price for 2014 $ 3,500 6 OTAY WATER DISTRICT SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR STATE CONTROLLER’S REPORT Standard Quoted Estimated Hourly Hourly Hours Rates Rates Total Partner 1 $ 170-250 $ 175 $ 175 Managers 0 121-165 130 0 Supervisory Staff 2 96-120 110 220 Staff 7 65-95 90 630 Subtotal 1,025 Out-of-Pocket Expenses 0 Fee Discount (225) Total all-inclusive maximum price for 2014 $ 800 7 OTAY WATER DISTRICT SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30, 2014 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR AUP INVESTMENTS Standard Quoted Estimated Hourly Hourly Hours Rates Rates Total Partner 1 $ 170-250 $ 175 $ 175 Managers 0 121-165 130 0 Supervisory Staff 5 96-120 110 550 Staff 10 65-95 90 900 Subtotal 1,625 Out-of-Pocket Expenses 0 Fee Discount (125) Total all-inclusive maximum price for 2014 $ 1,500 8 OTAY WATER DISTRICT DOLLAR COST BID We agree the District may broaden the scope of our engagement and we agree to hold ourselves available to perform such additional work as the District may desire. Progress billings, on the basis of hours of work completed during the course of the engagement, will be submitted. Interim billings shall cover a period not less than a calendar month. A final billing will be submitted upon delivery of all required reports. Our fees for services rendered will be based on our quoted hourly rates and actual time expended. No billings will be made for out-of-pocket expenses or any other expenses such as typing, clerical, printing or travel costs. Below is our Hourly Rate Schedule for hourly charges for professional services rendered in relation to any additional services that may be requested by the District. Most often, larger additional projects have negotiated maximums. Should you require such services, we would be pleased to discuss them with you. Staff Category Standard Hourly Rates Quoted Hourly Rates Partner $ 170 - 250 $ 175 Manager 121 - 165 130 Supervisory Staff 96 - 120 110 Professional Staff 65 - 95 90