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HomeMy WebLinkAbout12-07-21 F&A Committee Packet 1 OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS BY TELECONFERENCE 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA TUESDAY December 7, 2021 1:30 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURIS- DICTION INCLUDING AN ITEM ON TODAY'S AGENDA This meeting is being held via teleconference. Members of the public may submit their comments on agendized and non-agendized items by either of the following two meth- ods: a) If you wish to provide public comment directly - that is, live during the “Public Participation” portion of the meeting - please complete and submit a Request to Speak Form via email to BoardSecretary@otaywater.gov before the start of the meeting. Your request to speak will be acknowledged during the “Public Partic- ipation” portion of the meeting when the Board will hear your comment. When called to speak, please state your Name and the City in which you reside. You will be provided three minutes to speak. The Board is not permitted to enter in- to a dialogue with the speaker during this time. OR b) If you wish to have your comment read to the Board during the “Public Partici- pation” portion of the meeting, please email your comment to BoardSecre- tary@otaywater.gov at least thirty minutes prior to the start of the meeting, and it will be read aloud during the “Public Participation” portion of the meeting. Please provide your Name and the City in which you reside, with your com- ment. Your comment must not take more than three minutes to read. The Board is not permitted to respond to written public comment during this time. 2 The District’s meeting is live streamed. Information on how to watch and listen to the District’s meeting can be found at this link: https://otaywater.gov/board-of- directors/agenda-and-minutes/committee-meetings/ DISCUSSION ITEMS 3. REQUEST TO UPHOLD STAFF’S DECISION TO IMPOSE A $5,000 FINE FOR METER TAMPERING AT 1101 CAMINO BISCAY IN CHULA VISTA (CAREY) [5 minutes] 4. REVIEW THE FY 2022 AUDIT SERVICES PROPOSALS AND SELECT AUDIT FIRMS FOR INTERVIEWS TO BE SCHEDULED IN JANUARY 2022 (FAKHOURI) [5 minutes] 5. REVIEW OF THE FY 2021 ACTUARIAL VALUATION REPORT OF THE RETIREE HEALTHCARE BENEFITS; AND REQUEST TO APPROVE THE REDIRECTION OF THE FY 2022 BUDGETED OPEB CONTRIBUTION FROM THE CERBT OPEB FUND TO THE CALPERS PENSION FUND (FAKHOURI) [5 minutes] 6. PROVIDE COMMENTS AND INPUT ON THE CONTENT OF THE DISTRICT’S 2023 PROPOSED STATEGIC PLAN STRATEGIES AND OBJECTIVES THAT WERE DISCUSSED DURING THE OCTOBER 19, 2021, BOARD WORKSHOP (KERR) [5 minutes] 7. ADJOURNMENT BOARD MEMBERS ATTENDING: Mark Robak, Chair Jose Lopez All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available by contacting the District Secretary at (619) 670-2253. If you have any disability which would require accommodation in order to enable you to par- ticipate in this meeting, please call the District Secretary at 670-2253 at least 24 hours prior to the meeting. Certification of Posting I certify that on December 2, 2021 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 3 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on December 2, 2021. /s/ Tita Ramos-Krogman, District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 5, 2022 SUBMITTED BY: Andrea Carey, Customer Service Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Impose a $5,000 Fine for Meter Tampering GENERAL MANAGER’S RECOMMENDATION: That the Board uphold staff’s decision to impose a $5,000 fine for meter tampering at 1101 Camino Biscay in Chula Vista. COMMITTEE ACTION: See Attachment A. PURPOSE: To ensure the District continues to protect the water supply and applies violations consistent with the Code of Ordinances. ANALYSIS: On October 13, 2021, a staff member was sent out to 1101 Camino Biscay to investigate a tamper alarm transmitted by the meter’s register. During the course of the investigation, the meter box was opened and revealed a magnet attached directly to the water meter. This action can cause the meter to fail and inaccurately measure the volume of water going through, thus causing the customer to be under billed. The magnet also disables the meter to the point that it cannot be repaired or reused. AGENDA ITEM 3 2 Meter tampering is a violation of our Code of Ordinances as outlined in section 72.03C which reads “In addition to other remedies, tampering is subject to a Type II fine pursuant to Section 72.06. Additionally, tampering may be prosecuted as a crime under Section 498 of the California Penal Code, as set forth in Section 73.01 of this Code.” This is the second time a magnet has been found attached to the water meter at this address. On July 26, 2018, during an investigation for zero consumption at this property, two magnets were found attached to the meter. In response to the first violation, the property owner, Peter Chobot, was fined $1,000. This fine was not appealed. This second violation is the only instance in the District’s history a property owner has been fined for a magnet attached to the meter and committed the same violation again. In response to this second violation, staff is recommending the owner of the property be fined $5,000, the maximum amount allowed for a Type II fine. Per Section 72.01 of the District’s Code of Ordinances, customers are “responsible for all costs and damages in connection with any violation of this Code relating to their service.” Costs incurred to investigate and remedy a violation are not appealable to the Board and are treated as inseparable from all other fees and charges on the customer’s account, per subsection (D) of Section 72.01. The District’s costs to investigate and document this incident and determine an appropriate course of action was $115.69 and the cost of replacing the meter was $228.60. These charges have been added to the customer’s water account. FISCAL IMPACT: The fiscal impact is limited to the amount of the fine assessed. STRATEGIC GOAL: Enforce the District’s Code of Ordinances and protect the public water supply. LEGAL IMPACT: None. Attachments: A) Committee Action Form B) Code of Ordinances Sections 71, 72, and 73 C) Letter with pictures ATTACHMENT A SUBJECT/PROJECT: Impose a $5,000 Fine for Meter Tampering COMMITTEE ACTION: That the Finance and Administration Committee recommend that the Board uphold staff’s decision to impose a $5,000 fine for meter tampering at 1101 Camino Biscay in Chula Vista. 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. 71-1 Adopted 2/03/2010 SECTION 71. VIOLATIONS; PROHIBITED ACTIVITIES In addition to the prohibited practices described in any other sections of this Code or by law, all persons and entities are specifically prohibited from doing, or aiding or abetting any person in, any of the following: A.Installing or benefiting from any unauthorized connection to any District system; B.Refusing or failing to pay for services, in full, when bills are due; C.Entering, improving, purchasing, trading, selling, borrowing, using or otherwise benefiting from any District property or service without authorization from the District or without following authorized procedure; D.Vandalizing, tampering with, or threatening any portion of the District systems, services, facilities or property, including but not limited to taking any action to prevent any meter or other equipment device from accurately performing its function; E.Failing or refusing to install, maintain in good repair and working condition, or test any portion of any facilities required by the District in connection with a service, including any safety or prevention device or any measuring device; F.Knowingly permitting leaks or other wastes of water or recycled water or leaks or spills of sewage or other discharge; G.Preventing District staff from accessing any facilities connected to a service, including but not limited to meters located on private property, or in any manner threatening or interfering with any District staff performing his or her duties; H.Using or allowing the use of service for more than one parcel through one meter (except for master meters approved by the General Manager under Section 24.01) or supplying, reselling, using or permitting the use of any service by any other parcel, except as permitted under Section 27.04 of this Code or in writing by the District; I.Using or permitting the use of any District service for property outside the boundaries of an improvement district or not subject to District taxes, without prior written consent of the District; J.Using or attempting to use or connect to any fire hydrant within the District without proper authorization as required by Section 24.04 of this Code; or K.Violating or refusing to comply with any condition of service under this Code or with any law or regulation applicable to the use of any such service; including violating any conditions of any permit required for service or to regulate waste, such as a waste discharge permit under Sections 26 or 52 of the Code, or failing or refusing to obtain, maintain or comply with any required permit. Attachment B SECTION 72 PENALTIES AND DAMAGES 72.01 GENERAL A. User and Owner Responsibility. Each person receiving service, or that owns a property that receives service, agrees to pay the District any applicable fees and charges. Such persons are also responsible for all costs and damages in connection with any violation of this Code relating to their service. B. District Not Liable. The District shall bear no liability for any cost, damage, claim or expense incurred by District or any responsible party or third party on behalf of the District arising from or related to any violation including, but not limited to, costs, damages, claims, or expenses arising from any corrective action of the District. Such corrective actions include, but are not limited to, the removal, confiscation, disposition or use of any device, equipment, improvement or material encroaching on any District property or used in connection with any other violation. C. District Obligation to Collect Damages. Pursuant to Government Code Section 53069.6, the District shall take all practical and reasonable steps, including appropriate legal action, if necessary, to recover civil damages for the negligent, willful, or unlawful damaging or taking of property of the District. D. Assessment of Damages. Actual damages resulting from any violation, including late payment or failure or refusal to pay for service and any interest thereon, may be assessed and collected as part of a customer’s monthly bill to the extent allowed by law. The District will separately invoice any actual damages not assessed on a monthly bill, including any damages assessed against any responsible person who is not a customer. E. Unpaid or Partially Paid Bills. Bills issued by the District are due in full as provided in such bills. Failure to timely pay bills in full may lead to a reduction, suspension, or termination of service, as provided in Section 72.02(B), below, in Policy 54 of this Code, or pursuant to other provisions of this Code or applicable law. In addition, if bills remain unpaid, in full or in part, the District may lien the delinquent real property and may assess damages and penalties established by District or otherwise authorized by law. 72.02 VIOLATIONS AND GENERAL PENALTIES FOR VIOLATIONS A. Notice of Violation. Notice and a reasonable period of time to correct the violation(s) will be given prior to the termination, reduction or suspension of service or the imposition of any administrative fine. However, the District may, without notice, correct any condition or violation that endangers the health or safety or impairs any District service, facility or property or is otherwise determined by the District to require immediate action. 1. Investigative Procedures. If a possible violation is identified, observed or reported, the District will contact the allegedly responsible party to investigate. If the violation is in fact occurring, District staff will issue a notice of violation or otherwise inform the responsible party that corrective actions must be taken within a period of time deemed reasonable by the District, taking into consideration the nature of the violation and the potential damage that can arise if the violation continues. 2. Content of Notice of Violation. The notice will describe the violation(s), indicate the actions that must be taken, and indicate the date by which those actions must be taken. Unless immediate action is required, the notice will provide a reasonable time for the violation(s) to be corrected. The notice will also specify the amount of any delinquency, actual damages or other amounts due the District, if any, and the telephone number of a representative of the District who can provide additional information. 3. No Notice Required; District Action. If the District determines that immediate or prompt correction of the violation is necessary to prevent waste or to maintain the integrity of the water supply, systems or facilities of the District, or for the immediate protection of the health, safety or welfare of persons or property, or for any other compelling reason, the District will take any action deemed necessary (including suspension, reduction or termination of service; locking or removal of meters; or repairs of any improvements) and a notice will be left at the affected parcel specifying any further corrective actions required. Any costs incurred by District and any applicable fines will be the responsibility of the responsible party. 4. Notice; Failure to Comply. The responsible party will be given an opportunity to correct the violation(s) and to provide verbal, written and pictorial exculpatory evidence. If such evidence does not exonerate the responsible party and if the violation(s) are not corrected to the satisfaction of the District within the time provided, the District may assess costs, penalties, and administrative fines and may take any other action or pursue any other remedy available. Furthermore, if the violation(s) concern any service requirement or facility, or if required to prevent waste or to protect the integrity of the system or the health and safety of the public, the District may suspend, reduce or terminate service to the extent permitted by law. B. Service Termination, Suspension or Reduction; Removing or Locking Meters. Service may be reduced, suspended or terminated for failure to pay for service or in connection with a violation of this Code or applicable law. Termination, suspension or reduction of service will proceed as follows: 1. Notice Prior to Termination, Suspension or Reduction of Service. Except as provided in Paragraph A, above, or in other provisions of this Code or applicable law, not less than ten (10) days notice will be given prior to the date service will be reduced, suspended or terminated; provided that, where service is terminated due to failure to comply with the terms of an amortization agreement, under Policy 54 of this Code, five (5) days’ prior notice is required. The notice will be delivered to the affected parcel and, if the owner of record does not reside in the affected parcel, a copy of the notice will be forwarded to the owner’s address on record with the assessor’s office via any available means, such as personal delivery, certified mail return receipt requested, email, fax or overnight mail. 2. Termination for failure to pay for service. The District may discontinue any or all service due to failure to pay the whole or any part of a bill issued by the District. In connection with termination of water service, the provisions of Section 60373 of the Government Code, or any other appropriate provision of law, or as set forth in Policy 54 of this Code of Ordinance, will be followed. In connection with sewer, Section 71672 of the California Water Code or other applicable requirements will be followed. C. Reconnection or Reinstatement of Service, Unlocking or Reinstalling Meters. If service is reduced, suspended or terminated for any reason, each of the following conditions applicable to the situation must be satisfied or arrangements satisfactory to the General Manager or a designee must be made before service is reinstated: 1. Outstanding amounts for service bills, including any service charges for benefits derived from the violation, must be paid; 2. All required deposits (including any security deposits), actual damages, fines, costs, charges, and penalties must be paid; 3. Any amounts due for the removal, locking, servicing, repair or replacement of meters or other facilities required for service must be paid at the rates in effect at the time of reinstatement, as set forth on Appendix A to this Code or other schedule of fees then in effect; 4. All violations and related damages or conditions must have been corrected and/or repaired and evidence satisfactory to the District to that effect and demonstrating that it is safe to reinstate service, must have been provided to and approved by the District; and 5. If the service was in the name of a tenant, the District may require that the service account is placed in the name of the owner and that the owner assume responsibility for the service. D. Owner Responsibility for Account. In addition to owners’ obligations under subsection (A) of section 72.01 and subsection (C)(5) of Section 72.02, above, and any other remedies provided by this Code or by applicable law, Owners may be required to deliver to the District a form of acknowledgement or authorization for service to a tenant. If the property has a history of tenants who do not pay their final balances, the District reserves the right to demand that the property owner take responsibility for services to the tenant-occupied parcel. The District also reserves the right to demand that the property owner take responsibility for services to the tenant-occupied parcel if any of the following occur: (i) a tenant engages in any violation, (ii) the District has reduced, suspended or terminated any service to a tenant three (3) times within any twenty-four (24) month period, or (iii) the tenant has been delinquent five (5) or more times. The General Manager or a designee shall develop procedures to implement these requirements. Pursuant to Water Code Section 25806, the District may place a lien on the property for unpaid bills by a tenant. The District will make a good faith effort to notify an owner if a tenant-occupied account is delinquent, however, it is ultimately the owner’s responsibility to check with the District for any outstanding balances when a tenant vacates the property. For more information on property liens, see Policy 54. E. Right of Access to Customer’s Premises; Interference. If any person refuses to consent to an investigation of a possible violation or prevents or refuses to allow access to District staff or authorized representatives to any premises or facility during an investigation or in connection with any termination, reduction or suspension of service, the District may seek an injunction or a warrant, as provided in Section 71601 of the Water Code. F. Other Remedies. In addition to the actions contemplated in this Section, the District may seek other remedies authorized or required by any applicable law, including imposing an administrative fine, pursuant to Section 72.06, or pursuing other available civil or criminal remedies. 72.03 CERTAIN SPECIFIC OPERATIONAL VIOLATIONS A. Unauthorized Connections. The District shall bear no cost or liability for an unauthorized connection. In addition to other remedies, any unauthorized connection is subject to a Type II fine, pursuant to Section 72.06 depending upon the severity, duration and reoccurrence of the violation and any other factors the District may reasonably take into consideration. Further, the District may demand that the unauthorized connection be immediately disconnected. In the alternative, if the customer refuses to take immediate action, or if immediate actions are necessary as set forth in Section 72.02(A)(3), above, the District may immediately disconnect, remove, confiscate, destroy, or dispose of any parts installed with or used for the unauthorized connection, all at the expense of the customer and any other responsible party. To the extent allowed by law, the District may also terminate service to any parcel and any person that allows, uses or benefits from such unauthorized connection. B. Water Waste. No customer shall knowingly permit leaks or other wastes of water including, but not limited to, allowing runoff on any portion of his or her property, engaging in non-permitted uses of water, or failing to take corrective action after notice of any leak or water waste is given. If the District determines that water waste is occurring, the District will: 1. Notify the customer that they are in violation of the District’s Code of Ordinances. 2. Notwithstanding the foregoing, the District may, without prior notice, repair or replace any District controlled facilities at the cost of the person(s) identified as the responsible party. 3. If the water waste is due to a condition within the customer’s property or facilities, the District may (i) require the customer to repair or replace the affected facilities, immediately or within a reasonable time, depending on the situation; or (ii) if necessary, to prevent further waste, adjust, lock or remove the meter. If any repair or replacement required is not completed in a timely manner, the District may perform the repair or replacement at the cost of the customer or may terminate service without further notice. C. Meter Tampering. In addition to other remedies, meter tampering is subject to a Type II fine pursuant to Section 72.06 depending upon the severity, duration, reoccurrence of the violation, and any other factors the District may reasonably take into consideration. Additionally, meter tampering may be prosecuted as a crime under Section 498 of the California Penal Code, as set forth in Section 73.01 of this Code. D. Fire Service Violation. Fire service is subject to compliance with all provisions of this Code and the law concerning water service. Failure to comply with such provisions may result in the reduction, suspension, termination or disconnection of water service for fire protection, without any liability to District. Furthermore, illegal connections or other violations relating to fire service are subject to either a Type I or Type II fine, at the option of the District, and may be prosecuted as crimes. E. Backflow Prevention, Screens and Other Safety Devices. If service requirements include the installation, testing and maintenance of backflow prevention devices (Section 23.04 of this Code), screens or other safety operational items, in addition to, or in lieu of, other remedies provided herein, the District may apply any of the remedies under Section VI and VII of the District’s Ordinance No. 386, as amended or renumbered. Furthermore, violations relating to backflow testing may be prosecuted as set forth in Section 73.01 of this Code. Violations of backflow requirements or knowingly filing a false statement or report required by a local health officer are subject to either a Type I or Type II fine, at the option of the District, pursuant to Section 72.06, below. F. Violation Concerning Recycled Water Service. In addition to any fine, revocation, suspension or penalty imposed under Section 26 in connection with any violation of said Section, including permit suspension or revocation under Section 26.07.C, the District may (i) suspend or terminate water and or sewer service to the property, the owner and/or the operator; (ii) require payment by the owner for any damage to the District facilities, reimbursement to District of costs and expenses, or fines imposed on the District in connection with such violation; or (iii) prosecute the responsible party under any applicable provision of this Code, the Water Code or the Penal Code. Additionally, any violation concerning recycled water service is subject to either a Type I or Type II fine, at the option of the District, pursuant to Section 72.06, below. G. Violation Concerning Sewer Service. In addition to any other remedy, fine, or penalty provided by this Code or applicable law, failure to comply with any requirements of sewer service, including requirements for the preservation of public health, safety and welfare and including, but not limited to, the requirements established under Article II, Chapter 2, Sections 50 to 56.04 of this Code, as hereafter amended or as supplemented by other District Rules and Regulations for Sewer Service, the California Health and Safety Code, the California Code of Regulations, Titles 17 and 22, and Water Agency Standards. Furthermore, may be prosecuted as set forth in Section 73.01 of this Code. Additionally, any violation concerning sewer service is subject to a Type I or Type II fine, at the option of the District, pursuant to Section 72.06, below. H. Theft, Fraud, or Misappropriation. In addition to any other remedy, fine or penalty provided by this Code or applicable law, any violation involving theft, fraud or misappropriation of District water, services, or property is subject to a Type I or Type II fine, at the option of the District, pursuant to Section 72.06, below. 72.04 VIOLATIONS OF CONSERVATION OR OTHER WATER USE RESTRICTION PROVISIONS The District has established and published conservation measures set forth in Section 39 of the Code. Commencing with declared Level 2 conditions, the District may assess water shortage rates and charges previously adopted. In addition, after notice of the declared water shortage level is given as required by law, any person who uses, causes to be used, or permits the use of water in violation of such requirements (other than a person who qualifies for an applicable exemption, if any) may be assessed damages, penalties, and fines. A. Additional Provisions Concerning Use Restriction Violations. In addition to payment of actual damages, the following may apply to a violation of any water conservation or water use restriction measure: 1. A change of the account holder shall not cause the account to revert to pre-violation status unless the new account holder provides evidence that it is not related to the violator and had no responsibility for the prior account. 2. The District may reduce, suspend or terminate service to any parcel immediately and without further notice if the violation involves or results in water waste, as set for in Section 72.03(B), above. 3. Willful violations of mandatory conservation measures described in Section 39 of this Code may be enforced by terminating service to the property at which the violation occurs, as provided by Section 356 of the California Water Code. B. Prosecution for Violations of Conservation Measures. Pursuant to Section 377 and 71644 of the California Water Code, each violation of the District’s Conservation Ordinance, set forth in Section 39 of this Code, may be prosecuted as a misdemeanor, punishable by imprisonment in the County jail for no more than thirty (30) days or by a fine, as set forth in subsection (C), below. C. Assessment of Fines for Violations of Conservation or Water Use Restriction Provisions. Any responsible party who fails to comply with any conservation or use restriction measure is subject to the assessment of an administrative Type I fine, added to account, pursuant to Section 72.06, below. 72.05 VIOLATIONS INVOLVING DISTRICT REAL PROPERTY A. Removal, Disposition and Costs. The District has absolute discretion to determine the corrective action required in connection with any violation involving District real property, including requiring the owner of any unauthorized encroachment or improvement to remove it, or taking action to remove it immediately and without notice. Any improvements or uses placed within or on any District property or right of way are subject to the following: 1. Costs and Damages. All costs and damages shall be the responsibility of the customer and any other responsible party. Furthermore, the District shall not be liable for costs to repair or replace any unauthorized encroachment or improvement, or any property, improvement or thing used in connection with, supported by or attached thereto. 2. Burden of proof. The burden shall be on the user to prove to the District’s satisfaction, the authority, scope, and extent of any right to access, improve or use the District’s property. Only written evidence in the form of an agreement, deed, statute, recorded or official map or plat, governmental regulation or other official document may be used to establish such claim of right. B. Notice. In connection with any improvement or use that does not constitute a health hazard and does not interfere with the District’s use of its property, the District will give written notice of up to sixty (60) days, at the discretion of the General Manager, to cease, terminate, eliminate or remove the offending improvement, structure or use. Any written notice will be given to the responsible party or posted at the property where the trespass or encroachment occurs. If the responsible party is not the owner of any real property affected by the violation, the District will also give notice to the owner of record at the address on record with the assessor’s office via personal delivery, certified mail return receipt requested, or via overnight mail. C. Immediate Action. In connection with any improvement that constitutes a health hazard or interferes with the District’s use of any District property, the District will take any immediate action deemed necessary by the General Manager. D. Fines. In addition to all other remedies provided under this Article or under applicable law, the District may impose a fine as provided in Section 72.06. Additionally, the District may impose a fine up to either the amount specified on any sign prohibiting trespass, or a Type I or Type II fine, at the option of the District, in connection with any trespass on District property pursuant to Section 72.06, below. E. Separate Violation. A separate violation will accrue for each day after the deadline to cease, terminate, eliminate or remove the trespass or encroachment, as set forth in the notice. 72.06 ADMINISTRATIVE FINES Any administrative fines established herein shall be in the nature of civil penalties and shall be additional and cumulative to any other fines, damages or any other charges established by the District and are also separate from and cumulative to any other civil or criminal penalty, fine or remedy. In connection with each violation, the District may assess a fine up to the amount specified in the schedule of fines for the type of fine being imposed. Each day during which a violation is in effect constitutes a separate violation and violations are cumulative while the account is in the name of the original violator or any person that participated in or benefited from the violation. Except where the violation creates an immediate danger to public health or safety, the person responsible for the continuing violation will be provided a reasonable period of time to correct or otherwise remedy the violation(s) prior to the imposition of administrative fines. A. Assessment of Fines for Technical Violations of Other Code Provisions. Any person who engages in a violation of any provision of this Code is subject to the assessment of a separate administrative Type I Fine, unless subject to a more severe fine as set forth in this Code. B. Assessment of Separate Fines. Nothing in this code or the limits specified per violation shall prevent the imposition of separate fines for each separate violation committed during a single act. For example, in connection with a violation concerning sewer service that involves a trespass on any portion of the District’s real property, separate fines may be assessed for the trespass, the damage to District personal property, the damage to District real property; the damage to the sewer system and the activity resulting on all the damages. C. Types of Fines. The amount for each type of fine specified below may increase automatically to reflect any higher amount authorized by law or regulation. The District has determined to establish two types of fines based on the nature of the violation, as follows: 1. Type I Fine. Any violation that does not have the potential to endanger the health or safety of the public. The fine will not exceed the amount specified in the Section 36900(b) of the California Government Code or Appendix A for a first, second, third or each additional violation of that same ordinance or requirement within a twelve-month period. 2. Type II Fine. Any violation that has the potential to endanger public health or safety including, but not limited to, unauthorized or illegal connections, meter tampering, water theft, or knowingly filing a false statement or report required by a local health officer. The fine will not exceed the amount specified on Appendix A for each day the violation is identified or continues. D. Collection of Fines. Any fines assessed by the District are payable directly to the District and are due upon issuance or as otherwise indicated on the notice or bill and are delinquent 30 calendar days from the due date. E. Notice of Administrative Fine; Content. Notice of an administrative fine pursuant to this section will contain the following information: (i) a brief description of the violation(s); (ii) the date and location of the violation(s); (iii) a brief description of corrective action(s) required; (iv) a statement explaining that each day the violation continues constitutes a new violation; (v) in the case of violations creating an immediate danger to public health or safety, the amount of civil penalty assessed or, in all other cases, the amount of civil penalty to be assessed if the violation(s) is/are not corrected within the time provided by the notice; (vi) a statement of the procedure for payment and the consequences of failure to pay; (vii) contact information for the District employee that should be contacted to discuss the notice and to whom evidence of compliance can be provided; and (viii) a brief statement describing the responsible party’s right to request further review, pursuant to subsection (F), below. F. Option for Board Review. Persons receiving a Notice of Administrative Fine may request Board review. The request for Board consideration must be in writing, must be received by the District Secretary within ten (10) calendar days from the date of the notice and must include contact information, an explanation of the basis for the request, and any supporting documentation said person(s) wish to provide to the Board for review and consideration. District staff will review the petitioner’s request and will make a recommendation to the Board in light of its investigation. The District will provide notice of the date, time, and place for Board consideration by electronic means, facsimile or first- class mail sent to the return address indicated on the written request. G. Any Fines Assessed Pursuant to the Notice of Administrative Fines must be timely paid notwithstanding the filing of a request for Board review. At the time of Board review, the petitioner may, address the Board and respond to the charges to show good cause why the fine should not be imposed; however, the customer is not entitled to a full judicial-type hearing with cross examination, sworn testimony, etc. In accordance with the provisions of Government Code Section 53069.4, the Board’s determination shall be final and conclusive, and shall be deemed confirmed, if not appealed within 20 calendar days to the Superior Court of the County of San Diego. 73-1 Adopted 2/03/2010 SECTION 73 ADDITIONAL DISTRICT REMEDIES Each day during which a violation commences or continues shall constitute a separate violation which may be so prosecuted. In addition to, or on lieu of any damages, fines or other remedies provided in any other section of this Code, at the District’s sole and absolute discretion, the District may enforce any other remedies available to it in law or equity. 73.01 OTHER REMEDIES OF DISTRICT A. Collection of Unpaid Bills on Tax Roll. Pursuant to the provisions of the Health and Safety Code, commencing with Section 5470, the District may cause delinquent charges for services to be collected on the tax roll in the same manner as its general taxes. B. Costs of Suit. Any person who violates any provision of this Code of Ordinance shall be liable for costs of any civil suit required to enforce the District’s rights, including but not limited to reasonable attorney’s fees in accordance with Civil Code Section 1882.2. The provisions of Civil Code Section 1882 et seq. are incorporated herein by reference. This Article shall be interpreted so as to be consistent with Civil Code Sections 1882 et seq. C. Reward. In accordance with Government Code Section 53069.5, the District may offer and pay a reward, in an amount determined by the District, for information leading to the determination of the identity of, and the apprehension of, any person whose willful misconduct results in injury or death to any person or who willfully damages or destroys any property of the District or any property of any other local agency or state or federal agency located within the boundaries of the District. The person who has willfully damaged or destroyed such property shall be liable for the amount of any reward paid pursuant to this section. D. Parental liability for Acts of Minors. If a violation is due to the acts of a minor child, the minor and his or her parents or guardians, as applicable, shall be jointly and severally liable to the maximum extent allowed by law, including parental liability pursuant to Section 1714.1 of the California Code of Civil Procedure, as hereafter amended or renumbered. E. Backflow testing; Prosecution. A person is guilty of a misdemeanor in connection with the violation of any provision of the California Code of Regulations concerning backflow testing, including non-compliance with any order to test, knowingly filing a false statement or report concerning any information required by the District or failure to use a person qualified to conduct the testing. Such misdemeanor is punishable by a fine of up to $500 or by imprisonment not exceeding 30 days. Each day of a violation is a separate offense. F. Sewer Service Violation; Prosecution. Pursuant to Section 71689.27 of the Water Code of the State of California, upon conviction of a violation of any ordinance or provision of this Code concerning the sewer system the person shall be punished by being imprisoned in the county jail. G. Theft of Utility Services, Water or Waterworks; Prosecution. Pursuant to Sections 498, 624 and 625 of the Penal Code of the State of California, theft of District facilities or theft of water or other utility services, including theft through unauthorized connections, may be prosecuted as a crime. 73-2 Adopted 2/03/2010 H. Prosecution of Code Violations. The District may, at its option, prosecute or cause to be prosecuted any violation of this Code of Ordinance or any other Ordinance of the District as a misdemeanor, pursuant to Section 71600 of the California Water Code. I. Receipt or Purchase of Stolen Property; Prosecution. Pursuant to Section 496a of the Penal Code of the State of California, purchase or receipt of stolen property belonging to the water system, may be prosecuted as a crime. J. Junk Dealers and Recyclers; Remedies. To the extent provided by law, including the provisions of AB844, approved by the Governor and chaptered in September of 2008, the District will pursue remedies available through or against any junk dealer or recycler that purchases any District property without prior written authorization from District. 73.02 NOTICE TO DISTRICT CONCERNING VIOLATIONS Any person noticing or discovering an unauthorized connection to the District’s sewer, water or recycled water system from a parcel owned or occupied by such person must notify the District immediately. If the unauthorized connection affects a parcel owned by the person, he or she must remove the unauthorized connection immediately and must notify the District. If the person rents or leases the affected parcel, the person shall provide the District the name and contact information of the owner of the parcel. 73.03 SEVERABILITY If any portion of any chapter, section, subsection, paragraph, sentence, clause, or phrase of this Article is for any reason held invalid or unconstitutional by any court of competent jurisdiction, such portion shall be deemed a separate, distinct, independent and severable provision and such holding shall not affect the validity of the remaining portions hereof. October 26, 2021 Peter Chobot 1101 Camino Biscay Chula Vista, CA 91910-7725 Re: Real Property Located at 1101 Camino Biscay Chula Vista, California - Notice of Meter Tampering, Water Theft and assessment of fine. Account # 623-3463-19 Dear Mr. Chobot It has come to the attention of the Otay Water District (District) that (1) the meter servicing the property at 1101 Camino Biscay Chula Vista, California, was tampered with by attaching a magnet to the meter so it would not measure the true water use and (2) the customer may have benefited from reduced billings and did not pay the true cost of water service. Each of these actions constitutes a separate violation of the District’s Code of Ordinances that must be corrected as further described below. If you are not the owner or account holder for 1101 Camino Biscay Chula Vista, California, please contact the District immediately. Our investigation on October 13, 2021 indicated a magnet was deliberately attached to the water meter with the purpose of receiving water service that was not registered. This is the second time a magnet has been found attached to the meter at your residence. Meter tampering may be prosecuted as a crime under Section 497 the California Penal Code, and is a Type II fine as defined and set forth in Sections 71 D and 72.06 of Otay Water District’s Code of Ordinances. You are hereby notified that the District is assessing the damages listed below on your account and that failure to pay such damages, at the District offices, by the due date on your water bill could result in suspension of water service to your property. If these fines and charges remain unpaid, the District will place a lien on the property to recoup these and any other costs and damages. Summary of Damages Amount Costs incurred by District in connection with the investigation of the meter tampering, water theft, and related matters (including staff time, attorney’s fees and other related administrative costs) $115.69 Fine as per Section 72 of District’s Code of Ordinances $5,000.00 Meter Replacement Fee $ 228.60 Total Due $5,344.29 Attachment C You have the right to appeal the fine of $5,000.00 to the Board of Directors. If you would like to take advantage of this, please call Tita Ramos-Krogman at 619-670-2253 within ten (10) days to notify the District in writing of your intent to appeal this charge. Your appeal would then be placed on the next available board agenda. You may contact me at 619-670-2712 with any questions concerning this notice. Sincerely, Andrea Carey Customer Service Manager Attachments: Photos (3) Code of Ordinances Section 71-73 STAFF REPORT TYPE MEETING: Finance and Administration Committee MEETING DATE: December 7, 2021 SUBMITTED BY: Eid Fakhouri Finance Manager PROJECT: DIV. NO. All APPROVED BY: Kevin Koeppen, Assistant Chief of Finance Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: To Review the FY 2022 Audit Services Proposals and Select Audit Firms for Interview GENERAL MANAGER’S RECOMMENDATION: That the Finance and Administration (F&A) Committee review the FY 2022 audit services proposals and select audit firms for interviews to be scheduled in January 2022. COMMITTEE ACTION: See Attachment A. PURPOSE: To review the FY 2022 audit services proposals and select audit firms for interviews. Staff has received and rated proposals from six audit firms. Staff evaluated the proposals and recommends that the committee select firms to interview. The interviews will be held at the January 2022 F&A Committee meeting. From those firms interviewed, it is recommended that the committee select one firm to be the District’s auditor for the fiscal year ending June 30, 2022. The F&A Committee’s recommendation would AGENDA ITEM 4 2 be presented to the Board for approval at the February 2022 Board meeting. The interview process is an opportunity for committee members to personally speak to the accountants who will be working on the audit. The F&A Committee serves as the Board’s Audit Committee (the Committee). The purpose of the Committee is to review the reports of external auditors, to include management letters and internal control recommendations, and ensure implementation by management. BACKGROUND: 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. For the past seven years, the District has retained the services of Teaman, Ramirez & Smith, Inc. (TRS). The initial five-year term with TRS expired in FY 2019, however, the Board weighed the benefit of greater continuity and extended the contract with TRS for one year with the option of one additional year. Due to the challenges of the COVID-19 pandemic, the Board exercised the option and extended the contract for one additional year. The District has had the long standing practice of rotating audit firms every five years. This practice ensures a fresh perspective and yet allows for the benefits of a fair amount of continuity. Therefore, the District has issued a Request for Proposals (RFP) for services related to the fiscal year 2022 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. Proposals also included fees for a Single Audit, however, this service has not been utilized for nearly 10 years and is not anticipated to be required by the District. ANALYSIS: On September 13, 2021, the District issued an RFP through its Periscope portal (formally BidSync), which includes those firms that currently provide audit services to local water agencies. The District received proposals from six audit firms. Technical proposals representing each of the firms were reviewed and evaluated by staff, then rated according to qualifications and audit approach. The result of this process is our recommendation that the Committee select firms to interview and subsequently select one firm to recommend to the 3 Board as the District’s auditor for the fiscal year ending June 30, 2022, with the option of four additional years. Staff evaluated and ranked the six proposals based on qualifications and audit approach using a 60-point scale. Listed below are the audit firms, in order, that staff would recommend to the Committee for interviews. From this list, staff recommends the Committee invite the top three qualified firms for interviews in January; all six firms are rated below. OTAY WATER DISTRICT FY22-2231-006 PROFESSIONAL AUDITING SERVICES RATINGS SUMMARY (Order by Qualifications) Points 60 40 100 Year 1 Firm Name Qualifications Pricing Total Davis Farr, LLP 51 22 73 $ 31,830 Clifton, Larson, Allen, LLP 50 19 69 $ 32,600 Lance, Soll & Lunghard, LLP 46 21 67 $ 33,205 Brown Armstrong Accountancy Corporation 38 36 74 $ 25,535 The Pun Group, LLP 33 29 62 $ 28,000 Harshwal & Company 26 40 66 $ 21,510 The top three rated firms based on qualifications are listed below along with a brief summary of each firm that the District received a proposal from. Davis Farr, LLP – A regional CPA firm, with a local office in San Diego, was founded 30 years ago and employs 52 individuals. They have broad experience auditing municipal-owned utilities throughout Southern California, including many water agencies in San Diego County. The proposal includes five local water agencies as client references. The proposed audit staff from Partner through the Manager role are California CPAs. The proposed staffing plan includes three firm partners, Ms. Shannon Ayala, Ms. Jennifer Farr, and Mr. Diego Venegas. Ms. Farr will serve as the Quality Control Reviewer and has over 20 4 years of experience auditing public agencies, including water agencies. Ms. Jennifer Ayala also serves as the auditor for the San Diego County Water Authority (SDCWA) and other municipal members of SDCWA. Clifton, Larson, Allen, LLP (CLA) – A large national CPA firm with a local office in Carlsbad. As a national firm CLA has 7,400 employees, including 400 professionals serving more than 4,150 governmental entities. White, Nelson, Diehl, Evans LLP merged into CLA in 2020. The proposed audit staff from Partner through the Senior Auditor role are California CPAs. CLA will be managing the audit from its Carlsbad office. Mr. David Forman is the proposed partner and has 27 years of experience, including as a manager and partner on the Otay Water Audit. The firm submitted three local municipal water districts as references. Lance, Soll & Lunghard, LLP (LSL) - LSL is a regional firm with offices in Brea (headquarters), Santa Ana, and Sacramento, California, as well as Houston, Texas. The firm was founded in 1929. The firm has approximately 125 employees including 14 partners. LSL provides auditing services to over 70 municipal clients in California. The firm references included five Municipal Water Agencies as references, including one in San Diego County. The proposed audit staff from Partner through the Senior Auditor role are California CPAs. The proposed engagement Partner, Mr. Bryan Gruber, has audit experience with the SDCWA and other agencies. When including bid pricing, Brown Armstrong Accountancy Corp. was evaluated and scored the overall top rating, although they were ranked 4th under qualifications. Below is a brief summary of Brown Armstrong Accountancy Corp. Brown Armstrong Accountancy Corp. – A Central California regional CPA firm, was founded in 1974 and employs 54 individuals. The firm has broad experience auditing cities, counties, and a few municipal-owned utilities. The proposal includes five small water agencies as client references, none are local agencies. The proposal includes two partners, Mr. Neeraj Datta and Mr. Andrew Paulden. Mr. Datta will serve as the in-charge Partner and has 12 years of governmental auditing experience. The proposed Partner and Senior Auditor are California CPAs. Staff believes that interviewing a short list of the most qualified firms is an effective approach to selecting a highly qualified audit firm. A short list allows the Committee to spend more time with each 5 firm and permits a more thorough interview. With upcoming financial projects including: the issuing of debt, applying for Federal Grants, reacting to the litigious environment, and facing many new accounting rule changes, staff believes interviewing a short list of the most qualified firms will enhance the Committee’s ability to select a highly qualified audit firm to assist the District during these critical projects. The following is a planning schedule for selecting the District’s auditor and the major activities involved in completing the FY 2022 financial audit: ➢ Sep-2021: Issue Audit Services RFP ➢ Oct-2021: Staff evaluate and rate proposals ➢ Dec-2021: F&A Committee select firms to interview ➢ Jan-2022: F&A Committee interviews and recommends firm to Board ➢ Feb-2022: Board awards audit services contract ➢ May-2022: Interim field work (five days) ➢ Aug-2022: Final field work (five days) ➢ Oct-2022: F&A Committee presentation of audited financials ➢ Nov-2022: Board presentation of audited financials ➢ Dec-2022: Completed ACFR FISCAL IMPACT: Audit service costs for the previous audit performed for Fiscal Year 2021 were $30,250. Based on qualifications and experience, below are the top three firms staff recommends, along with their proposed fees for performing the Fiscal Year 2022 financial audit and related services. Audit fees of $35,000 were included in the FY 2022 budget. $31,830 Davis Farr, LLP $32,600 Clifton, Larson, Allen, LLP $33,205 Lance, Soll & Lunghard, LLP *Proposed fees exclude fees associated with performing a single audit. The District currently does not anticipate that a single audit will be required for FY 2022. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning and debt planning. LEGAL IMPACT: Compliance with the laws governing the District. 6 Attachments: A) Committee Action B) Davis Farr, LLP Audit Cost Proposal C) Clifton, Larson, Allen, LLP Audit Cost Proposal D) Lance, Soll & Lunghard, LLP Audit Cost Proposal E) Brown Armstrong Accountancy Corporation Audit Cost Proposal F) The Pun Group, LLP Audit Cost Proposal G) Harshwal & Company Audit Cost Proposal ATTACHMENT A SUBJECT/PROJECT: To Review the FY 2022 Audit Services Proposals and Select Audit Firms for Interview COMMITTEE ACTION: That the Finance and Administration Committee select the following audit firms for interview in January; 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. Davis FarrLLP Bid Contact Brandy Volden bvolden@davisfarr.com Ph 949-783-1752 Address 18201 Von Karman Ave Suite 1100 Irvine, CA 92612 Item #Line Item Notes Unit Price      Qty/Unit Total Price  Attch.  Docs FY22-2231-006--01-01 Professional Auditing Services Supplier Product Code: Supplier Notes: Please find attached Proposal for Professional Audit Services and Cost Proposal for Audit Services Requested by Otay Water District. First Offer -1 / lot Y Supplier Total $0.00 FY22-2231-006Otay Water District BidSync10/12/2021 p. 1 Attachment B  Davis Farr LLP  Item: Professional Auditing Services  Attachments  Otay Water District Proposal.pdf  Otay Water District Cost Proposal.pdf FY22-2231-006Otay Water District BidSync10/12/2021 p. 2 PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978 October 11, 2021 Prepared By: Davis Farr LLP 5927 Priestly Drive | Suite 201 Carlsbad, CA 92008 Contact Person: Shannon Ayala, CPA | Partner Office: 760.536.5140 | Direct: 760.298.5872 Email: sayala@davisfarr.com FY22-2231-006Otay Water District BidSync10/12/2021 p. 3 Table of Contents Section A – About Davis Farr LLP .................................................................................... 1 Section B – Qualifications and Related Experience ......................................................... 3 Section C – Client References ......................................................................................... 4 Section D – Proposed Staffing ........................................................................................ 5 Section E – Work Plan .................................................................................................... 6 Section F – Implementation of New GASB Pronouncements .......................................... 8 Section G – Scope of Work ............................................................................................. 9 Section H – Proposed Timing of the Audit for FY 20/21 .................................................. 9 Section I – Proposed Segmentation of the Audit ........................................................... 10 APPENDIX Resumes Peer Review Documentation FY22-2231-006Otay Water District BidSync10/12/2021 p. 4 October 11, 2021 Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978 We are pleased to provide our proposal to perform audit services to the Otay Water District (“OWD”) for the fiscal year ending June 30, 2022, with optional extensions through 2026. Our service philosophy is one of open and constant communication, a proactive approach and responsive, value-added services. We will listen to your ideas and concerns and will bring creative solutions to you in both financial and other operational areas. We are aware that while OWD have solicited numerous proposals, Davis Farr LLP would be your best selection for the following reasons which are set forth in greater detail in our proposal:  We take a proactive leadership role in local government accounting and auditing issues. Jennifer Farr, one of the founding Partners, is the current Chair of the Government Accounting and Audit Committee of the CalCPA Society and our Partners are active members of the CSMFO Professional Standards Committee, the GFOA Special Review Committee, and other organizations. Our Partners are frequent speakers on technical topics at conferences and training events throughout California, including the recent CSMFO Annual Conference.  We currently provide audit services to over 15 water districts in Southern California. Our deep understanding of the issues facing California governments and water districts enables us to provide high quality audit services to OWD.  We extensively utilize data mining software to evaluate anomalies in your accounting data. This helps focus our auditors’ attention on potential errors in the accounting records and transactions that could be more susceptible to fraud. We appreciate the opportunity to share our credentials and look forward to developing our professional relationship. Our proposal remains a firm and irrevocable offer until March 4, 2022. I look forward to you contacting me so that I may answer further any questions which you may have. You may contact me at (760) 298-5872. Very truly yours, Shannon Ayala, CPA Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 5 1 Otay Water District | Proposal for Professional Auditing Services Section A – About Davis Farr LLP Background Information – Davis Farr LLP is a full-service regional accounting firm that specializes in providing attest and advisory services to federal, state, and local governments out of our California and Washington offices. This engagement would be serviced by our Carlsbad office. Our personnel have served governmental entities for over 30 years. A breakdown of our government audit personnel by classification is provided below. License to Practice in California – Davis Farr LLP and all key personnel are licensed with the California State Board of Accountancy to practice as independent certified public accountants. Independence – Davis Farr LLP is independent with respect to OWD as defined by U.S. General Accounting Office’s Government Auditing Standards and Generally Accepted Auditing Standards. Davis Farr LLP has not had any engagements with the District in the past 5 years. Neither Davis Farr LLP nor the key personnel have any potential or real conflicts of interest. Quality Control – Davis Farr LLP and its Partners are members of the American Institute of Certified Public Accountants (AICPA) and is a member of the AICPA’s Government Audit Quality Center. Our firm is a voluntary participant in the AICPA Peer Review Program. Included in the appendix is our most recent Peer Review report where our firm received a Pass. A Pass demonstrates the highest level of quality control in a Peer Review. The Peer Review included a review of government engagements. There has been no disciplinary action taken or pending against the firm during the past three years with state regulatory bodies or professional organizations. Training – Every professional of the firm participates in continuing professional education courses. Each person is required to take at least 80 hours of training over a two-year period including 24 hours a year specific to government accounting and audit topics. Courses cover a wide spectrum of professional and technical subjects, and include Fraud, Professional Ethics and Governmental Accounting and Auditing topics to help the practitioner maintain his/her professional expertise. Classification Number of Employees Partners 7 Managers 8 Supervisors 4 Seniors 17 Staff 13 Administrative 3 Total personnel 52 FY22-2231-006Otay Water District BidSync10/12/2021 p. 6 2 Otay Water District | Proposal for Professional Auditing Services Professional Affiliations Government Audit Quality Center – Davis Farr LLP is a member of the Government Audit Quality Center (GAQC). The GAQC promotes the importance of quality governmental audits and the value of such audits to purchasers of governmental audit services. GAQC is a voluntary membership center for CPA firms and state audit organizations that perform governmental audits. National Registry of CPE Sponsors – Davis Farr LLP is registered to provide continuing professional education through the National Association of State Board of Accountancy (NASBA). NASBA recognizes CPE program sponsors who provide continuing professional education programs in accordance with nationally recognized standards. We provide CPE to our clients at our annual GASB Update. CalCPA – Many of the CPAs employed by Davis Farr LLP are members of CalCPA and regularly participate in chapter meetings, education, and events. CalCPA recognized one of Davis Farr LLP’s partners with their Women to Watch award in the Experienced Leader category. Davis Farr presented at the 2020 Women’s Leadership Forum. Davis Farr LLP partners are also members of the Governmental Accounting and Auditing Committee of the CalCPA and founding firm Partner Jennifer Farr is the current Chair of the Committee. American Institute of CPAs – Davis Farr LLP and the firm’s Partners are members of the American Institute of CPAs (AICPA). The AICPA develops standards for audits, provides educational guidance materials to its members, and monitors and enforces compliance with the profession’s technical and ethical standards. CSMFO – The Partners of Davis Farr LLP are members of the California Society of Municipal Finance Officers (CSMFO), the statewide organization serving all California municipal finance professionals. Firm personnel regularly attend CSMFO Chapter Meetings and Conferences. The Partners of Davis Farr LLP are frequent presenters on accounting and auditing technical topics at Chapter Meetings and Conferences. Davis Farr presented at the annual CSMFO conference in February 2021. GFOA – The Government Finance Officers Association (GFOA) enhances and promotes the professional management of governmental financial resources by identifying, developing, and advancing fiscal strategies, policies, and practices for the public benefit. The Partners of Davis Farr LLP are members of the Certificate of Achievement Program’s Special Review Committee. The Committee reviews Annual Comprehensive Financial Reports submitted to GFOA for the Excellence in Financial Reporting Award Program. FY22-2231-006Otay Water District BidSync10/12/2021 p. 7 3 Otay Water District | Proposal for Professional Auditing Services Section B – Qualifications and Related Experience Davis Farr LLP is a leader in the local government sector throughout the Southern California Area. Currently, we service approximately 60 local, state, and federal government entities. Davis Farr LLP services routinely provided to our clients include, but are not limited to: Our government expertise includes Cities, Special Districts, and other Governmental entities. Among the government agencies that the professionals of Davis Farr LLP have served recently are the following:  City of Avalon  City of Los Angeles  Leucadia Wastewater District  City of Carlsbad  City of Mission Viejo  Metropolitan Water District of So CA  City of Commerce  City of Newport Beach  Municipal Water District of So CA  City of Coronado  City of Poway  Orange County LAFCO  City of Costa Mesa  City of Rancho Santa Margarita  Oxnard Housing Authority  City of Cypress  City of Santee  Placer County Water Agency  City of Delano  City of South Gate  Rancho California Water District  City of Encinitas  City of Vista  San Diego Association of Governments  City of Fontana  County Los Angeles  San Diego County Water Authority  City of Garden Grove  County of Placer  San Diego LAFCO  City of Huntington Beach  County of San Diego  Sweetwater Authority  City of Indio  East Orange County Water District  Tahoe Regional Planning Agency  City of Irvine  Hass Avocado Board  Tahoe Transportation District  City of Laguna Niguel  Irvine Ranch Water District  Vallecitos Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 8 4 Otay Water District | Proposal for Professional Auditing Services Section C – Client References For your convenience, we have listed below references for audit work currently being performed by Davis Farr LLP personnel for several Cities throughout Southern California. For each of the references, we currently serve as independent auditors and have served these clients for a number of years. CLIENT 1 City of Carlsbad – Carlsbad MWD 1635 Faraday Avenue |Carlsbad, CA Ryan Green, Finance Director 760.602.2414 rgreen@carlsbadca.gov Financial Statement Audit of the City, including the Water District CLIENT 2 City of Encinitas – San Dieguito WD 505 S. Vulcan Avenue | Encinitas, CA Teresa McBroome, Director of Finance 760.633.2772 tmcbroome@encinitasca.gov Financial Statement Audit of City, including the Water District CLIENT 3 San Diego County Water Authority 4677 Overland Avenue | San Diego, CA Chris Woidzik, Controller 858.522.6679 cwoidzik@sdcwa.org Financial Statement Audit of the Authority and Quantification Settlement Agreement CLIENT 4 Vallecitos Water District 201 Vallecitos De Oro | San Marcos, CA Wes Owen, Finance Manager 760.744.0460 wowen@vwd.org Financial Statement Audit of District CLIENT 5 Sweetwater Authority – South Bay ID 505 Garrett Avenue | Chula Vista, CA Rich Stevenson, Director of Finance 619.409.6711 rstevenson@sweetwater.org Financial Statement Audit of the Authority and South Bay Irrigation District 700 Hours 650 Hours 325 Hours 250 Hours 250 Hours FY22-2231-006Otay Water District BidSync10/12/2021 p. 9 5 Otay Water District | Proposal for Professional Auditing Services Section D – Proposed Staffing The successful outcome of any audit requires personnel with the managerial and technical skills to perform the work required. The engagement team who will serve OWD have served together as a team of professionals on numerous financial audit examinations of local government entities. Key personnel include the Partner, Manager, and Senior Auditor. Key personnel will not be removed or replaced without the prior written concurrence of OWD. We believe that efficient administrative management and supervision of the audits is an extremely critical factor in achieving the desired results for OWD. In that regard, our proposal organizational structure for providing independent auditing services is as follows: Shannon Ayala, CPA Jeffrey Olinarez, CPA Jennifer Farr, CPA, MBA Makaylyn Tallman Diego Vanegas, CPA, CISA AUDIT SENIOR Staff Auditor FY22-2231-006Otay Water District BidSync10/12/2021 p. 10 6 Otay Water District | Proposal for Professional Auditing Services Section E – Work Plan Davis Farr plans and conducts our engagements in the most efficient manner possible, and our audit approach is unique with regard to the following:  Our firm is sensitive to the priorities and work requirements of our clients. We work around the schedules of our clients when scheduling segments of the audit or requesting documentation in order to minimize disruption of OWD staff and to complete the audit in a timely manner.  Whenever possible, we use accounting support already prepared by OWD staff to avoid duplication or unnecessary requests for audit supporting schedules. Typically, we request support for balance sheet items, the year ending trial balance and cash and long-term debt confirmations.  Our firm’s expertise is in governmental auditing. Our auditors are GASB experts and skilled at addressing audit issues that are specific to local governments. You will not spend time training our personnel.  When formulating internal control recommendations, we obtain a thorough understanding of the specific circumstances at OWD to provide a tailored, practical recommendation.  Throughout the year we are a resource to our clients in providing accounting advice, researching technical questions, dealing with tax problems, and helping with other problems as they arise. Audit Software - We utilize CaseWare audit software for the electronic copy of OWD workpapers. We have the ability to accept audit documentation in either hard copy or electronic format. CaseWare allows us the ability to import trial balances that can be provided in either excel or a text document. Some of the benefits of using CaseWare trial balance software are as follows:  We create our own lead sheets (i.e., analytical review comparison schedules). This limits the amount of time finance staff spends creating audit schedules. Our software automatically generates analytical review reports by account number for ease of analyzing significant fluctuations between fiscal years.  We can link the financial statement schedules directly to the CaseWare trial balances. As a result, we can provide OWD with financial statements almost immediately after receiving the trial balance from OWD. Additionally, journal entries are easy to post to the financial statement schedules and the risk of data entry error is minimized.  We can provide OWD with reports showing the grouping of the financial statement schedules for ease of review by OWD staff. These reports show each account grouped to a specific financial statement line item as well as journal entries that are posted during the audit. Data Mining Software - We have a dedicated team of personnel trained to use special data mining software, IDEA. Our software uses source data from your accounting system to search for anomalies, such as duplicate or voided checks, cross-referencing vendor addresses with employee addresses, detecting accounting transactions recorded on the weekend, reviewing journal entry postings for unauthorized individuals. The IDEA software identifies specific transactions for the auditors to review for potential fraud or error. Internal Control Evaluation - Our approach to evaluating internal controls involves observation and inquiry. We spend time with the personnel responsible for the accounting cycles to gain an understanding of the processes. We also carefully evaluate your policies and procedures. After our initial evaluation, we identify key controls in your processes and design test to evaluate the effectiveness of those processes. In the initial year of the audit, we will focus on the following accounting cycles:  Billing and cash receipting  Capital assets  Purchase and disbursements  Payroll  Investment and cash controls  Information systems FY22-2231-006Otay Water District BidSync10/12/2021 p. 11 7 Otay Water District | Proposal for Professional Auditing Services In future years, we will review the accounting cycles noted above but also look at other processes such as credit card transactions, petty cash, inventory controls, offsite cash receipting, employee reimbursements, contract compliance, and other areas. Our goal is to modify our audit approach every year to further evaluate your internal controls. Audit Stage Procedures Performed Planning and Inquiry During the planning phase of the audit, we plan to perform the following procedures:  Meet with finance personnel to obtain an understanding of significant transactions during the year.  Communicate with the Board of Directors regarding fraud, compliance with laws, and any concerns they have regarding the finances of OWD.  Perform internal control evaluations as noted on the previous page.  Determine materiality levels that will be used in selecting audit transactions.  Perform a risk assessment to develop the audit plan for the year.  Review minutes of the Board meetings.  Review important new contracts, bond documents, and agreements.  Evaluate compliance with investments.  Test purchase orders and contract management.  Test a sample of cash disbursements to determine adherence to policies and internal controls.  Perform a review of OWD’s information systems and controls.  Perform compliance testing of federal grants, as necessary.  Review the prior audited financial statements and provide feedback to OWD staff regarding best practices for financial reporting.  Provide a GASB Update and templates for implementing new accounting standards including the upcoming lease accounting standard. Year-End Testing After the books are closed and ready for audit, we will perform our year-end procedures which include the following:  We will confirm 100% of all cash and investment balances and test market values provided by your investment custodians.  We will test for proper cutoffs of accounts receivable and grants receivable.  We will confirm and test material notes and loans receivable.  We will test additions and deletions to capital assets. We will review depreciation expense for reasonableness.  We will test interfund transactions including due to/due from other funds and transfers.  We will test current liabilities and perform a search for unrecorded liabilities.  We will review unearned revenue balances for proper cutoffs.  We will test the balances of accrued payroll and employee related liabilities.  We will confirm long-term debt with independent parties, when applicable.  In years of new debt issuances, we will review the journal entry to record the debt to ensure the accuracy of the accounting.  Testing of actuarial valuations and calculations related to pension and OPEB obligations and disclosures under GASB 68 and 75.  Evaluation of claims and judgments payable.  Testing of restrictions and classifications of net position.  Analyze grant revenues and expenses to ensure proper matching within the fiscal year.  Test the reasonableness of interest income, realized, and unrealized gains/losses on investments.  Analytically and substantively test revenues and expenses reported in the financial statements.  We will incorporate an element of unpredictability every year that will focus on an audit area that is not typically considered a high or significant risk area such as petty cash, credit card purchases, new vendors, travel expenses, etc. The aforementioned tests are only a few of the tests performed during the examination and by no means is it meant to be all inclusive. During the final stage of the audit, we will meet with Finance staff to review our audit findings and any adjusting journal entries. FY22-2231-006Otay Water District BidSync10/12/2021 p. 12 8 Otay Water District | Proposal for Professional Auditing Services Audit Stage Procedures Performed Single Audit Approach As part of our Single Audit for the years in which OWD expends granter than $750,000, we will perform the following procedures in accordance with the Uniform Guidance:  Perform an evaluation of the major programs required to be tested.  Review OMB guidance and the OMB Compliance Supplement for the grant program audited.  Review internal controls for each of the applicable 14 compliance areas for each program audited.  Using AICPA sampling guidance, we will select a sample for each of the applicable 14 compliance areas for each program audited. We will test the sample for compliance with those 14 areas.  Test the indirect cost rate, if applicable.  Review monitoring reports for noncompliance and follow up on the resolution of past noncompliance, if applicable.  Issue a single audit report of federal expenditures.  File the data collection form within the specified deadline. Completion of the Audit and Preparation of Financial Statements The nature and extent of the work required is dependent on our assessment of the likelihood of misstatements in the financial statements together with our conclusions from the planning and testing stages of the audit. All of the audit information is then used to reach a conclusion on whether the financial statements taken as a whole conform with generally accepted accounting principles.  We will review significant events after year end.  We will review attorney letters for significant legal matters.  We will provide five levels of review on the OWD Annual Comprehensive Financial Report.  We will meet with Board of Directors to present the audit results, as requested. Section F – Implementation of New GASB Pronouncements OWD will be required to implement the following accounting standards during the upcoming fiscal years. Part of our service to you includes consulting on these new auditing standards. A sampling of significant new GASB pronouncements planned or proposed for local governments that will impact OWD are listed below: The objective of this statement is to better meet the information needs of the financial statement users by improving accounting and financial reporting for leases by governments. The standard will be effective for the fiscal year ending June 30, 2022. GASB 87: Leases The primary objective of this Statement is to provide guidance related to public- private and public-public partnership arrangements in which a government contracts with an operator to provide public services. This statement also provides guidance or accounting and financial reporting for availability payment arrangements in which a government compensates an operator for services in and exchange transaction. This standard will be effective for the fiscal year ending June 30, 2023. GASB 94: Public-Private and Public-Public Arrangements The Statement provides guidance to governments on the accounting and financial reporting for subscription- based information technology arrangements. This Statement is effective for the fiscal year ending June 30, 2023. GASB 96: Subscription Based IT Agreements FY22-2231-006Otay Water District BidSync10/12/2021 p. 13 9 Otay Water District | Proposal for Professional Auditing Services Section G – Scope of Work Our understanding of the objectives and scope of the work to be performed is as follows:  We will perform an audit examination of the financial statements of OWD for the fiscal year ending June 30, 2022, with optional extensions through 2026. Our examination will be conducted in accordance with generally accepted auditing standards, the AICPA Audit and Accounting Guide, Audits of State and Local Government Units, and the Government Auditing Standards issued by the Comptroller General of the United States. We will ensure that the Basic Financial Statements are prepared in conformity with the most recent edition of the GAAFR, the GAAFR Update, and subsequent GASB pronouncements.  When necessary, we will perform a compliance audit of federal expenditures in accordance with the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards in any year OWD has federal expenditures of more than $750,000.  We will prepare a letter to the Board of Directors summarizing the audit results in accordance with the Codification of Auditing Standards Section 260.  We will prepare a letter to the Board of Directors reporting matters dealing with internal control that meet the threshold of being a significant deficiency or material weakness, as defined by the Codification of Auditing Standards Section 265. We will immediately report any irregularities or illegal acts that come to our attention to management and/or those charged with governance.  As requested, we will meet with the Board of Directors to discuss the results of the audit.  Finally, we perceive the scope of our work as being advisors to OWD regarding generally accepted accounting principles. Throughout the year, the management and other finance personnel of OWD will have access to us to seek advice in the application of generally accepted accounting principles, advice regarding debt issuance, financial statement preparation and content, tax and any other matters relating to OWD. Each year, we will review upcoming accounting standards in a meeting with OWD staff. Section H – Proposed Timing of the Audit for FY 21/22 The following proposed timing is subject to OWD’s revision and approval: Ta s k 0 1 April 2022 Audit Request List Provided Ta s k 0 2 May 9, 2022 Audit Planning Meeting Ta s k 0 3 May 9-13, 2022 Interim Audit Procedures Ta s k 0 4 July 15, 2022 Final Audit Request List Provided Ta s k 0 5 August 22- 26, 2022 Final Audit Procedures Ta s k 0 6 August 31, 2022 Exit Meeting Ta s k 0 7 September 9, 2022 Review of Draft Financial Report Ta s k 0 8 Finalization of Audit Reports Within 5 Working Days of Receiving Approval FY22-2231-006Otay Water District BidSync10/12/2021 p. 14 10 Otay Water District | Proposal for Professional Auditing Services Section I – Proposed Segmentation of the Audit The following is our estimate of the hours by professional classification required to perform the audit and additional services: Davis Farr does not anticipate any potential audit problems. Classification Hours Percentage Partner 28 9% Manager 44 15% Audit Senior 132 43% Staff Auditor 102 33% Total 306 100% FY22-2231-006Otay Water District BidSync10/12/2021 p. 15 11 Otay Water District | Proposal for Professional Auditing Services RFP FORMS FY22-2231-006Otay Water District BidSync10/12/2021 p. 16 APPENDIX C PROPOSER GUARANTEES I. The Proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required. Signature of Official: _____________________________ Name (typed): __________________________________ Title: __________________________________________ Firm: __________________________________________ Date: ___________________________________________ FY22-2231-006Otay Water District BidSync10/12/2021 p. 17 APPENDIX D PROPOSER WARRANTIES A. Proposer warrants that it is willing and able to comply with State of California laws with respect to foreign (non-state of California) corporations. B. Proposer warrants that it is willing and able to provide proof of insurance covering the following areas: 1) general liability; 2) worker’s compensation; 3) errors and omissions providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the District. D. Proposer warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: _____________________________ Name (typed): __________________________________ Title: __________________________________________ Firm: __________________________________________ Date: ___________________________________________ FY22-2231-006Otay Water District BidSync10/12/2021 p. 18 APPENDIX F FORMATION OF CONTRACT; ADDITIONAL CONTRACT PROVISIONS 1. This Request for Proposal (RFP), together with proposer’s signed offer (Proposal) and the Otay Water District’s written acceptance thereof, including any contract provisions approved by the parties pursuant to subsequent negotiations, if any, shall constitute a binding contract (collective, the “Contract”). The Contract shall only be amended or modified annually, upon approval by the District of an updated Appendix E or pursuant to a written amendment signed by both parties. 2. Conflict of Interest a. Auditor has received and reviewed a copy of the District's Conflict of Interest Code (the "COI"), set forth under Division I, Chapter 5, Section 6 of the District's Code of Ordinance. Auditor understands that, to the extent it (i) conducts research and arrives at conclusions concerning advice, recommendations or information independently from the District; and (ii) renders information, advice, recommendations or counsel to the District, it may be required to file a disclosure statement in accordance with the COI. b. No officer or employee of the District shall have any financial interest, direct or indirect, in this Agreement nor shall any such officer or employee participate in any decision relating to the Agreement which effects his or her financial interest or the financial interest of any corporation, partnership or association in which he or she has a financial interest if such participation would be in violation of any State statute or regulation. c. Auditor, its officers, managers, related entities, affiliates, business associates, and their respective relatives or living trusts or other similar entities or persons (each, a “Related Person”) shall avoid any relationship with District or any contractor of District that constitutes or may constitute a conflict of interest in connection with services provided under this Agreement. d. Prior to entering into this Agreement and during the term, Auditor shall have a duty to disclose to the District any and all circumstances that pose an actual or potential conflict of interest. e. Auditor shall not obtain for itself or any Related Person any financial gain from the services other than as specified in this Agreement. Auditor represents that neither Auditor nor any Related Person has an existing financial interest and that neither will acquire any such interest, direct or indirect, that conflicts in any manner or degree with the performance of services required under this Agreement and that no person having any such interest shall be subcontracted in connection with this agreement, or employed by Auditor. Auditor shall not enter into this FY22-2231-006Otay Water District BidSync10/12/2021 p. 19 Agreement if such a conflict of interests exists at present. f. If an actual or potential conflict of interest issue arises, Auditor agrees to fully cooperate in any inquiry and to provide the District with all documents or other information reasonably necessary to enable the District to determine whether or not a conflict of interest existed or exists. g. Auditor shall not conduct or solicit any non-District business while on District property or time. h. Failure to comply with the provisions of this section shall constitute grounds for immediate termination of this Agreement, in addition to whatever other remedies the District may have. 3. The Contract shall be interpreted and enforced pursuant to the laws of the State of California, without regard to any conflict of laws principles. Disputes which cannot be resolved by mutual agreement or by the terms and condition of this Contract shall be resolved by a court of competent jurisdiction in the County of San Diego, State of California. Signature of Official: _____________________________ Name (typed): __________________________________ Title: __________________________________________ Firm: __________________________________________ Date: ___________________________________________ FY22-2231-006Otay Water District BidSync10/12/2021 p. 20 12 Otay Water District | Proposal for Professional Auditing Services APPENDIX FY22-2231-006Otay Water District BidSync10/12/2021 p. 21 Shannon Ayala, CPA Partner Ms. Ayala will serve as the Partner on this audit. She will oversee the project to ensure all required deadlines are met, provide technical assistance to the audit teams, and review the final reports before they are released. Ms. Ayala is a Certified Public Accountant with twenty years of audit experience, spending most of that time on audits for local governments in San Diego County. Ms. Ayala has performed financial statement audits of cities and special districts; grant specific audits of funds awarded by Federal, state, and county governments; Single Audits in accordance with Uniform Guidance, and compliance audits. Employment History  Davis Farr LLP – Since 2015  National CPA Firm – 10 years  Lennar Homes – 2 years Education  Bachelor of Science - Accounting (San Diego State University) Licenses / Registrations  California CPA Certificate No. 88126 Professional Affiliations & Awards  American Institute of Certified Public Accountants  California Society of Certified Public Accountants  California Society of Municipal Finance Officers AUDITS OF GOVERNMENTAL AGENCIES  City of Carlsbad  Rancho California Water District  City of Coronado  San Diego Local Agency Formation Commission  City of Del Mar  San Diego County Water Authority  City of Escondido  San Diego Association of Governments  City of Poway  Salton Sea Authority  City of San Marcos  San Dieguito River Park Joint Powers Authority  City of Santee  Sweetwater Authority  Imperial County Local Agency Formation  Vallecitos Water District  Leucadia Wastewater District  Rancho California Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 22 Jennifer Farr, CPA, MBA Partner Ms. Farr will serve as the Quality Control Reviewer on this audit. She will be involved in approving the audit plan, reviewing key audit workpapers, reviewing all reports and acting as a second technical resource. Ms. Farr is a Certified Public Accountant with over 20 years of experience in local government auditing. Ms. Farr is a frequent speaker on matters pertaining to technical issues and new GASB pronouncements. Ms. Farr is also responsible for training in the area of local governmental accounting and auditing. Employment History  Davis Farr LLP – Founding Partner  Shareholder – National CPA Firm Education  Bachelor of Arts - Business Administration / Accounting (California State University, Fullerton)  Bachelor of Arts - English (California State University, Fullerton)  Master of Business Administration (California State University, Fullerton) Licenses / Registrations  California CPA Certificate No. 76292, October 1998 Professional Affiliations & Awards  California Society of Certified Public Accountants  Government Accounting & Auditing Committee o Current Chair of Committee  California Society of Municipal Finance Officers  American Institute of Certified Public Accountants  Government Finance Officers Association  Financial Review Committee AUDITS OF GOVERNMENTAL AGENCIES  City of Avalon  City of RSM  Inland Empire Utilities Agency  City of Carlsbad  City of Rosemead  Irvine Ranch Water District  City of Commerce  City of San Bruno  Leucadia Wastewater District  City of Campbell  City of Santa Ana  Mesa Water District  City of Coronado  City of Santee  Moulton Niguel Water District  City of Costa Mesa  City of Villa Park  Orange County Water District  City of Encinitas  City of Walnut Creek  Placer County Water Agency  City of Fontana  City of West Covina  San Diego Association of Governments District  City of Fountain Valley  City of Whittier  Sweetwater Authority  City of Garden Grove  City of Woodland  Tahoe Transportation District   City of Half Moon Bay  City of RSM  Tahoe Regional Planning Agency   City of Mission Viejo  Cucamonga Valley WD  West Basin Municipal Water District  City of Palm Springs  Eastern Municipal WD  Yucaipa Valley Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 23 Diego Vanegas, CPA, CISA, CITP Partner Mr. Vanegas will serve as the IT Specialist on the engagement. Mr. Vanegas, CPA, CISA, CITP has over 16 years of progressive governmental accounting and audit experience, including extensive compliance audit experience for governmental and non-profit agencies. He has been involved in financial/compliance audits, internal control audits and assessments, operational/performance audits, and cost proposal analysis/price reviews for various governmental agencies. Mr. Vanegas has served in many capacities depending on the size and requirements of the engagements. He has participated in audits of federal agencies such as NSF, CMS, and CNCS, among others. Additionally, Mr. Vanegas has been involved in agreed-upon-procedures and audit engagements of state/local agencies. These engagements have often combined both financial and compliance aspects of the audit as well as Information Technology (IT). Furthermore, he has strong internal control audit experience through the performance of System and Organization Control examinations of the internal controls of service organizations, as well as knowledge of Government Auditing Standards, Office of Management and Budget (OMB) Circular A-87 and the Federal Acquisition Regulations (FAR). Employment History  Davis Farr LLP: Partner – January 1, 2018 – Present  Davis Farr LLP: Manager – June 2015 – December 31, 2017  Top 10 National CPA Firm – May 2005 - June 2015 Education  Bachelor of Science in Business Administration, with an emphasis in Accounting (California State University - Los Angeles)  Bachelor of Science in Computer Information Systems, with an emphasis in Business Systems (California State University - Los Angeles) Licenses / Registrations  CA CPA Certificate No. 113040  Certified Information Systems Auditor  Certified Information Technology Professional, No. 3298 FY22-2231-006Otay Water District BidSync10/12/2021 p. 24 Jeffrey Olinarez, CPA Manager Mr. Olinarez has five years of audit experience, spending the majority of that time on audits for local and federal government agencies. The types of audits Mr. Olinarez has been involved in include: financial audits of cities, special districts; grant specific audits of funds awarded by Federal, state, and county governments; Single Audits in accordance with OMB Circular A-133; and Federal compliance audits. Employment History  Davis Farr LLP: July 2016-current Education  Bachelor of Science in Accounting Azusa Pacific University Licenses / Registrations  CA CPA Certificate No. 140993 AUDITS OF LOCAL AND FEDERAL GOVERNMENTS  City of Mission Viejo  City of Woodland  City of Poway  County of San Diego  City of Santee  City of Fountain Valley  City of Victorville  Special Inspector General for Afghanistan Reconstruction  Sweetwater Authority  Yucaipa Valley Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 25 Makaylyn Tallman Audit Senior Ms. Tallman will service as the in-charge on this engagement. She will be the main point of contact for the staff. She will be responsible for performing the work and supervising staff. Ms. Tallman has two years of audit experience, spending the majority of that time on audits for non-profits, and federal and local government engagements. The types of audits Ms. Tallman has been involved in include: financial audits of non-profits, cities and special districts; grant specific audits of funds awarded by Federal, state, and county governments; Single Audits in accordance with OMB Circular A-133; and Federal compliance audits. Employment History  Davis Farr LLP: July 2018-current Education  Bachelor of Science in Accounting University of Nevada, Reno AUDITS OF LOCAL & FEDERAL GOVERNMENTS  City of Carlsbad  City of Delano  City of Encinitas  City of Poway  City of Santee  Centers for Medicare and Medicaid Services  County of San Diego AUDITS OF SPECIAL DISTRICTS  Eastern Municipal Water District  Imperial County LAFCO  Placer County Water Agency  Rancho California Water District  San Diego County Water Authority  San Diego Geographic Information Source  San Dieguito River Park Valley JPA  Santa Rosa Regional Resources Authority AUDITS OF NON-PROFITS & OTHER  Family YMCA of the Desert  San Diego Children’s Discovery Museum  Palmetto - SOC FY22-2231-006Otay Water District BidSync10/12/2021 p. 26 Report on the Firm’s System of Quality Control Davis Farr LLP Irvine, California; and the Peer Review Committee of the California Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of Davis Farr LLP (the firm) in effect for the year ended May 31, 2019. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants (Standards). A summary of the nature, objectives, scope, limitations of, and the procedures performed in a System Review as described in the Standards may be found at www.aicpa.org/prsummary. The summary also includes an explanation of how engagements identified as not performed or reported in conformity with applicable professional standards, if any, are evaluated by a peer reviewer to determine a peer review rating. Firm’s Responsibility The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The firm is also responsible for evaluating actions to promptly remediate engagements deemed as not performed or reported in conformity with professional standards, when appropriate, and for remediating weaknesses in its system of quality control, if any. Peer Reviewer’s Responsibility Our responsibility is to express an opinion on the design of the system of quality control and the firm’s compliance therewith based on our review. Required Selections and Considerations Engagements selected for review included engagements performed under Government Auditing Standards, including a compliance audit under the Single Audit Act, and examination of a service organization (SOC 1, Type 2 Report). As part of our peer review, we considered reviews by regulatory entities as communicated by the firm, if applicable, in determining the nature and extent of our procedures. FY22-2231-006Otay Water District BidSync10/12/2021 p. 27 Peer Review Report Page 2 of 2 Opinion In our opinion, the system of quality control for the accounting and auditing practice of Davis Farr LLP in effect for the year ended May 31, 2019, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiency(ies) or fail. Davis Farr LLP has received a peer review rating of pass. Ontario, California September 23, 2019 FY22-2231-006Otay Water District BidSync10/12/2021 p. 28 13 Otay Water District | Proposal for Professional Auditing Services FY22-2231-006Otay Water District BidSync10/12/2021 p. 29 Create Opportunities ©2021 CliftonLarsonAllen LLP | 1 October 12, 2021 Technical Proposal to provide professional auditing services to: Otay Water District Prepared by: CliftonLarsonAllen LLP David Forman, CPA, Principal 2965 Roosevelt Street, Suite A Carlsbad, CA 92008 Direct 760-994-4029 | fax 760-729-2234 david.forman@CLAconnect.com CLAconnect.com WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. CLA is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms. See nexia.com/member-firm-disclaimer. Attachment C Create Opportunities ©2021 CliftonLarsonAllen LLP |2 Table of Contents Transmittal Letter .................................................................................................................................. 3 1. General Requirements ........................................................................................................................ 5 Appendix C – Proposer Guarantees ............................................................................................................... 5 Appendix D – Proposer Warranties ............................................................................................................... 6 2. Independence .................................................................................................................................... 7 3. License to Practice in California .......................................................................................................... 7 4. Firm Qualifications and Experience ..................................................................................................... 7 Size of firm and governmental audit staff ..................................................................................................... 7 Office location, number and nature of professionals proposed for this engagement .................................. 8 Joint venture .................................................................................................................................................. 8 Peer Review Report ..................................................................................................................................... 10 Federal or state desk or field reviews ......................................................................................................... 12 5. Partner, Supervisory and Staff Qualifications and Experience ............................................................ 12 Staff continuity ............................................................................................................................................ 12 6. Similar Engagements with Other Government Entities ...................................................................... 13 References ................................................................................................................................................... 13 7. Specific Audit Approach .................................................................................................................... 14 Financial statement audit approach ............................................................................................................ 14 Work plan .................................................................................................................................................... 15 Level of staff and number of hours assigned to each segment of engagement ......................................... 22 Sample size and statistical sampling............................................................................................................ 23 Type and extent of analytical procedures to be used in the engagement .................................................. 23 Approach to be taken to understanding the District’s internal control structure ...................................... 25 Approach to be taken in determining laws and regulations that will be subject to audit test work .......... 26 Approach to be taken in drawing audit samples for purposes of tests of compliance ............................... 26 Engagement timetable ................................................................................................................................ 26 8. Identification of anticipated potential audit problems ....................................................................... 27 Additional Information......................................................................................................................... 27 Appendix - Engagement team biographies ............................................................................................ 29 CLA is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms. See nexia.com/member-firm-disclaimer for details. 3 Transmittal Letter October 12, 2021 Eid Fakhouri, Finance Manager Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978-2004 RE: Request for Proposals (RFP) for Professional Auditing Services Dear Mr. Fakhouri: Thank you for inviting us to propose our services to you. We gladly welcome the opportunity to share our approach to helping Otay Water District (the District) meet its need for professional services. The enclosed proposal responds to your request for auditing services for the fiscal year ending June 20, 2022, with the possible option of four subsequent fiscal years. We are confident that our extensive experience serving similar governmental entities, bolstered by our client-oriented philosophy and depth of resources, will make CLA a top qualified candidate to fulfill the scope of your engagement. The following differentiators are offered for the District’s consideration: Industry-specialized insight and resources. As one of the nation’s leading professional services firms, and one of the largest firms who specialize in regulated industries, CLA has the experience and resources to assist the District with their audit needs. In addition to your experienced local engagement team, the District will have access to one of the country’s largest and most knowledgeable pools of regulated industry resources. OMB Uniform Guidance (UG) experience. CLA performs single audits for hundreds of organizations annually, ranking top in the nation for the number of single audits performed by any CPA firm. The single audit requires a specific set of skills in order to properly perform the procedures. As such, we have developed a group of professionals who specialize in providing single audit services. Strong methodology and responsive timeline. In forming our overall audit approach, we have carefully reviewed the RFP and considered our past experience performing similar work for other municipalities. Our local government clients are included amongst the more than 4,150 governmental organizations we serve nationally. Our staff understands your complexities not just from a compliance standpoint, but also from an operational point of view. We have developed a work plan that takes into consideration your unique needs as a governmental entity in California. The work plan also minimizes the disruption of your staff and operations and provides a blueprint for timely delivery of your required reports. Communication and proactive leadership. The District will benefit from a high level of hands-on service from our team’s senior professionals. We can provide this level of service because, unlike other national firms, our principal-to-staff ratio is similar to smaller firms – allowing our senior level professionals to be involved and immediately available throughout the entire engagement process. Our approach helps members of the engagement team stay abreast of key issues at the District and take an active role in addressing them. A focus on providing consistent, dependable service. We differ from other national firms in that our corporate practice focuses on the needs of non-SEC clients, thus allowing us to avoid the workload CliftonLarsonAllen LLP 2965 Roosevelt Street, Suite A Carlsbad, CA 92008 phone 760-729-2343 fax 760-729-2234 CLAconnect.com CLA is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms. See nexia.com/member-firm-disclaimer for details. 4 compression typically experienced by firms that must meet public companies’ SEC filing deadlines. CLA is organized into industry teams, affording our clients with specialized industry-specific knowledge supplemented by valuable local service and insight. Therefore, the District will enjoy the service of members of our state and local government services team who understand the issues and environment critical to governmental entities. Fresh perspective. By engaging CLA, the District will benefit from a “fresh look” at its business operations, information systems, and financial and risk management policies and procedures. You will be served by an engagement team with enthusiasm and a desire to meet and exceed expectations. We are confident that our industry experience will bring to the District new ideas, creative approaches, and fresh opportunities to meet the financial management and accountability challenges before the District. Certification statement I, David Forman, your engagement principal, will serve as the District’s primary contact person for this engagement. Furthermore, as a principal of CLA, I am authorized to sign, bind, and commit the firm to the obligations contained in this proposal and the District’s RFP. My contact information is as follows: David Forman, CPA, Principal Office: 760-994-4029 Email: david.forman@CLAconnect.com This proposal is a firm and irrevocable offer until March 4, 2022 (175 days). Understanding of the work to be done We have read the Request for Proposal (RFP) and we understand the work to be done as detailed in the RFP under “Section II. Nature of Services Required”. Commitment to perform the work within the time period CLA will perform these services in the time period specified in the RFP and as finalized in the planning stages of the engagement. We are confident that our technical approach, insight, and resources will result in distinguished client service for the District. For ease of evaluation, the structure of our proposal follows your RFP section “VI, B. Technical Proposal”. We are eager to work with you and welcome the chance to present our proposal to the finance and administration committee. If you have any questions about our offerings, please do not hesitate to contact me. Sincerely, CliftonLarsonAllen LLP David Forman, CPA Principal Create Opportunities ©2021 CliftonLarsonAllen LLP | 5 1. General Requirements Appendix C – Proposer Guarantees Create Opportunities ©2021 CliftonLarsonAllen LLP | 6 Appendix D – Proposer Warranties Create Opportunities ©2021 CliftonLarsonAllen LLP | 7 2. Independence CLA is independent of the District as required by auditing standards generally accepted in the United States and the U.S. Government Accountability Office’s Government Auditing Standards. Our firm-wide quality control policies and procedures foster strict compliance with these professional standards. In addition, the individuals assigned to your audit are independent of the District. CLA and its employees have no prior relationship with the District, any of its agencies, component units, or oversight unit for the past five years with the exception of we were the independent auditors for the Metro Wastewater JPA through June 30, 2019. The Otay Water District is a member of this JPA. Additionally, we will not be using any subcontractors on this engagement. Any professional relationship entered into during the period of this agreement shall be discussed with the District through written notification. No conflict of interest CLA is not aware of any existing or potential conflict of interest matters that would impair our independence for the performance of this engagement. 3. License to Practice in California CLA is duly licensed to practice public accountancy in the state of California. A copy of our state license is provided below: 4. Firm Qualifications and Experience Size of firm and governmental audit staff With more than 7,400 people, including 400 state and local government audit professionals serving more than 4,150 governmental entities in more than 120 U.S. locations, and a global affiliation, CLA brings a wide array of approaches to help clients in all markets, foreign and domestic. Our professionals are immersed in the industries they serve and have specialized knowledge of their operating and regulatory environments. Create Opportunities ©2021 CliftonLarsonAllen LLP | 8 Office location, number and nature of professionals proposed for this engagement The District will be served from our Carlsbad location: CLA Carlsbad 2965 Roosevelt Street, Suite A Carlsbad, CA 92008 760-729-2343 | fax 760-729-2234 The professionals we have selected for the District’s engagement are full-time employees of CLA. The resources of all 400 CLA state and local government audit professionals is available to the District from this location. Joint venture We are not a joint venture or alliance of firms. We have the capabilities of providing all services outlined in the proposal, including Information Technology services Governmental auditing experience CLA offers the credibility, reputation, and resources of a leading professional services firm — without sacrificing the small-firm touch. We bring unsurpassed levels of technical excellence, commitment, and dedication to our clients, which have made us one of the most successful professional service firms serving governmental entities. Our strong reputation for serving state and local government units provides the District the confidence in their decision to select CLA as their professional service provider. CLA has one of the largest governmental audit and consulting practices in the country, serving more than 4,150 governmental clients nationwide. Regulated industry clients represent approximately one-quarter of all firm- wide revenue, and each of the government services team members are well versed in the issues critical to complex governmental entities. Our professionals have deep, technical experience in serving governmental entities. As a professional service firm experienced in serving state and local units of government, we are very aware of the financial and legal compliance requirements that government officials are faced with daily. This creates complexities and service issues within a unique operational and regulatory environment. Because of our experience, we have become adept at providing our clients with insights in this environment not typical of other professional service firms. Create Opportunities ©2021 CliftonLarsonAllen LLP | 9 California special district auditing experience As a CPA firm experienced in serving state and local governments, CLA is aware of the financial and legal compliance requirements that government officials are facing daily, specifically in the state of California. We understand and appreciate California governmental organizations like no other firm. Each of our government services team members specifically chose to work in this industry. As such, our people are passionate about what they do and are eager to meet and exceed your expectations both now and in the future. Industry participation CLA actively supports industry education as a thought leader and industry speaker. Our firm focuses on supporting the educational needs of the industry through nationally sponsored trade events. Our team of professionals is sought after, both as educators and as experienced speakers who are invited to speak and teach at major professional events by leading trade associations. Single audit experience CLA has become the national leader in providing audit, tax, and many other financial services to government entities similar to the District. Our client portfolio of nonprofit, government, and health care institutions represents nearly half of the firm’s total revenues. The chart below illustrates CLA’s experience in serving organizations that receive federal funds and demonstrates our firm’s dedication to serving the government and nonprofit industry. CLA performs the largest number of single audits in the United States! We audited more $56 billion dollars in federal funds in 2019. In the current environment of increased oversight and new federal funding being available through the CARES Act in response to the COVID-19 pandemic, it is more important than ever to find qualified auditors who have significant experience with federal grants specific to the District and can enhance the quality of the District’s single audit. Therefore, the single audit will be performed by a team of individuals who are managed by personnel who specialize in single audits in accordance with OMB’s UG and who will offer both knowledge and quality for the District. As part of our quality control process, the single audit will be reviewed by a firm Designated Single Audit Reviewer. Create Opportunities ©2021 CliftonLarsonAllen LLP | 10 The AICPA clarified auditing standard “AU-C 935 “Compliance Audits” requires risk-based concepts to be used in all compliance audits including those performed in accordance with OMB UG. Our risk-based approach incorporates this guidance. The District needs an audit firm experienced in performing single audits and a familiarity with the specific programs in which you are involved. You will benefit from CLA’s experience in this area! Peer Review Report In the most recent peer review report, dated November 2019, we received a rating of pass, which is the most positive report a firm can receive. We are proud of this accomplishment and its strong evidence of our commitment to technical excellence and quality service. The full report is provided on the following page. In addition to an external peer review, we have implemented an intensive internal quality control system to provide reasonable assurance that the firm and our personnel comply with professional standards and applicable legal and regulatory requirements. Our quality control system includes the following: A quality control document that dictates the quality control policies of our firm. In many cases, these policies exceed the requirements of standard setters and regulatory bodies. Firm leadership promotes and demonstrates a culture of quality that is pervasive throughout the firm’s operations. To monitor our adherence to our policies and procedures, and to foster quality and accuracy in our services, internal inspections are performed annually. Quality control standards as prescribed by the AICPA. The engagement principal is involved in the planning, fieldwork, and post-fieldwork review. In addition, an appropriately experienced professional performs a risk- based second review of the engagement prior to issuance of the reports. Hiring decisions and professional development programs designed so personnel possess the competence, capabilities, and commitment to ethical principles, including independence, integrity, and objectivity, to perform our services with due professional care. An annual internal inspection program to monitor compliance with CLA’s quality control policies. Workpapers from a representative sample of engagements are reviewed and improvements to our practices and processes are made, if necessary, based on the results of the internal inspection. Strict adherence to the AICPA’s rules of professional conduct, which specifically require maintaining the confidentiality of client records and information. Privacy and trust are implicit in the accounting profession, and CLA strives to act in a way that will honor the public trust. A requirement that all single audit engagements be reviewed by a designated single audit reviewer, thereby confirming we are in compliance with the standards set forth in Uniform Guidance. Create Opportunities ©2021 CliftonLarsonAllen LLP | 11 Create Opportunities ©2021 CliftonLarsonAllen LLP | 12 Federal or state desk or field reviews CLA has been subject to several federal and state desk reviews by state oversight agencies during the past three years, and we have resolved all findings. In addition, our government audits are subject to review by each agency’s Office of Inspector General, as well as the U.S. Government Accountability Office, and we have also resolved all findings identified in those reviews. Moreover, in those cases where claims have been resolved by settlement (the vast majority of our cases), the firm is typically subject to confidentiality agreements that prohibit the disclosure of information regarding those matters. Disclosure by the firm of any details about those matters could invalidate the settlement agreements. 5. Partner, Supervisory and Staff Qualifications and Experience An experienced engagement team has been aligned to provide the most value to your organization. The team members have performed numerous engagements of this nature and will commit the resources necessary to provide top quality service throughout the engagement. Following are our proposed management team members: Engagement Team Member Role Years’ Experience David Forman, CPA Engagement and Assurance Principal 27 Lauren K. Hoodenpyle, CPA Engagement Director 7 Jonathan Supple, CPA Engagement Staff 2 Detailed biographies including continuing professional education are available in the Appendix of this proposal. We will assign additional staff to your engagement based on your needs and their experience providing services to state and local governments. All management team members hold a CPA designation. Additional staff will hold a minimum of a bachelor’s degree from an accredited university, be a licensed CPA or CPA candidate and will be closely managed by one or more of the individuals listed above. Staff continuity We are committed to providing continuity throughout this engagement. It is our policy to maintain the same staff throughout an engagement, providing maximum efficiency and keeping the learning curve low. In any business, however, turnover is inevitable. When it happens, we will provide summaries of suggested replacements and will discuss re-assignments prior to finalizing. We have an adequate number of qualified staff members to provide the District with top service over the term of the engagement. Create Opportunities ©2021 CliftonLarsonAllen LLP | 13 6. Similar Engagements with Other Government Entities Listed below are some of the most significant engagements performed in the past five years that are similar to the District’s engagement. Similar entities Association of Ground Water Agencies California Groundwater Coalition Calleguas Municipal Water District Camarosa Water District Casitas Municipal Water District Central Basin Water Association Chino Basin Desalter Authority Coachella Valley Water District Crescenta Valley Water District East Valley Water District Encina Wastewater Authority Fairbanks Ranch Community Services District Fallbrook Public Utility District Fallbrook Regional Health District Gateway Water Management Authority Hemet-San Jacinto Watermaster Inland Empire Utilities Agency Jurupa Community Services District Laguna Beach County Water District Las Virgenes Municipal Water District Leucadia Wastewater District Main San Gabriel Basin Watermaster Mesa Water District Montebello Land and Water Company North Fork Water Company Olivenhain Municipal Water District Orange County Water District Orchard Dale Water District Padre Dam Municipal Water District Pico Rivera Water Authority Pomona Walnut-Rowland Joint Water Line Commission Rainbow Municipal Water District Rancho California Water District Rancho Santa Fe Community Services District Rincon del Diablo Municipal water District Rowland Water District San Gabriel Valley Council of Governments San Gabriel Valley Municipal Water District San Gabriel Water Association Santa Ana Watershed Project Authority Santa Fe Irrigation District Serrano Water District Southwest Water Coalition South Coast Water District Sweetwater Authority Valley County Water District Vista Irrigation District Western Municipal Water District West Valley Water District Whispering Palms Community Services District Yorba Linda Water District References CLA offers its clients the best of two worlds — a firm with national governmental experience, complemented by a local team dedicated to accessibility and responsiveness. We are pleased to provide you with the following references, similar to the District, who can describe their experience in greater detail. Fallbrook Public Utility District Client contact David, Shank, Assistant General Manager/Chief Financial Officer Phone number | email 760-728-1125 | dshank@fpud.com Dates of services 2018-Present Scope of work District and Single Audits Create Opportunities ©2021 CliftonLarsonAllen LLP | 14 Rincon del Diablo Municipal Water District Client contact Jeffrey Umbrasas, Director of Administration & Finance Phone number | email 760-445-1514 | jumbrasas@rinconwater.org Dates of services 2015 - Present Scope of Work District Audits, Preparation of State Controllers Audit Olivenhain Municipal Water District Client contact Rainy Selamat, Finance Manager Phone number | email 760-632-4218 | rselamat@olivenhain.com Dates of services 2011-2018 Scope of work District and Single Audits 7. Specific Audit Approach Financial statement audit approach Many organizations view an audit as a requirement that doesn’t contribute to their overall operations or value. At CLA, we believe an audit should be an annual check-up that gives you insight into your organization, allowing you to take advantage of opportunities and improve your operations. Our industry experience makes it easier. CLA auditors are industry aligned, making our audit process fast and smooth. We focus on operational efficiency and leverage our industry experience to bring you meaningful insights that go beyond compliance requirements. A dedicated team of professionals will listen to your goals and concerns, then work with you to navigate industry pressures, changing markets, and complex standards, all with a common goal to drive your business toward success. Your time has value. We recognize that you and your teams’ day is filled with competing priorities and constant distractions. We elevate your experience by utilizing a variety of communication mediums, such as a web-based document portal, video conferencing, email, and phone calls, to keep everyone informed and on track. These mediums provide ultimate flexibility so that you can choose where and how your audit is performed. In contrast to a traditional engagement, where a team spends weeks on site at your location, our Seamless Assurance Advantage focuses on having the right team members on your engagement and isn’t dependent upon any physical locations. A simple transition. We recognize changing accounting firms presents an opportunity as well as a challenge. Our approach deliberately and effectively minimizes the impact of transition. No surprises. We will provide the District with a no surprises approach to our services, based on frequent and timely communication and clarity around roles and expectations. If and when issues arise during the course of your audit, we engage the right people in a frank discussion to resolve them. Significant involvement of principals and managers. Because our principals and managers are directly involved in your engagement, we can proactively identify significant issues and resolve them with your management. We Create Opportunities ©2021 CliftonLarsonAllen LLP | 15 believe that your time is best spent with key decision makers so that you can ask clarifying questions, discuss organizational strategies, and navigate sensitive reporting issues. Established Methodology. Our audit is performed based on a risk-based approach. We conduct our audits under the concept of “understanding the entity.” This concept is based fundamentally on the fact that the District is unique. By understanding the District, we gain the necessary perspective for performing an effective audit. Our audit approach places particular emphasis on the planning phase to determine maximum efficiency and effectiveness. When performing an audit, we are sensitive and understanding of the fact that we report to those charged with governance. We maintain objectivity and independence in order to be able to issue our audit opinions. We will act within our philosophy of total client service, maintain the professional relationship refined with management, and fulfill our responsibilities with the utmost professionalism. Year-long support. We encourage your staff to take advantage of our accessibility throughout the year for questions that may arise. Our people, working with you and your staff, can provide proactive advice on new accounting or GAAP pronouncements and their potential impact; help with immediate problems including answers to brief routine questions; and share insights and best practices to assist you in planning for your future success. Work plan We will conduct our audit in four primary phases, as shown below. PHASE 1: PLANNING AND STRATEGY The main objective of the planning phase is to identify significant areas and design efficient audit procedures. We will accomplish our planning by following the methodology below: Conduct an entrance meeting with the District – David Forman and staff will meet with the District personnel to mutually agree on an outline of responsibilities and timeframes. The agenda will include but not be limited to the following: o Establish audit approach and timing schedule o Assistance to be provided by the District personnel o Application of generally accepted accounting principles o Initial audit concerns o Concerns of the District’s management o Establishment of report parameters and timetables o Progress reporting process Create Opportunities ©2021 CliftonLarsonAllen LLP | 16 o Establish principal contacts Gain an understanding of the operations of the District, including any changes in its organization, management style, and internal and external factors influencing the operating environment. We will utilize reference materials such as the budget and related materials, organizational charts, manuals and programs, financial, and other management information systems Identify significant accounts and accounting applications, critical audit areas, significant provisions of laws and regulations, and relevant controls over operations Determine the likelihood of effective Information Systems (IS) - related controls Perform a preliminary overall risk assessment Confirm protocol for meeting with and requesting information from relevant staff Establish a timetable for the fieldwork phase of the audit Determine a protocol for using TeamMate Analytics and Expert Analyzer, our data extraction and analysis software, to facilitate timely receipt and analysis of reports from management Compile an initial comprehensive list of items to be prepared by the District, and establish mutually agreed upon deadlines We will document our planning through preparation of the following: Entity Profile. This profile will help us gain an understanding of the District activities, organizational structure, services, management, key employees, and regulatory requirements. Preliminary Analytical Procedures. These procedures will assist in planning the nature, timing and extent of auditing procedures that will be used to obtain evidential matter. They will focus on enhancing our understanding of the financial results and will be used to identify any significant transactions and events that have occurred since the last audit date, as well as to identify any areas that may represent specific risks relevant to the audit. General Risk Analysis. This will contain our overall audit plan, including materiality calculations, fraud risk assessments, overall audit risk assessments, effects of our IS assessment, timing, staffing, client assistance, a listing of significant provisions of laws and regulations and other key planning considerations. Account Risk Analysis. This document will contain the audit plan for the financial statements, including risk assessment and the extent and nature of testing by assertion. Prepared by Client Listing. This document will contain a listing of schedules and reports to be prepared by the District personnel with due dates for each item. Assurance Information Exchange. CLA utilizes a secure web-based application to request and obtain documents necessary to complete client engagements. This application allows clients to view detailed information, including due dates for all of the items CLA is requesting. Additionally, clients have the ability to attach electronic files and add commentary related to the document requests directly on the application. One of the key elements in the planning of this audit engagement will be the heavy involvement of principals and managers. We will clearly communicate any issues in a timely manner and will be in constant contact with the District as to what we are finding and where we expect it will lead. We will develop our audit programs during this phase. Utilizing the information we have gathered and the risks identified we will produce an audit program specifically tailored to the District. This program will detail by major section the nature and types of tests to be performed. We view our programs as living documents, subject to change as conditions warrant. Create Opportunities ©2021 CliftonLarsonAllen LLP | 17 PHASE 2: SYSTEMS EVALUATION During the systems evaluation phase, we will gain an understanding of the internal control structure of the District for financial accounting and relevant operations. Next, we will identify control objectives for each type of control that is material to the financial statements, and then identify and gain an understanding of the relevant control policies and procedures that effectively achieve the control objectives. Finally, we will determine the nature, timing, and extent of our control testing and perform tests of controls. This phase of the audit will include testing of certain key internal controls: Electronic data, including general and application controls reviews and various user controls Financial reporting and compliance with laws and regulations We will test controls over certain key cycles. One audit efficiency initiative is to rely heavily on internal controls when appropriate, and to creatively look at internal control testing to make it as efficient as possible. This means not routinely performing detailed tests of transactions using large samples. We first seek to identify key controls, and then identify possible testing through alternative methods, such as observation, interviews, and re-performance. These tests serve not only to gather evidence about the existence and effectiveness of internal control for purposes of assessing control risk, but also to gather evidence about the reasonableness of an account balance. We will also develop our internal control tests to assess the compliance with certain provisions of laws, regulations, contracts, and grants for which noncompliance could have a direct and material effect on the determination of financial statement amounts. Our use of multi-purpose tests allows us to provide a more efficient audit without sacrificing quality. Our assessment of internal controls will determine whether the District has established and maintained internal controls to provide reasonable assurance that the following objectives are met: Transactions are properly recorded, processed, and summarized to permit the preparation of reliable financial statements and to maintain accountability over assets Assets are safeguarded against loss from unauthorized acquisition, use, or disposition Transactions are executed in accordance with laws and regulations that could have a direct and material effect on the financial statements We will finalize our audit programs during this phase. We will also provide an updated Prepared by Client Listing based on our test results and our anticipated substantive testing. During the internal control phase, we will also perform a review of general and application Information Systems (IS) controls for the applications that are significant to financial statements to conclude whether IS general controls are properly designed and operating effectively and consider application controls as part of the internal control assessment in the financial statement audit. Our strategy for the IS review of the applications will involve reviewing all of the general control activities, including the computerized and manual processes. We will determine the scope of work by applying the concepts of materiality and risk assessment to effectively reduce examination inefficiencies. When planning this examination, we will gain an understanding of the District’s operations by reviewing its current controls and control objectives as documented and will also review prior years’ audit work and the status of corrective actions. Create Opportunities ©2021 CliftonLarsonAllen LLP | 18 Based on our preliminary review, we will perform an initial risk assessment of each critical element in each general control category, as well as an overall assessment of each control category. We will then proceed to assess the significant computer-related controls. For IS-related controls that we deem to be ineffectively designed or not operating as intended, we will gather sufficient evidence to support appropriate findings and will provide recommendations to improve internal controls. For those IS controls that we deem to be effectively designed, we will perform testing to determine if they are operating as intended through a combination of procedures, including observation, inquiry, inspection, and re-performance. PHASE 3: TESTING AND ANALYSIS The extent of our substantive testing will be based on results of our internal control tests. It has been our experience that governmental entities, like the District, often have a system of internal controls that, with appropriately designed tests and correlation to account balances, can be used to limit the extent of account balance substantiation testing. Audit sampling will be used only in those situations where it is the most effective method of testing. Before deciding to sample, we will consider all possible approaches and audit techniques. Items where, in our judgment, acceptance of some sampling risk is not justified will be examined 100 percent. These may include unusual items or items for which potential misstatements could individually equal or exceed tolerable error. After identifying individually significant or unusual items, we will decide on the audit approach for the remaining balance of items by considering tolerable error and audit risk. This may include (1) testing a sample of the remaining balance; (2) lowering the previously determined threshold for individually significant items to increase the percent of coverage of the account balance; or (3) applying analytical procedures to the remaining balance. When we elect to sample balances, we will use TeamMate to efficiently control and select our samples. Our workpapers during this phase will clearly document our work as outlined in our audit programs. We will also provide the District with status reports during the course of the audit fieldwork. As in all phases of the audit, we will be in communication with the District to determine that all identified issues are resolved in a timely manner. We will also hold a final exit conference with the District to summarize the results of our fieldwork and review significant findings. PHASE 4: REPORTING AND FOLLOW-UP Reports to management will include oral and/or written reports regarding: Independent Auditors’ Report Independent Auditors’ Report on Internal Control over financial reporting and on compliance and other matters based on an audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor’s Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance, and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Management Letter Written Communication to Those Charged with Governance, which includes the following areas: o Our responsibility under auditing standards generally accepted in the United States of America Create Opportunities ©2021 CliftonLarsonAllen LLP | 19 o Changes in significant accounting policies or their application o Unusual transactions o Management judgments and accounting estimates o Significant audit adjustments o Other information in documents containing the audited financial statements o Disagreements with the District o the District’s consultations with other accountants o Major issues discussed with management prior to retention o Difficulties encountered in performing the audit o Fraud or illegal acts Once the final reviews of working papers and financial statements are completed, which is a process that actually starts while the fieldwork is in process, our opinion, the financial statements, and management letter will be issued. The District will be provided a draft of any comments that we propose to include in the management letter, enabling you to review the comments for accuracy prior to final release. Any items that come to our attention that are not what we consider major items may be discussed verbally with management and not included in the management letter. Our management letter will include items noted during our analysis of your operations. We will also make a formal presentation of the results of the audit to those charged with governance of the District, if requested. Single audit approach The OMB’s Uniform Guidance (2 CFR Part 200) is effective for federal grants made on or after December 26, 2014. This affects how federal grants are managed and audited and impacts every organization that receives federal assistance. Grant compliance can be a confusing topic and many of our clients rely on their federal funding as a major revenue source, so it is important that they understand what these changes mean to their organization. As a leader in the industry, CLA was out in front of these changes and informed our clients of how to be proactive about these changes could impact their entity. CLA professionals are available to provide guidance and tools tailored to the District’s needs, and to assist in compliance with these rules. The AICPA clarified auditing standard “AU-C 935 “Compliance Audits” requires risk-based concepts to be used in all compliance audits including those performed in accordance with 2 CFR Part 200. Our risk-based approach incorporates this guidance. Single audit work plan We will conduct our single audit in three primary phases, as shown, below: Create Opportunities ©2021 CliftonLarsonAllen LLP | 20 PHASE 1: RISK ASSESSMENT AND PLANNING The risk assessment and planning phase will encompass the overall planning stage of the single audit engagement. During this phase, we will work closely with the District’s management to determine that programs and all clusters of programs are properly identified and risk-rated for determination of the major programs for testing. We will also review the forms and programs utilized in the prior year to determine the extent of any changes which are required. We will accomplish this by following the methodology below: Determine the threshold to distinguish between Type A and B programs, including the effect of any loans and loan programs Utilizing the preliminary Schedule of Expenditure of Federal Awards, we will identify the Type A and significant Type B programs (25% of Type A threshold) in accordance with the Uniform Guidance Identify the programs tested and the findings reported for the past two fiscal years. Determine and document the program risk based on the past two single audits Prepare and distribute Type B program questionnaires to determine risk associated with Type B programs Determine the major programs to be tested for the current fiscal year based on the previous steps Based on our determination of the major programs, we will obtain the current year compliance supplement to aid in the determination of Direct and Material Compliance requirements, and customize the audit program accordingly Determine the preferred methods of communication during the audit PHASE 2: MAJOR PROGRAM TESTING We will determine the programs to be audited based on the risk assessment performed in the planning phase. We will perform the audit of the programs in accordance with UG. To accomplish this, we will perform the following: Schedule an introductory meeting and notify the District’s management of the major programs for the current fiscal year Plan and execute the testing of the expenditures reported on the Schedule of Expenditures of Federal Awards Perform tests of compliance and internal controls over compliance for each major program identified Schedule periodic progress meetings to determine that schedules are adhered to and identify issues as they arise Conduct entrance and exit conference meetings with each grant manager PHASE 3: FINAL ASSESSMENT AND REPORTING We will re-perform the steps noted in the preliminary assessment and planning stage once the final Schedule of Expenditures of Federal Awards is received to determine if additional major programs were identified. Based on the final determination of the programs we will perform the following: Create Opportunities ©2021 CliftonLarsonAllen LLP | 21 Identify Type A and significant Type B programs which were not previously identified. Re-assess the risk and determine if we are required to audit additional programs. Perform compliance testing at the entity wide level related to procurement and cash management requirements. Perform testing to validate the status of prior year findings for those programs not selected for audit. Prepare the Schedule of Findings and Questioned Costs. Conduct exit conference with the District’s management to review drafts of required reports: o Independent Auditors’ Report on Internal Control over financial reporting and on compliance and other matters based on an audit of Financial Statements Performed in Accordance with Government Auditing Standards o Independent Auditor’s Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance, and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Throughout the single audit, we will maintain communication through periodic progress meetings with those designated by the District. These meetings will be on a set schedule, but as frequently as the District determines. During these meetings, we will discuss progress impediments and findings as they arise. Commitment to communication with management As you will see, we are committed to ongoing communication throughout the engagement. Continual communication starts when an engagement letter is issued, continues until the completion or closeout of an engagement, and throughout the remainder of the year. We believe effective communication is critical to a successful engagement. This communication includes the exchange of ideas and advice as changes are considered or implemented by the entity or the accounting profession. During the engagement we will hold regular status meetings with the District to enhance day-to-day operations, results, and any issues are commonly understood and addressed. The objectives of tracking and formally reporting the engagement status are to: Provide a consistent technique for monitoring progress against plan Identify any issues quickly to allow for timely corrective action Provide an objective rather than subjective evaluation of status Provide timely information on a regular basis Assist with obtaining buy-in of any audit recommendations on a timely basis Our proactive measures foster communications, both written and oral, which are ongoing, relevant, and routine to our engagements. Our commitment to this practice encourages open lines of communication and often prevents and/or mitigates service delivery issues. Our professionals are trained in documenting observations, recommendations, business issues, and new developments as part of their daily routine. We explain exactly what we’re doing and what we’ve found in plain, everyday language. We translate our findings into ideas on how you can address them. We believe our services are a contributing factor to better business and administrative practices. We gain a better understanding of your organization by working closely with your staff. This involvement enables us to offer you recommendations or suggestions for improvement in your systems and procedures that are more comprehensive, better understood, and more frequently implemented. Create Opportunities ©2021 CliftonLarsonAllen LLP | 22 Workpaper retention Workpapers will be maintained for at least a seven-year period and will be available for examination by authorized representatives of the District, internal audit staff, and by authorized representatives of regulatory personnel, subject to professional ethics requirements. Significant records are stored in one of our secure Master Record Repositories per the engagement type. Upon the receipt of a request for retrieval, an appropriate review format will be determined based on the scope of the examination. Use of technology in the audit We’re reimagining the audit process through technology to elevate your experience! Assurance Information Exchange – CLA offers a secure web-based application to request and obtain documents necessary to complete client engagements. This application allows clients to view detailed information, including due dates for items that CLA requests. Additionally, the application allows clients to attach electronic files and add commentary related to the document requests directly on the application. AIE is provided at no additional cost, subject to the terms of the Assurance Information Exchange Portal Agreement. TeamMate Analytics and Expert Analyzer (TeamMate) – To analyze and understand large data sets, we use TeamMate Analytics and Expert Analyzer. We customize the application by industry in order to perform the most applicable procedures. This allows us to go beyond sampling and instead analyze the entire general ledger for targeted anomalies. Far beyond the audit application, our six-phase process of Risk Assessment, Data Analytics and Review (RADAR) can also provide actionable insights to help you understand your entity better. Microsoft® Teams – Our services approach focuses on impactful interactions. We’ve said goodbye to the days of setting up camp in our clients’ conference rooms for weeks on end. We know our clients have organizations to run, so our interactions have purpose. To assist with communications when we are not onsite, we utilize tools such as Microsoft Teams, which allow for two-way screen sharing and video. We’ve found this helps minimize disruptions in our clients’ environments while continuing to effectively communicate with each other. Level of staff and number of hours assigned to each segment of engagement Financial Statement Audit Engagement Segment Principal Manager Supervisory Staff Staff Others Total Hours Planning and Strategy 3.00 26.25 20.00 9.20 - 58.45 Systems Evaluation 2.00 15.00 20.00 23.00 - 60.00 Testing and Analysis 1.00 15.00 35.00 50.60 - 101.60 Reporting and Follow- up 14.00 18.75 25.00 9.20 8.00 74.95 Total 20.00 75.00 100.00 92.00 8.00 295.00 Create Opportunities ©2021 CliftonLarsonAllen LLP | 23 Sample size and statistical sampling We follow the guidance of AU-C Section 530, Audit Sampling, in using statistical and nonstatistical approach. We use quality control material in all our audit engagements. These AU-C Section 530 – “Audit Sampling” forms guide our staff through a logical process of assessing inherent risk, control risk, and combined audit risk, followed by an assessment of appropriate sample size for testing. Sample sizes will vary depending on the nature of the testing (compliance versus substantive) and the size of the population being sampled. Sampling techniques are utilized in compliance and internal control testing, as well as substantive testing of certain asset and liability account balances. Sample sizes used for internal control testing depend on a number of factors, namely the number of expected or actual control deviations, size of population, and level of control assurance anticipated. Sample sizes can range from 20 to 90 possible selections. To illustrate, if no internal control deviations are anticipated and the frequency of the population (i.e., the number of times the control is performed in a given year) is less than 100, then we will test 20 transactions in order to obtain moderate control assurance. If 2 internal control deviations are anticipated, and the frequency of the population is greater than 200, then we will test 90 transactions in order to obtain low control assurance. We are usually able to cover a substantial portion of the compliance and controls testing with one sample, resulting in a very efficient approach. Type and extent of analytical procedures to be used in the engagement In addition to standard auditing methodology, a distinguishing aspect of CLA’s audit services incorporates the power of data analytics to multiply the value of the analyses and the results we produce for clients. CLA’s data methodology is a six-phase, systematic approach to examining an organization’s known risks and identifying unknown risks. Successful data analysis is a dynamic process that continuously evolves throughout the duration of an engagement and requires collaboration of the engagement team. Data analytics are utilized throughout our audit process, our Risk Assessment, Data Analytics and Review (“RADAR”) is a specific application of general ledger data analytics that has been implemented on all audit engagements. RADAR is an innovative approach created and used only by CLA that aims to improve and replace traditional preliminary analytics that were being performed. The phases in our data analytics process are as follows: 1. Planning In the planning stage of the engagement, the use of data analysis is considered and discussed to determine that analytics are directed and focused on accomplishing objectives within the risk assessment. Areas of focus, such as journal entries, cash disbursements, inventory, and accounts receivable are common. 2. Expectations We consider the risks facing our client and design analytics to address these risks. Through preliminary discussions with management and governance, we develop and document expectations of financial transactions and results for the year. These expectations will assist in identifying anomalies and significant audit areas in order to appropriately assess risk. Create Opportunities ©2021 CliftonLarsonAllen LLP | 24 3. Data acquisition Sufficient planning, a strong initial risk assessment, and an adequate understanding of your systems will serve as the foundation necessary to prepare our draft data request list. We will initially request information in written format and conduct follow-up conversations helping CLA practitioners our staff share a mutual understanding of the type of data requested and the format required. If there are going to be any challenges/obstacles related to obtaining data, or obtaining data in the preferred format, they will generally be discovered at this point. 4. Technical data analysis Technical analysis of the data requires the skillful blend of knowledge and technical capability. Meaningful technical analysis provides the engagement team with a better understanding of the organization. The additional clarity assists the engagement team to better assess what is “normal” and, in turn, be better suited to spot anomalies, red- flags and other indications of risk. Analytics generally fall into five categories, each looking into the data set in a different way and deployed with a different purpose. 5. Interpret results and subsequent risk assessment Trends and anomalies will be identified through the performance of the above referenced analytics. Comments regarding the interpretation of those trends and anomalies will be captured. When trends are identified they are reconciled against expectations. For anomalies identified, the approach to further audit procedures will be considered. 6. Response and document The last process is to capture responses and determine that our procedures are properly documented. Abstracts, charts or summaries of both trends and anomalies are retained in the audit documentation to support our identification of risks. Our analysis can be tailored and customized to help analyze an array of information, including client specific and proprietary data. Key benefits of data analytics include: Built-in audit functionality including powerful, audit specific commands and a self-documenting audit trail 100 percent data coverage, which means that certain audit procedures can be performed on entire populations, and not just samples Unlimited data access allows us to access and analyze data from virtually any computing environment Eliminates the need to extrapolate information from errors (a common effort when manually auditing data) and allows for more precise conclusions This figure illustrates typical data analytics scenarios. Data Analytics. At the end of a series of pre-determined analytics (often retrieved from multiple proprietary accounting systems) that are customized to the project at hand, we identify anomalies and potential errors in transactions. In every case, we review what appears to be inappropriate activity, including supporting documentation evidencing the transactions. Create Opportunities ©2021 CliftonLarsonAllen LLP | 25 Approach to be taken to understanding the District’s internal control structure We understand changing audit firms would require a new set of auditors to develop an understanding of the District and its internal control and operating structure. We also strive to develop our understanding in the least intrusive manner possible, while still maintaining our professional responsibilities. We would utilize a combination of internal control forms and interviews with key accounting personnel to gain and document our understanding of the District. We will also use as a baseline any existing internal control processes, policies, organizational charts, etc. the District may have already documented. Tests of design and operating effectiveness would then be performed to confirm our understanding. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has established a framework for internal control systems. Under the COSO framework, internal control is a process to provide reasonable assurance that those internal objectives, including effectiveness and efficiency of business operations, reliability of financial reporting, and compliance with applicable laws and regulations, will be met. Our audit approach is designed to evaluate and test the departmental internal controls in accordance with COSO concepts. Our procedures include a review of the overall control environment, determination of the internal controls which are determined to be direct and material to the federal program under review, determination of the adequacy of those procedures, and testing of the procedures to determine if they are functioning as designed. During the planning and internal control phases of our audit, we will develop our understanding of the District business operations and internal control structure for financial accounting and relevant operations through observation, discussion, and inquiries with management and appropriate personnel. During this phase of the audit, we will review budgets and related materials, organization charts, accounting and purchase manuals, and other systems documentation that may be available. Once we understand your operations, we will then identify control objectives for each type of control that is material to the financial statements. The next step will be to identify and gain an understanding of the relevant control policies and procedures that effectively achieve the control objectives. We will then determine the nature, timing, and extent of our control testing, and perform tests of controls. This phase of the audit will include extensive testing of controls over transactions, financial reporting, and compliance with laws and regulations. Whenever possible, we will use dual-purpose tests to reduce the need to select multiple samples for internal control and compliance testing. We will be as efficient as possible, thereby reducing the disruption to your operations while achieving our audit objectives. Our assessment of internal controls will determine whether the District has established and maintained internal controls to provide reasonable assurance that the following objectives are met: Transactions are properly recorded, processed, and summarized to permit the preparation of reliable financial statements and to maintain accountability over assets Assets are safeguarded against loss from unauthorized acquisition, use, or disposition Create Opportunities ©2021 CliftonLarsonAllen LLP | 26 Transactions are executed in accordance with laws and regulations that could have a direct and material effect on the financial statements Our workpapers during this phase will clearly document our work through the preparation of the following for each significant transaction cycle or accounting application: Audit program Cycle memo and supporting documentation Account risk analysis (ARA) Specific control evaluation (SCE) Approach to be taken in determining laws and regulations that will be subject to audit test work We will obtain an understanding of the laws and regulations that have an impact on the District’s operations by reviewing council minutes to identify any ordinances or resolutions that might have an impact to operations and reporting by the District, as well as interview key personnel and management of the District. Additionally, the staff assigned to the engagement attend regular trainings and are well versed in upcoming legislation, federal and state laws (i.e. Uniform Grant Guidance) and proactively discuss these upcoming changes with our clients. We will also review current operations, contracts and IGA’s that may have an impact on current operations. Approach to be taken in drawing audit samples for purposes of tests of compliance We follow the guidance of AU-C Section 530, Audit Sampling, in using statistical and nonstatistical approach. We use quality control material in all our audit engagements. These forms guide our staff through a logical process of assessing inherent risk, control risk, and combined audit risk, followed by an assessment of appropriate sample size for testing. Because our sample sizes are affected by many variables, a statement about sample sizes cannot be made in absolute terms. However, with regard to sample selection, we will generally utilize representative sampling for internal control and compliance tests, including those related to single audit compliance. Samples will also be used in conjunction with other tests of compliance. In general terms, sample sizes for compliance and controls testing obtained via our guidance usually fall into categories of 25, 40, or 60 depending on circumstances. Where the population being tested is less than 100 items, we will use the 20%, 30%, or 40% of the population depending on our control risk assessment. We are usually able to cover a substantial portion of the compliance and controls testing with one sample, resulting in a very efficient approach. Engagement timetable Our project management methodology results in a client service plan that provides for regular, formal communication with the entire management team and allows us to be responsive to your needs. The schedule allows for input from your personnel to make certain that the services are completed based on your requirements. The plan may also be amended during the year based on input from the finance and administration committee. Create Opportunities ©2021 CliftonLarsonAllen LLP | 27 Annual Audit Task Estimated Date Entrance conference March-April 2022 Begin interim audit work May 23, 2022 Complete interim audit work June 30, 2022 Begin audit fieldwork August 22, 2022 Complete audit fieldwork August 29, 2022 Presentation to finance and administration committee August-September 2022 Assistance to be furnished by the District Our approach is to draw on our experience with similar organizations and have discussions with the District staff to determine the items that will be prepared and provided in relation to the audit. Our experience working with similar organizations enables us to streamline the Prepared by Client listing for the financial audit for both the interim and final fieldwork time periods. The Assurance Information Exchange enables an interactive exchange of items between the District and engagement team. The audit team will work with the District staff to develop timelines for the requests that are in line with the closing schedule of the District and will meet the overall objective of issuing the final reports during the District meeting when requested. 8. Identification of anticipated potential audit problems In situations where authoritative guidance on a particular transaction or accounting issue is unclear or subject to interpretation, our approach is to proactively meet with management to discuss the issue and reach a conclusion that is hopefully agreed upon by both parties. We do not have specific “firm policies” that dictate our conclusions to be reached on all complex accounting issues. Rather, each issue must be evaluated independently by our engagement team. As discussed above, we will not only meet internally, but also facilitate discussion with the District’s management team in order to obtain a mutual understanding of the particular accounting issue, determine the applicable authoritative guidance that most closely relates to the issue, and strive to reach an approach agreed upon by both parties. If there still remains any ambiguity or disagreement, we can explore other resources that could possibly assist, such as subject matter professionals within the Government Accounting Standards Board staff or the Government Finance Officers Association (GFOA) or perhaps other municipalities who may have dealt with similar issues. Additional Information Certificate of achievement assistance The Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting is awarded to state and local governments that go beyond the minimum requirements of generally accepted accounting principles. It is awarded to state and local governments who produce a comprehensive annual financial report that evidences the spirit of transparency and full disclosure. Members of the GFOA staff and the GFOA Special Review Committee (SRC) review reports submitted to the CAFR program. Create Opportunities ©2021 CliftonLarsonAllen LLP | 28 CLA provides audit services to many entities that received the GFOA Certificate of Excellence in Financial Report. All of the procedures noted in our audit approach and our technical review of the CAFR are done to help the District prepare and publish the top product possible. Our managers and principals who review the CAFR have a strong understanding of the GFOA requirement for the certificate. We understand that this is a prestigious award for the District and a great accomplishment for the Finance and Accounting departments. We will review the GFOA comment letter for each CAFR and provide the District advice regarding the response to the GFOA reviewer’s comments. Our procedures with respect to the CAFR will be the review of the comments from GFOA on the prior year submission to determine they were adequately addressed, completion of the CAFR checklist, and review of the transmittal letter and statistical data to determine that information presented is reasonable and agrees with the information in the financial statements and management’s discussion and analysis (MD&A), where applicable. We understand the interrelationships of the many and varied components of a governmental entity’s financial statements, allowing us to quickly determine errors or problems with the financial statements. Our depth of knowledge and experience also allows us to assist the District with the preparation of the CAFR and improvement of the District’s financial statements. Our involvement with clients in the GFOA Certificate program helps to determine that we are on the leading edge of reporting trends and techniques. We have been engaged by various entities to review their statements for compliance with program requirements. We have aided clients in the early implementation of professional pronouncements and regularly provide our clients with updates on new pronouncements which will affect them and will do the same for the District. Single audit resource center (SARC) award CLA received the Single Audit Resource Center (SARC) Award for Excellence in Knowledge, Value, and Overall Client Satisfaction. SARC's award recognizes audit firms that provide an outstanding service to their clients based on feedback received from an independent survey in June 2020. We take seriously our responsibility for staying current with new accounting pronouncements, auditing standards, other professional standards and laws and regulations. Continuing education program In order to maintain and expand our assurance knowledge, we consistently provide continuing education for our professionals. Each member of our professional team, including principals, attends at least 40 hours of technical training annually. Updated information on recent changes in technical standards and regulations, as well as the firm’s professional policies and procedures, is distributed to our team members on a regular basis. Individuals are required to familiarize themselves with all current changes in standards and procedures. CLA invests in our government practice by hiring high caliber professionals and providing additional training to develop and enhance our knowledge. With seasoned professionals, we provide valuable insight into your day-to- day operations and your accounting systems and controls. Insurance CLA carries commercially reasonable amounts of professional liability insurance. If requested, the firm will provide a certificate of coverage for an amount specified by the District upon being engaged. Create Opportunities ©2021 CliftonLarsonAllen LLP | 29 Appendix - Engagement team biographies David Forman, CPA CLA (CliftonLarsonAllen LLP) Principal 760-994-4029 Carlsbad, CA david.forman@CLAconnect.com Profile David is a principal at CLA’s Carlsbad office, formerly White Nelson Diehl Evans (WNDE). He has been with the firm since 1994 and has performed all phases of local governmental audits including cities, special districts, successor agencies/redevelopment agencies, single audit of federal grants, compliance audits and agreed-upon procedure engagements. His experience also includes consulting services for governmental agencies, including internal control reviews, information technology reviews, reviews of purchasing systems, and transient occupancy tax reviews of city hotels/motels. David is also involved in the firm’s training, quality control review, and internal peer review programs. Technical experience State and local government Nonprofit entities Education and professional involvement Bachelor of arts from the University of California, San Diego Professional Certificate in accounting from the University of California, San Diego Extension Certified Public Accountant in the state of California California Society of Certified Public Accountants (CalCPA), member Local government experience David has acted as engagement partner, principal, or manager for the following governmental clients: Cities: Special Districts: Carlsbad Del Mar Encinitas Hesperia Fallbrook Public Utility District Rincon del Diablo Municipal Water District Encina Wastewater Authority Olivenhain Municipal Water District Padre Dam Water District Santa Fe Irrigation District Rainbow Municipal Water District Leucadia Wastewater District San Dieguito Water District Vallecitos Water District Sweetwater Authority Create Opportunities ©2021 CliftonLarsonAllen LLP | 30 Continuing professional education Program name Total 2021 GASB update 2.0 Common audit deficiencies: Governmental audits 2.0 Revenue Recognition: ASC 606 Analysis for the Technology Industry 1.0 Revenue Recognition - Fundamentals 3.0 Not-for-profit accounting and reporting: an introduction 3.0 CLA 2021 California State and Local Government Training Academy 4.0 Coaching in the Summer at CLA Walkthrough 2021 1.0 Coaching for Inspired Careers - May 2021 1.0 Fraud 101 - Fraudulent Financial Reporting 3.0 Ethics for California CPAs 4.0 Single Audit Methodology - Legacy WNDE and Legacy Atkinson 3.0 XCM: General User Learning 1.0 CalSavers Mandate: What Your Clients Need to Know 1.0 Revenue Risks: Identifying and Determining Responses (Industry Agnostic) 1.0 2021 30.0 Think Security: Don't be a Target 1.0 Risk Assessment Part 1 Do's & Don'ts 2.0 Assurance Methodology - Legacy WNDE 4.5 Technology Overview - Legacy WNDE 2.5 Assurance & Tax Policies and Procedures - Legacy WNDE 3.0 Government Accounting, Auditing and Reporting 3.0 Risk Assessment - Government Audits 2.0 GASB 68 - Pension 3.0 GASB 75 - Other Postemployment Benefits 3.0 Independence Gov't 1.0 Independence Gov't 1.0 GASB 87 Leases 2.5 Government Interim Training 4.0 2020 BDO USA ALLIANCE CONFERENCE 5.5 Risk Assessment Part 2 2.5 2020 40.5 CLAconnect.com WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor . Create Opportunities ©2021 CliftonLarsonAllen LLP | 31 Lauren K. Hoodenpyle, CPA CLA (CliftonLarsonAllen LLP) Director 760-994-4138 Carlsbad, CA lauren.hoodenpyle@CLAconnect.com Profile Lauren is a director at CLA’s Carlsbad office, formerly White Nelson Diehl Evans (WNDE). She has been with the firm since 2014 and has performed various phases of local governmental audits including cities, special districts, nonprofits, single audits of federal grants, and agreed upon procedures engagements. Technical experience State and local government Commercial Nonprofit entities Employee benefit plans Education and professional involvement Bachelor of science in business administration from California State University, San Marcos Certified Public Accountant in the state of California American Institute of Certified Public Accountants (AICPA), member California Society of Certified Public Accountants (CalCPA), member Local government experience Cities: Special Districts: Hesperia Nonprofits: California Transplant Services Fairbanks Ranch Community Services District Fallbrook Public Utility District Granada Community Services District Grossmont Healthcare District Leucadia Wastewater District Rancho Santa Fe Community Services District Rincon Del Diablo Municipal Water District Sweetwater Authority Southbay Irrigation District Torrey Pines High School Foundation Whispering Palms Community Services District Create Opportunities ©2021 CliftonLarsonAllen LLP | 32 Continuing professional education Program name Total State and Local Gov (SLG) learning series - Part 3 2.0 2021 Yellow Book and Single Audit Update 2.0 State and Local Gov (SLG) learning series - Part 2 2.0 State and Local Gov (SLG) learning series - Part 1 2.0 Think Security: Don't be a Target 1.0 Single Audit Methodology - Legacy WNDE and Legacy Atkinson 3.0 XCM: General User Learning 1.0 Culture of Feedback 1.0 Think Security: New Family Members 1.0 2021 15.0 Government Accounting, Auditing and Reporting 3.0 Risk Assessment - Government Audits 2.0 GASB 68 - Pension 3.0 GASB 75 - Other Postemployment Benefits 3.0 Independence Gov't 1.0 GASB 87 Leases 2.5 Government Interim Training 4.0 Risk Assessment Part 2 2.5 Risk Assessment Part 1 Do's & Don'ts 2.0 2020 23.0 CLAconnect.com WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. Create Opportunities ©2021 CliftonLarsonAllen LLP | 33 Jonathan Supple, CPA CLA (CliftonLarsonAllen LLP) Senior 760-994-4305 Carlsbad, CA jonathan.supple@CLAconnect.com Profile Jonathan is a senior at CLA’s Carlsbad office, formerly White Nelson Diehl Evans (WNDE). He has been with the firm since 2019 and has been the staff on many local government audits. Technical experience State and local government Education and professional involvement Bachelor of science in management science with a minor in accounting from University of California San Diego, La Jolla, CA Certified Public Accountant in the state of California Americna Institute of Certified Public Accountants (AICPA), member California Society of Certified Public Accounts (CalCPA), member Local government experience Cities: Special Districts: Carlsbad Nonprofits: California Transplant Services Rincon del Diablo Municipal Water District Rainbow Municipal Water District Vista Irrigation District Heber Public Utility District Valley-Wide Recreation and Park District Fallbrook Regional Health District Fairbanks Ranch Community Services District Rancho Santa Fe Community Services District Whispering Palms Community Services District Continuing professional education Program name Total State and Local Gov (SLG) learning series - Part 4 2.0 Coaching in the Summer at CLA Walkthrough 2021 1.0 State and Local Gov (SLG) learning series - Part 3 2.0 State and Local Gov (SLG) learning series - Part 2 2.0 2021 Yellow Book and Single Audit Update 2.0 XCM: General User Learning 1.0 2021 10.0 Create Opportunities ©2021 CliftonLarsonAllen LLP | 34 Program name Total Assurance Methodology - Legacy WNDE 4.5 Culture of Feedback 1.0 Think Security: New Family Members 1.0 Think Security: Don't be a Target 1.0 Technology Overview - Legacy WNDE 2.5 Assurance & Tax Policies and Procedures - Legacy WNDE 3.0 Risk Assessment - Government Audits 2.0 Independence Gov't 1.0 Government Interim Training 4.0 2020 20.0 CLAconnect.com WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. LSL CPAs Bid Contact Bryan Gruber bryan.gruber@lslcpas.com Ph 714-672-0022 Address 203 N. Brea Blvd Suite 203 Brea, CA 92821 Item #Line Item Notes Unit Price      Qty/Unit Total Price  Attch.  Docs FY22-2231-006--01-01    Professional Auditing Services Supplier Product Code: First Offer -1 / lot Y Supplier Total $0.00 FY22-2231-006Otay Water District BidSync10/12/2021 p. 1 Attachment D LSL CPAs Item: Professional Auditing Services Attachments Otay Water District Technical Proposal.pdf Otay Water District Cost Proposal.pdf FY22-2231-006Otay Water District BidSync10/12/2021 p. 2 PREPARED BY: Lance, Soll & Lunghard, LLP Certified Public Accountants License Number 2584 203 N. Brea Blvd. Suite 203 Brea, CA 92821 (714)672-0022 CONTACT PERSON: Bryan Gruber, CPA, Managing Partner Bryan.Gruber@lslcpas.com (714) 672-0022 October 12, 2021 Proposal Presented to OTAY WATER DISTRICT Request for Proposal For INDEPENDENT AUDIT SERVICES FY22-2231-006Otay Water District BidSync10/12/2021 p. 3 1 TABLE OF CONTENTS TABLE OF CONTENTS ........................................................................................................................... 1 TRANSMITTAL LETTER ......................................................................................................................... 2 FIRM QUALIFICATIONS AND EXPERIENCE ......................................................................................... 4 About LSL .............................................................................................................................................................. 4 Independence ........................................................................................................................................................ 4 License to Practice in California ............................................................................................................................. 4 Size of Firm and Quality of Staff to be Assigned ................................................................................................... 4 Government Industry Experience .......................................................................................................................... 4 Peer Review ........................................................................................................................................................... 5 Desk Reviews/Disciplinary Action .......................................................................................................................... 5 PARTNER, SUPERVISORY, AND STAFF QUALIFICATIONS ............................................................... 6 Engagement Team ................................................................................................................................................ 6 Organizational Chart .............................................................................................................................................. 6 Involvement and Experience in the Profession ...................................................................................................... 7 Continuing Education ............................................................................................................................................. 7 Quality of Staff Assurance ..................................................................................................................................... 7 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES .................................................. 8 Santa Clarita Valley Water Agency ........................................................................................................................ 8 Inland Empire Utilities Agency ............................................................................................................................... 8 City of San Bernardino Municipal Water Department ............................................................................................ 8 Rainbow Municipal Water District .......................................................................................................................... 9 Three Valleys Municipal Water District .................................................................................................................. 9 SPECIFIC AUDIT APPROACH .............................................................................................................. 10 Proposed Segmentation ...................................................................................................................................... 10 Sample Size And Extent Of Statistical Sampling ................................................................................................. 11 Type And Extent Of Analytical Procedures .......................................................................................................... 11 Approach to Understanding The District’s Internal Control Structure .................................................................. 12 Determining Laws And Regulations Subject To Audit Test Work ........................................................................ 12 Drawing Audit Samples ........................................................................................................................................ 12 Level of Staff And Number of Hours to Be Assigned ........................................................................................... 13 IDENTIFICATION OF POTENTIAL AUDIT PROBLEMS ...................................................................... 13 PROPOSER GUARANTEES ................................................................................................................. 14 PROPOSER WARRANTIES .................................................................................................................. 15 APPENDIX A: PEER REVIEW LETTER ................................................................................................ 16 APPENDIX B: STAFF RESUMES ......................................................................................................... 19 FY22-2231-006Otay Water District BidSync10/12/2021 p. 4 2 TRANSMITTAL LETTER October 12, 2021 Attn: Stephanie Chen Otay Water District Administration Building 2554 Sweetwater Springs Blvd. Spring Valley, CA 91978 Dear Ms. Chen, LANCE, SOLL & LUNGHARD, LLP (LSL) is pleased to respond to your request for proposal for professional auditing services. As a leader in the field of governmental accounting and auditing, we appreciate the opportunity to present our professional qualifications. Because of our extensive local government experience, dedication to excellence, and determination to retain the brightest talent, we hope you find that LSL is the most qualified accounting firm to provide professional auditing services to Otay Water District (the District). Members of our team have extensive experience providing auditing services for cities, counties, and special- purpose government agencies. Also, we have provided seminars on GASB Statement No.75, “Accounting and Financial Reporting” for post-employment benefits other than pensions (OPEB), and GASB Statement No. 87 Leases, and we are knowledgeable and ready to assist the District in implementing upcoming GASBs. BENEFITS OF WORKING WITH LSL In today’s environment, keeping up with the numerous accounting and regulatory changes can seem unmanageable. Now, more than ever, finance departments are facing more complexity, risk, and changes, and with fewer resources. As the industry continues to evolve, a strategic relationship with LSL can help you better manage these changes and better understand the industry’s best management practices. 1) Annual Governmental Accounting Update: Annually, we hold a half-day seminar providing an update to new accounting and regulatory standards impacting local governments. The goal is to provide useful, relevant information that impacts your organization. 2) Annual Onsite Client Specific Training: Tailored training for your organization on topics that are most relevant and needed for you and your team. Topics may include fraud risk management, internal controls, accounting pronouncements, governmental accounting, and ACFR preparation. 3) Focused Topic Specific Webinars and Ongoing News & Alerts: Important topics affecting local governments and government entities sometimes need more attention and explanation. In addition to our annual update, our webinars and newsletters offer a short, focused approach to these critical areas. 4) Meetings with Governing Bodies: We believe communication is the key to a successful relationship and offer two annual meetings with your Board of Directors or committees. Meetings promote dialogue between LSL and the District during the preliminary and concluding segments of the audit. FY22-2231-006Otay Water District BidSync10/12/2021 p. 5 3 TRANSMITTAL LETTER (continued) 5) Consistency: Best practices for government agencies include an RFP for auditors every 5 years. Changing an auditor can help ensure independence and objectivity. At LSL, we understand that changing auditors can be challenging. This often requires a broad learning curve resulting in unmet expectations. LSL takes pride in open and consistent communication to seamlessly transition a new client and close the expectations gap. We will immediately bring the tough issues to the discussion table to eliminate the element of surprise. LSL will perform the services listed in Section II “Nature of Services Required” on pages 6-8 of the District’s RFP document for three fiscal years beginning with fiscal year 2021-22 with four one-year extensions at the District’s discretion. These audits will be performed per 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 General of the United States, and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Throughout the year and during the period of this engagement, we will be available on a day-to-day basis for consultation on accounting and reporting matters related to new government accounting standards and other ongoing auditing needs. We will also communicate periodically new state and national developments affecting municipal finance and reporting standards and trends, including changes in federal/state grant program accounting, and other reporting requirements. All working papers and reports will be retained at our expense for a minimum of three (3) years unless we are notified in writing by the District of the need to extend that retention period. Upon written request, we will make working papers available to parties designated by the District. Furthermore, we will respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. We affirm that our proposal is in accordance with all the terms, conditions, and requirements contained in the RFP. Our proposal is a firm and irrevocable offer for 175 days following the closing date for the receipt of proposals. For this proposal, Bryan Gruber, CPA, Managing Partner, is authorized to make representations for our firm. He can be reached at the address below, by phone at (714) 672-0022, or through email at Bryan.Gruber@lslcpas.com. Bryan Gruber, CPA Managing Partner Lance, Soll & Lunghard, LLP 203 N. Brea Blvd., Ste. 203 Brea, CA 92821 FY22-2231-006Otay Water District BidSync10/12/2021 p. 6 4 FIRM QUALIFICATIONS AND EXPERIENCE ABOUT LSL LSL is a regional, full-service firm with offices in Brea (headquarters), Santa Ana, and Sacramento, California, and Houston, Texas. Established in 1929, LSL has grown as a leader in the governmental auditing industry. We offer a team of educated professionals with extensive experience in auditing government entities. Our clients have grown to understand that an audit from LSL provides them with a wealth of knowledge, confidence, and value-added services. For this and many other reasons, our firm has consistently been named one of the “Top Orange County firms” by the Orange County Business Journal. We were also on the list of CalCPA’s Top 150 firms. INDEPENDENCE We meet the independence requirements as defined by Government Auditing Standards for the District. Our partners do not own any other business organization that has in the past, or will in the future, be providing services, supplies, materials, or equipment to the District. LSL will provide written notice of any other reportable professional relationship entered into during the period of the proposed agreement. LSL has not had any professional relationships or conflict of interest with the District in the last five years. LICENSE TO PRACTICE IN CALIFORNIA LSL is a public accounting firm licensed by the State of California, Department of Consumer Affairs, as a Public Accounting Partnership. As a firm, we are members of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Each key member of this engagement team is a Certified Public Accountant licensed to practice in the State of California. SIZE OF FIRM AND QUALITY OF STAFF TO BE ASSIGNED Our firm has approximately 125 employees including 14 partners. Our governmental staff consists of four partners, two senior managers, four managers, four supervisors, four seniors, and fifteen professional staff. All staff assigned to the District will be employed by LSL on a full-time basis. The engagement with the District will be staffed from our Brea office. Our Brea office is a full-service office offering services in audit and attestation, tax and accounting services, and consulting services. LSL has the resources to complete this project and will not use sub-contractors. LSL is not a joint venture or consortium. GOVERNMENT INDUSTRY EXPERIENCE Currently, we provide auditing services to over 70 municipal clients in California. Our extensive experience in local government auditing has led to the development of efficient procedures that provide numerous benefits to our clients. Approximately 30% of our practice deals with the government sector and related services. Generally, our government sector services break down into the following major classifications: attestation, compliance, performance, strategic planning, and tax services. As a firm, we have extensive experience with audits of municipalities in California including cities, counties, water and electric utilities, and compliance with OMB Uniform Guidance. We are familiar with all federal and state grant programs typically awarded to municipalities. We have also performed engagements related to bond reporting, including issuing letters of comfort and other services. FY22-2231-006Otay Water District BidSync10/12/2021 p. 7 5 FIRM QUALIFICATIONS AND EXPERIENCE (continued) PEER REVIEW We have participated in the peer review program since its inception. All of our peer reviews covered governmental engagements and have received pass ratings. The most recently completed peer review was conducted by Mark F Willie, A Professional Accountancy Corporation, and a copy of the report is included in the Appendix A to this proposal. DESK REVIEWS/DISCIPLINARY ACTION There have been no disciplinary actions against our organization since its inception. There have no litigations against our firm in the past three years. Our Single Audit reports are desk reviewed either by the federal cognizant agency or the State Controller’s Office acting as the Oversight Agency. We have never had a report rejected by any of these agencies and are highly regarded and recognized by the staff of the State Controller’s Office for top quality reports. FY22-2231-006Otay Water District BidSync10/12/2021 p. 8 6 PARTNER, SUPERVISORY, AND STAFF QUALIFICATIONS ENGAGEMENT TEAM The most critical component in the successful completion of an audit is the personnel assigned to carry out the responsibilities. We have assembled a team composed of individuals with an optimum mix of talents. The personnel assigned have experience in performing the tasks for which they are responsible, as well as familiarity with all municipal accounting operations. Additionally, each has developed extensive skills in a variety of other complementary subjects through their work with clients in other industries. Thus, the experience gained on previous assignments can be applied and tailored to the unique needs of your organization. Moreover, the partners at LSL are an integral part of the audit process and will be overseeing and supervising staff personnel in the field. The proposed engagement team consists of Bryan Gruber (Engagement Partner), Deborah Harper (Quality Assurance Partner), Brandon Young (Technical Resources Partner), Ryan Domino (Senior Audit Manager), Riley Greenlee (Audit Supervisor), Brian Gross (Senior Auditor) and one additional staff accountant. This team brings a combined total of over 60 years of governmental auditing and accounting experience to the District’s engagement. Resumes for the personnel assigned to the engagement with the District can be found in Appendix B and list their governmental auditing experience, applicable continuing professional education for the past three years, and memberships in professional organizations relevant to the performance of the audit of the District. ORGANIZATIONAL CHART Otay Water District Brandon Young, CPATechnical Resource Partner Over 10 Years of experience Bryan Guber, CPAEngagement Partner Over 17 Years of experience Ryan Domino, CPASenior Audit ManagerOver 9 years of experience Riley Greenlee, CPAAudit Supervisor Over 5 years of experience Brian Gross, CPASenior AuditorOver 3 years of experience STAFF AUDITOR Deborah Harper, CPAQuality Assurance Partner Over 20 Years of experience FY22-2231-006Otay Water District BidSync10/12/2021 p. 9 7 PARTNER, SUPERVISORY, AND STAFF QUALIFICATIONS (continued) INVOLVEMENT AND EXPERIENCE IN THE PROFESSION The engagement team for the District and the extent of experience they have in auditing governmental entities in California is noted in the organizational chart on the previous page. Both Deborah Harper and Brandon Young serve on the CalCPA Governmental Accounting and Auditing Committee, a committee specific to the State of California that has been responsible for numerous white papers and technical clarifications, including those for GASB 68 and 75. This equips our firm with the latest knowledge and expertise to train our government audit professionals on the proper implementation of new GASB pronouncements, an advantage that extends to our clientele. Bryan Gruber, Brandon Young, and Ryan Domino volunteer for the GFOA as part of the Special Review Committee, which reviews financial statements from across the country for eligibility for the GFOA’s Award for Excellence in Financial Reporting. CONTINUING EDUCATION As a firm policy, all professional government staff meet the requirement of 40 hours of continuing education every year, with at least 24 hours in governmental accounting and auditing in a two-year period. Our educational programs include training from CalCPA, AICPA, Government Audit Quality Center, and GFOA. We have continuous talent development throughout the year that focuses on new government pronouncements. Deborah Harper, the Quality Assurance Partner assigned to this engagement and the firm’s Learning Director, is an elite executive member of the AICPA Government Audit Quality Center Executive Committee. As a member of this committee, she routinely participates in the creating process of new AICPA Audit Guides and partakes in the discussion of Uniform Guidance requirements and changes, which allows her immediate access to oversight and cognizant agencies for any technical questions that may arise. Resumes for the personnel assigned to the engagement with the District can be found in Appendix B and list their governmental auditing experience, applicable continuing professional education for the past three years, and memberships in professional organizations relevant to the performance of the audit of the District. QUALITY OF STAFF ASSURANCE LSL will ensure the quality of staffing over the term of the engagement through firm policies which provide for maintaining continuity of engagement teams, except in instances where an employee has left the firm or has been promoted. All other changes in staffing Auditor In-Charge position and above will first have the District’s expressed written permission. Our focused efforts to obtain and retain quality staff have further enabled us to provide high levels of services to our clients. If changes are required, our extensive team of government auditors provides for qualified replacements. FY22-2231-006Otay Water District BidSync10/12/2021 p. 10 8 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES The following are client references for which services similar to those outlined in the District’s RFP are currently being provided by our Brea Office. SANTA CLARITA VALLEY WATER AGENCY Engagement Partner: Brandon Young, CPA Quality Assurance Partner: Deborah Harper, CPA Total Hours: 480 Dates of Service: 2019 – present Types of Services: Audit and preparation of the District’s Comprehensive Annual Financial Report, which receives the GFOA Award for Excellence in Financial Reporting; audit and preparation of the financial statements of the Agency’s various joint venture entities and component units; and preparation of the Agency’s and its component units’ respective Financial Transactions Reports for the State Controller’s Office. Contact Name: Amy Aguer, Controller Telephone: (661) 513-1237 INLAND EMPIRE UTILITIES AGENCY Engagement Partner: Deborah Harper, CPA Quality Assurance Partner: Brandon Young, CPA Total Hours: 340 Dates of Service: 2016 – 2020 Types of Services: Audit of the Agency’s Comprehensive Annual Financial Report, which receives the GFOA Award for Excellence in Financial Reporting; audits and preparation of the respective financial statements of the Agency’s component unit and joint venture entity; Single Audit of the Agency’s federal expenditures in accordance with the Uniform Guidance; and agreed-upon procedures over the Agency’s calculation of its Appropriations Limits (GANN). Contact Name: Javier Chagoyen-Lazaro, Manager of Finance and Accounting Telephone: (909) 993-1675 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT Engagement Partner: Bryan Gruber, CPA Quality Assurance Partner: Deborah Harper, CPA Total Hours: 300 Dates of Service: 2019 – present Types of Services: Audit and preparation of the Department’s Comprehensive Annual Financial Report, which receives the GFOA Award for Excellence in Financial Reporting; audit and preparation of the financial statements of the Department’s joint venture entity; Single Audit of the Department’s federal expenditures in accordance with the Uniform Guidance. Contact Name: Cindy Mouser, Director of Finance Telephone: (909) 453-6010 FY22-2231-006Otay Water District BidSync10/12/2021 p. 11 9 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES (continued) RAINBOW MUNICIPAL WATER DISTRICT Engagement Partner: Bryan Gruber, CPA Quality Assurance Partner: Deborah Harper, CPA Total Hours: 270 Dates of Service: 2020 – present Types of Services: Audit and preparation of the District’s Comprehensive Annual Financial Report, which receives the GFOA Award for Excellence in Financial Reporting; and preparation of the District’s Financial Transactions Reports for the State Controller’s Office. Contact Name: Tracy Largent, Finance Manager Telephone: (760) 728-1178 THREE VALLEYS MUNICIPAL WATER DISTRICT Engagement Partner: Richard Kikuchi, CPA Quality Assurance Partner: Deborah Harper, CPA Total Hours: 170 Dates of Service: 2011 – present Types of Services: Audit of the District’s Comprehensive Annual Financial Report, which receives the GFOA Award for Excellence in Financial Reporting. Contact Name: James Linthicum, CFO Telephone: (909) 621-5568 FY22-2231-006Otay Water District BidSync10/12/2021 p. 12 10 SPECIFIC AUDIT APPROACH We utilize a governmental audit program which we will tailor to the District’s operations. The tailoring is necessary to accommodate specific client circumstances and to recognize differences in the organizational structure. Our audit programs are organized by financial statement category. This approach takes full advantage of our accumulated experience. The primary benefit is that the risk of omitting important procedures is substantially reduced. We believe that this approach tends to be the most effective and efficient for an entity such as the District. The audit procedures are listed in the most logical sequence which improves efficiency. The savings in effort and time gained by using our audit program can free an auditor’s attention for unusual or difficult situations that may arise. The audit programs are designed to increase audit efficiency by linking financial statement assertions, audit objectives, and procedures that are basic to most governmental audit engagements. PROPOSED SEGMENTATION The services will be divided into three segments. Segment 1 - Planning and Obtaining an Understanding: LSL will provide an annual audit communication letter, engagement letter, and Government Audit Quality Center information letter. The audit communication letter is to be provided to the Board of Directors. In addition, this can be communicated orally to the Board of Directors or audit- committee, if requested. This communication will discuss the planning stages, the responsibilities of the Board of Directors, auditors, and management, and provide an opportunity for communication with us as the auditors. An entrance conference will be scheduled ahead of the on-site visit that is used to obtain an understanding of the District’s internal controls. This meeting helps to ensure that the transition to new auditors is as seamless as possible. Discussions in this meeting include, but are not limited to, the following: Understanding of reports and key milestones for deliverables, prior audit reportable conditions and issues, and “Prepared by Client” (PBC) schedules. LSL’s audit team will meet before our initial on-site visit to brainstorm and discuss economic conditions, industry elements, and new standards that will affect the District. A trial balance is requested for our planning meeting to assist the LSL team in obtaining knowledge and preparing expectations for the audit year. We will compile a list of PBC items based on our review of the prior year's financial statements and the information gathered. This will be provided to the District one month prior to our scheduled testwork or earlier if requested. We operate on a paperless software system and provide a secured cloud-based portal for all clients. The District will have a separate folder that can be customized to organize, and upload requested schedules, support documents, etc. If available, a current Schedule of Expenditures of Federal Awards (SEFA) will be evaluated during this segment to make a preliminary determination of the District’s major programs. This allows us to properly plan and schedule the timing of the Single Audit with the appropriate finance personnel as well as appropriate grant managers. LSL will make every effort to be proactive in our network of federal grants during the interim stages of the audit. After our interim testing, we will have an exit meeting to discuss potential weaknesses, if any, and provide any feedback for improvements or valuable information we have gathered from our outside clientele that would benefit the District. FY22-2231-006Otay Water District BidSync10/12/2021 p. 13 11 SPECIFIC AUDIT APPROACH (continued) Segment 2 - Financial Audit Testing: Based on the information gathered each year thus far, we will utilize a customized audit program based on the risk assessment developed during our assessment of the District’s internal controls and Government Auditing Standards. The primary benefit of a tailored program is a focused set of procedures to address relevant areas. We believe that this approach will be the most effective and efficient by linking financial statement assertions, audit objectives, and procedures that are basic to most governmental audit engagements and critical to compliance with other material laws and regulations. We will annually compile another customized PBC list for the year-end testing provided at least one month prior or earlier if requested. We will request a trial balance for our analytical review to be provided one week before our scheduled testing. Year-end testing will include testing of the balance sheet, revenue and expenditures accounts, confirmation of selected balances, analytical procedures, evaluation of the internal controls, and preparation of reports and letters. Segment 3 - Conclusion: Based on our year-end exit meeting we will schedule a plan to finalize the financial statements according to the timetable of the District. We will schedule dates for the initial and final drafts including time for the District review and approval of the financial statements. This period will also account for the review of the engagement partner and quality assurance partner. After the review and receipt of the signed representation letter from the District, we will provide the final report by September 3 of each year. SAMPLE SIZE AND EXTENT OF STATISTICAL SAMPLING Our approach may be to utilize statistical sampling in the areas of receipts, disbursements, utility billing, and payroll. Here we develop a statistical conclusion based upon an initial computer selected random sample which is based on the population and other risk factors identified. If errors are noted in the sample, the sample size will be expanded. We believe that a random selection can be efficient while providing each item in the population an equal chance of being selected. Additionally, we may select a stratified sample of all transactions over a specified dollar limit for review. This allows us to cover all high dollar value transactions not otherwise selected in the random sample. Our samples are selected randomly utilizing IDEA data analysis software. TYPE AND EXTENT OF ANALYTICAL PROCEDURES For the audits of the financial statements, we will use analytical procedures as an overall review of the financial information in the preliminary and final stages of the audits. These procedures are designed to assist us in planning our audits and in assessing the propriety of the conclusions reached and evaluating the overall financial statement presentation. The procedures to be utilized consist of determining expectations for changes to significant revenue, expenditure, and balance sheet accounts, reading the financial statements and related notes, reviewing the budget and related material, and focusing on overall relationships within the financial statements. Once determined, these are reviewed to evaluate if the changes appear reasonable or require further analysis. For all significant differences, explanations are obtained as to why the situation occurred and additional substantive procedures may be applied, and related evidence gathered to resolve concerns and questions. We ask that the District provide a check register electronically for July 1st forward (period after the audit year), so we can pre-select our sample for accounts payable cut-off test work and provide that information ahead of time. Our PBC list will detail out schedules we would like provided, which is directed straight from the audit report. Support requested and sampling for these schedules will be assessed each year based on the strengths and weaknesses of the internal control processes of the District, and the materiality level of the account. We will discuss our analytical variances with the District and obtain documentation that provides support for the accounts. FY22-2231-006Otay Water District BidSync10/12/2021 p. 14 12 SPECIFIC AUDIT APPROACH (continued) APPROACH TO UNDERSTANDING THE DISTRICT’S INTERNAL CONTROL STRUCTURE To gain an understanding of the internal control structure over the financial statements, we will perform procedures as required by SAS 122-125. This will include a review of internal controls in the areas of financial reporting, cash, revenues and receivables, utility billing, expenses, accounts payable, payroll, capital assets, long-term debt, and grant reporting, as applicable. Based on the result of our review, we will issue a management letter (SAS 115 Letter) that will identify any significant deficiencies and/or material weaknesses noted. This report is required by the Government Auditing Standards issued by the Comptroller General of the United States. Auditing Standards require auditors to obtain an understanding of the entity and its environment along with assessing the risks of material misstatements. LSL obtains an understanding through a variety of ways throughout the year, but the most pertinent time each year is during our interim on-site visit. We will conduct interviews with the management of finance along with each audit section responsible party (e.g., cashier, accounts payable clerk, payroll clerk, etc.) to review the processes and controls through observation and discussions. Based on our observations, we will sample transactions as part of a “walk-through” to verify the system of control is working in accordance with policies and procedures. Each year, we will provide a list of randomly selected District employees to interview for SAS 99 fraud interviews. This list will consist of all levels and across all departments within the District. DETERMINING LAWS AND REGULATIONS SUBJECT TO AUDIT TEST WORK The laws and regulations that will be subject to audit test work are determined from the applicable laws, regulations, contracts, and grant agreements which we identify through the understanding we obtain of the District and our extensive experience with governmental entities. DRAWING AUDIT SAMPLES For tests of controls, we use audit sampling. Tests of controls are procedures directed towards determining the effectiveness of the design or operation of an internal structure policy or procedures. Normally, audit sampling is used for tests of controls and tests of compliance that involve inspection of documents and reports indicating the performance of the applicable policy or procedures and compliance with the applicable laws and regulations. These sampling procedures test the operating effectiveness of an internal control structure policy or procedures by determining how the policy or procedure was applied, the consistency with which it was applied during the audit period, and by whom it was applied. To achieve this goal, we will draw samples for disbursements, receipts, and payroll when applicable. Each document selected will be tested for various attributes that are designed to verify compliance with different aspects of internal controls and applicable laws and regulations. Additionally, each sample item will be tested for coding to the proper accounts and posting to the general ledger. Sample sizes vary based on the population and risk-based calculations. FY22-2231-006Otay Water District BidSync10/12/2021 p. 15 13 SPECIFIC AUDIT APPROACH (continued) LEVEL OF STAFF AND NUMBER OF HOURS TO BE ASSIGNED IDENTIFICATION OF POTENTIAL AUDIT PROBLEMS With our familiarity with similar government agencies, we do not anticipate unusual audit problems. A new challenge that has emerged has been the need for more remote audit services as a result of the COVID-19 pandemic. We have successfully been conducting audits primarily remotely throughout this process and believe certain aspects of the remote audit will remain in place into the future. This challenge will be alleviated by frequent communication between the audit team and the District, a secure upload system to provide all documents, and clear expectations as far as fieldwork dates and timing of reports. The only special assistance requested from District staff would be the need to possibly scan documents that are currently not available in electronic form, as well as potentially read- only access to the District’s financial reporting system to view items and information remotely. Segment/Task Partner Senior Manager Supervisor Senior Staff Clerical Total City Financial Audit and Related Reports Interim Testwork - - - 40 40 - 80 Year-End Testwork - - - 50 45 - 95 Report/Review/Supervision 15 15 30 - - 5 65 Subtotal 15 15 30 90 85 5 240 Investment Policy Agreed-Upon Procedures Testwork - - - - 5 - 5 Report/Review/Supervision 1 1 2 5 - 1 10 Subtotal 1 1 2 5 5 1 15 Annual State Controller's Report Preparation Testwork - - - - 8 - 8 Report/Review/Supervision - - 1 - - 1 2 Subtotal - - 1 - 8 1 10 TOTAL PROPOSED HOURS: 16 16 33 95 98 7 265 LEVEL OF STAFF ASSIGNED AND NUMBER OF HOURS TO BE ASSIGNED TO REQUIRED SERVICES FY22-2231-006Otay Water District BidSync10/12/2021 p. 16 14 PROPOSER GUARANTEES FY22-2231-006Otay Water District BidSync10/12/2021 p. 17 15 PROPOSER WARRANTIES FY22-2231-006Otay Water District BidSync10/12/2021 p. 18 16 APPENDIX A: PEER REVIEW LETTER FY22-2231-006Otay Water District BidSync10/12/2021 p. 19 17 FY22-2231-006Otay Water District BidSync10/12/2021 p. 20 18 FY22-2231-006Otay Water District BidSync10/12/2021 p. 21 19 APPENDIX B: STAFF RESUMES FY22-2231-006Otay Water District BidSync10/12/2021 p. 22 20 ACHIEVEMENTS Bryan is a recognized expert in the field of Governmental Accounting and Auditing. He has made numerous presentations for CSMFO at the annual conference and local chapter meetings throughout the state on current accounting and auditing material. He has also served as a technical reviewer for the Government Finance Officers Association (GFOA) for over 10 years. Bryan routinely teaches current audit and accounting related material at Lance, Soll & Lunghard, LLP’s training seminars, webinars, and client education workshops and training events. LICENSE Certified Public Accountant - California 2008 CONTINUING EDUCATION Total hours were 132 in last three years of which 74 were in governmental accounting and auditing subjects. Bryan has met the Governmental Auditing Standards requirement for governmental CPE. MEMBERSHIPS California Society of Certified Public Accountants (CalCPA) American Institute of Certified Public Accountants (AICPA) California Society of Municipal Finance Officers, Associate Member (CSMFO) Government Finance Officers Association, Associate Member (GFOA) Association of Local Government Auditors EXPERIENCE Bryan has over seventeen years of experience in governmental audits including CAFR audits, component-unit audits and Single Audits. He has also made numerous presentations to City Councils, Boards of Directors and Audit Committees. He has been involved in the following governmental engagements: Bryan Gruber, CPA Engagement Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 23 21 Bryan S. Gruber, CPA, Engagement Partner (Continued) City of Redondo Beach Orange County Water District City of Burbank Three Valleys Municipal Water District City of Santa Barbara City of Oceanside City of Emeryville City of Palm Springs Foothill Transit Authority Orange County Fire Authority San Diego County Water Authority City of Solana Beach Union Sanitary District Orange County Sanitation District Monterey One Water Ontario International Airport This work entailed: • The preparation of the Comprehensive Annual Financial Report for those entities involved in the award programs of the Government Finance Officers Association of the United States and Canada. • Review the audit of these entities provide and technical assistance throughout the year to provide the most up to date information with current GASB pronouncement. • Present the overall audit results to audit committees or other Board Members. • Risk assessment, internal controls evaluation with COSO and Federal Green Book • Single Audits in accordance with new Uniform Guidance EDUCATION Bachelor of Arts Degree in Business Administration with an emphasis in Accounting – California State University, Fullerton, 2004 FY22-2231-006Otay Water District BidSync10/12/2021 p. 24 22 ACHIEVEMENTS Deborah was accepted as a 2015 and 2016 executive committee member of the AICPA Government Audit Quality Center, which is a national division for governments. As an executive board member, Deborah participates in the development, review, and first-hand discussion of new standards and guidance published in the AICPA Audit Guides which is provided to audit firms across the country. In 2017, Deborah participated in the GASB Research Note Disclosure Reexamination Roundtable. Deborah leads the Lance, Soll & Lunghard, LLP training program and serves as the firm Learning Director. LICENSE Certified Public Accountant - California 2005 CONTINUING EDUCATION Total hours were 132 in last three years of which 68 were in governmental accounting and auditing subjects. Deborah has met the Governmental Auditing Standards requirement for governmental CPE. MEMBERSHIPS California Society of Certified Public Accountants (CalCPA) American Institute of Certified Public Accountants (AICPA) California Society of Municipal Finance Officers, Associate Member (CSMFO) Government Finance Officers Association, Associate Member (GFOA) Governmental Accounting and Auditing Committee AICPA Government Audit Quality Center EXPERIENCE Deborah has over twenty years of experience in governmental audits. During her time with the firm, she has performed all phases of our government audits and made numerous presentations to Boards of Directors and Audit Committees. Deborah Harper, CPA Quality Assurance Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 25 23 Deborah A. Harper, CPA, Quality Assurance Partner (Continued) She has been involved on the following similar engagements: Cucamonga Valley Water District Sutter County Coachella Valley Water District Yolo County Inland Empire Utilities Agency City of Riverside East Bay Municipal Utilities District City of Camarillo City of Pasadena City of Thousand Oaks City of Santa Monica City of Corona City of Monrovia City of Banning City of Orange City of Claremont City of Seal Beach City of Brea This work entailed: • The preparation of the Comprehensive Annual Financial Report for those entities involved in the award programs of the California Society of Municipal Finance Officers and the Government Finance Officers Association of the United States and Canada. • Review the audit of these entities and provide technical assistance throughout the year to deliver the most up to date information with current GASB pronouncement. • Present the overall audit results to audit committees or other Board Members. TRAINING COURSES Deborah provides training courses throughout California. She provides training to the California Association of State Auditors, the County Auditors, and the California Society of Municipal Finance Officers. In addition, Deborah provides courses to a variety of Cities throughout the year on current and upcoming GASB pronouncements. Recent courses included: • GASB 87, Lease Accounting • Introductory to Government Accounting • GASB update • Preliminary Views on Financial Reporting • Internal Control Risk Assessments EDUCATION Bachelor of Arts Degree in Business Administration with an emphasis in Accounting – California State University, Fullerton, 2000 FY22-2231-006Otay Water District BidSync10/12/2021 p. 26 24 ACHIEVEMENTS Brandon is an up-and-coming expert in the field of Governmental Accounting and Auditing, serving a wide range of clients in both type and size throughout the state. He relocated to Sacramento in 2017 to establish LSL’s first Northern California office, and has nearly tripled the size of the office in just over two years, while building a fantastic team along the way. He routinely presents at both CSMFO local chapter meetings and State Association of County Auditors Accounting and Reporting Mangers meetings throughout the state on current accounting and auditing material. He currently serves on the CalCPA Governmental Accounting and Auditing Committee, which released the white paper for both GASB 75 and 84. He has also served as a technical reviewer for the Government Finance Officers Association (GFOA) for over 3 years. Brandon regularly teaches current audit and accounting related material at LSL training seminars, webinars, and client education workshops and training events. LICENSE Certified Public Accountant - California 2014 CONTINUING EDUCATION Total hours were 125 in last three years of which 74 were in governmental accounting and auditing subjects. Brandon has met the Governmental Auditing Standards requirement for governmental CPE. MEMBERSHIPS California Society of Certified Public Accountants (CalCPA) American Institute of Certified Public Accountants (AICPA) CalCPA State Governmental Accounting & Auditing Committee (GAA) California Society of Municipal Finance Officers (CSMFO) Government Finance Officers Association, Associate Member (GFOA) EXPERIENCE Brandon has over 10 years of experience in governmental audits. During his time with the firm, he has performed all phases of our government audits and made numerous presentations to City Council’s, Board of Supervisors, Boards of Directors and Audit Committees. Brandon Young, CPA Technical Resource Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 27 25 Brandon T. Young, CPA, Technical Resource Partner (Continued) He has been involved on the following recent engagements: City of Pasadena City of Coronado City of Santa Monica City of Dinuba City of Riverside City of Live Oak County of Yolo Santa Clarita Valley Water Agency County of Sutter Union Sanitary District East Bay Municipal Utility District San Joaquin Council of Governments City of Chula Vista Monterey Peninsula Airport District City of Dixon Orange County Water District City of Newark Coachella Valley Water District City of Galt Inland Empire Utilities Agency City of Menlo Park Georgetown Divide Public Utility District City of Citrus Heights Three Valleys Municipal Water District City of Camarillo Covered California This work entailed: • The preparation of the Comprehensive Annual Financial Report for those entities involved in the award programs of the California Society of Municipal Finance Officers and the Government Finance Officers Association of the United States and Canada. • Review the audit of these entities and provide technical assistance throughout the year to deliver the most up to date information with current GASB pronouncement. • Present the overall audit results to audit committees or others charged with governance. • Single Audits in accordance with new Uniform Guidance, including REAC Submission. • Risk assessment and internal controls evaluation with COSO Framework EDUCATION Bachelor of Arts Degree in Accounting – Magna Cum Laude – Vanguard University, 2012 FY22-2231-006Otay Water District BidSync10/12/2021 p. 28 26 ACHIEVEMENTS Ryan currently serves as a technical reviewer for the Government Finance Officers Association (GFOA). He has been involved with teaching current audit and accounting related material at Lance, Soll & Lunghard’s in-house training seminars. Ryan has also earned the Advanced Single Audit Certification issued by the AICPA, for planning, performing, and evaluating Single Audits in compliance with the Uniform Guidance. LICENSE AND CERTIFICATIONS Certified Public Accountant - California 2016 License Number: 130928 Advanced Single Audit Certificate – 2018 Certificate ID: 14978884 Verify at: credly.com/verify/e48f44 CONTINUING EDUCATION Total hours were 231 in last three years of which 204 were in governmental accounting and auditing subjects. Ryan has met the Governmental Auditing Standards requirement for governmental CPE. MEMBERSHIPS California Society of Certified Public Accountants (CalCPA) American Institute of Certified Public Accountants (AICPA) California Society of Municipal Finance Officers, Associate Member (CSMFO) Government Finance Officers Association, Special Review Committee Member (GFOA) EXPERIENCE Ryan has over nine years of experience in governmental auditing including financial statement audits (including audits and preparation of Comprehensive Annual Financial Reports), Housing Successor compliance audits, TDA compliance audits, Single Audits, Federal Student Financial Aid audits, and various consulting and agreed-upon procedures projects. Ryan is one of the firm’s leaders for ensuring audit quality control and Government Practice training for staff. He has also made several presentations to City Councils, Boards of Directors, and Audit Committees. Ryan Domino, CPA Senior Audit Manager FY22-2231-006Otay Water District BidSync10/12/2021 p. 29 27 Ryan C. Domino, CPA, Senior Audit Manager (Continued) Ryan has been involved in the following municipal engagements: Big Bear Fire Authority City of San Bernardino Municipal Water Dept. City of Agoura Hills City of San Clemente City of Big Bear Lake City of San Marino City of Canyon Lake City of Santa Monica City of Chino Hills City of Solana Beach City of Chula Vista City of Vista City of Fullerton Clean Energy Alliance City of Indio Coachella Valley Association of Governments City of Malibu Diversified Education Company City of Moorpark Inland Empire Utilities Agency City of Oceanside Los Angeles County Development Authority City of Pasadena Orange County Fire Authority City of Riverside Rainbow Municipal Water District City of Rolling Hills Six Basins Watermaster City of Rosemead This work entailed: • The preparation of the Comprehensive Annual Financial Report for those entities involved in the award programs of the California Society of Municipal Finance Officers and the Government Finance Officers Association of the United States and Canada. • Review the audit of these entities and provide technical assistance throughout the year to deliver the most up to date information with current GASB pronouncement. • Present the overall audit results to audit committees or other Board Members. EDUCATION Bachelor of Arts Degree in Business Administration with an emphasis in Accounting – California State University, Fullerton, 2012 FY22-2231-006Otay Water District BidSync10/12/2021 p. 30 28 LICENSE & CERTIFICATIONS Certified Public Accountant – California 2019 License #141837 AICPA Advanced Single Audit Certificate – 2021 CONTINUING EDUCATION Total hours were 272 in last three years of which 217 were in governmental accounting and auditing subjects. Riley has met the Governmental Auditing Standards requirement for governmental CPE. MEMBERSHIPS California Society of Certified Public Accountants (CalCPA) EXPERIENCE Riley has progressed in an outstanding manner. During his time with the firm, Riley has performed all phases of our government audits, including water districts, other special districts, CAFR audits, successor agency audits and Single Audits. He has been involved in the following municipal engagements: City of Inglewood City of Pasadena City of Monrovia City of Palm Desert LA County Development Authority City of Camarillo City of San Marino City of Riverside SEAACA City of Cypress Camarillo Ranch Foundation City of Big Bear Lake Orange County Fire Authority Monterey One Water City of Oceanside City of San Clemente City of Cathedral City of Palm Springs City of Indio City of Thousand Oaks Indio Water Authority Jurupa CSD City of Santa Barbara City of Santa Fe Springs Covered California City of Diamond Bar EDUCATION Bachelor of Arts Degree in Economics and Accounting – University of California, Santa Barbara, 2016 Riley Greenlee, CPA Audit Supervisor FY22-2231-006Otay Water District BidSync10/12/2021 p. 31 29 ACHIEVEMENTS Brian has earned the Intermediate Single Audit Certification issued by the AICPA, for planning, performing, and evaluating Single Audits in compliance with the Uniform Guidance. LICENSE Certified Public Accountant - 2021 License Number: 146428 CONTINUING EDUCATION Total hours were 105 in last three years of which 99 were in governmental accounting and auditing subjects. Brian has met the Governmental Auditing Standards requirement for governmental CPE. EXPERIENCE During his time with the firm, Brian has progressed in an outstanding manner. He has performed all phases of our government audits, including water districts, other special districts, Comprehensive Annual Financial Report audits, successor agency audits and Single Audits. He has been involved in the following municipal engagements: City of Pasadena City of Imperial Beach City of Santa Monica City of Ocean Side City of San Dimas City of San Clemente City of Big Bear Lake City of Canyon Lake City of Banning Ontario International Airport City of Fullerton Three Valleys Municipal Water District City of Inglewood Orchard Dale Water District City of Monrovia San Joaquin Council of Governments Santa Clarita Valley Water Agency EDUCATION Master of Science Degree in Accountancy – California State University of Fullerton, 2020 Bachelor of Science Degree in Accounting –Franciscan University of Steubenville, 2018 Brian Gross, MSA, CPA Senior Auditor FY22-2231-006Otay Water District BidSync10/12/2021 p. 32 Brown Armstrong Accountancy Corporation Bid Contact Madeline Johnson mjohnson@bacpas.com Ph 661-324-4971 Address 4200 Truxtun Avenue, Suite 300 Bakersfield, CA 93309 Item #Line Item Notes Unit Price      Qty/Unit Total Price  Attch.  Docs FY22-2231-006--01-01    Professional Auditing Services Supplier Product Code: First Offer -1 / lot Y Supplier Total $0.00 FY22-2231-006Otay Water District BidSync10/12/2021 p. 1 Attachment E  Brown Armstrong Accountancy Corporation  Item: Professional Auditing Services  Attachments  Cost Proposal Final.pdf  Proposal Final.pdf FY22-2231-006Otay Water District BidSync10/12/2021 p. 2 FY22-2231-006Otay Water District BidSync10/12/2021 p. 8 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS i TABLE OF CONTENTS Otay Water District Table of Contents Page Transmittal Letter .......................................................................................................................... 1 Technical Proposal 1. General Requirements ........................................................................................................... 3 2. Independence ......................................................................................................................... 3 3. License to Practice in California ............................................................................................. 3 4. Firm Qualifications and Experience ....................................................................................... 3 5. Partner, Supervisory and Staff Qualifications and Experience ............................................ 5 6. Similar Engagements with Other Government Entities ........................................................ 6 7. Audit Approach ........................................................................................................................ 6 8. Identification of Anticipated Potential Audit Problems ......................................................... 10 Appendices I. Resumes and Continuing Professional Education ................................................................... 11 II. External Quality Control Review Report ..................................................................................... 16 III. Summary of Recent Governmental Experience ........................................................................ 17 IV. Proposed Guarantees ................................................................................................................. 19 V. Proposer Warranties ................................................................................................................... 20 VI. Formation of Contract; Additional Contract Provisions ............................................................ 21 FY22-2231-006Otay Water District BidSync10/12/2021 p. 9 1 Transmittal Letter October 12, 2021 Stephanie Chen Sr. Procurement & Contracting Analyst Otay Water District 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978-2004 Dear Ms. Chen: Brown Armstrong Accountancy Corporation (Brown Armstrong) is pleased to submit this proposal to perform financial statement audits to Otay Water District (the District) for the fiscal year ending June 30, 2022, with the option to extend for up to four subsequent fiscal years. We believe our proposal exceeds the requirements outlined in your request for proposal. We have thoroughly read your request for proposal (RFP) and understand its requests. We feel that we are the best candidate to meet your needs as listed in the RFP. We are committed to performance and the efficient completion of this audit on or before the dates you desire. At Brown Armstrong, we understand that your timeframes must be met. As one of our key strengths, we develop an approach by which specific deliverables are achieved within set timeframes. We will work with you to develop a timeline that meets your specific requirements, meeting dates, field work dates, status reporting dates, and final report dates. Known as one of the largest regional accounting firms in Central California, Brown Armstrong’s mission is “to exceed expectations and provide opportunities.” Our fifty-four (54) employees lead us in achieving this mission by working with our clients individually to overcome any challenges with a special combination of knowledge and experience in governmental audits. We have audited numerous agencies similar to yours for four decades. We are experts in governmental accounting and auditing and have assisted numerous clients in receiving the Certificate of Achievement for Excellence in Financial Reporting. Our firm’s partners, managers, and seniors are actively involved in trade associations such as the Government Finance Officers Association (GFOA), California Transit Association, and the California Society of Municipal Finance Officers. Several of our Partners are pro bono recognized reviewers for the GFOA Certificate of Achievement Award Committee. We enthusiastically contribute our time to this Award process because as we review ACFRs from all across the United States, we maintain current, up-to-date knowledge of municipal accounting principles. Beyond the activity in trade associations, we offer our clients the education and organization to prepare themselves for upcoming regulation and compliance changes. FY22-2231-006Otay Water District BidSync10/12/2021 p. 10 2 Our approach, people, commitment to timelines, and dedication to financial reporting excellence makes Brown Armstrong the best-qualified firm to meet your needs. I certify that the requirements of the project as described in the RFP have been reviewed and I have conducted all necessary due diligence to confirm material facts upon which this proposal is based. I will be the engagement partner and primary liaison responsible for all services provided to the District, and I am entitled to represent the firm, empowered to submit this bid, and authorized to negotiate and sign a contract with the District. I can be contacted at 4200 Truxtun Ave, Suite 300, Bakersfield, CA 93309, Tel (661) 324-4971, Fax (661) 324-4997, or by email at ndatta@bacpas.com. I, the undersigned, certify that I am duly authorized to represent the above named firm and am empowered to submit this bid. In addition, I certify that I am authorized to contract with the District on behalf of the above named firm. Please contact me if I can clarify or expand on any item contained in this proposal. We are available for an oral presentation, if requested. This proposal is a firm and irrevocable offer until March 4, 2022. Sincerely, BROWN ARMSTRONG ACCOUNTANCY CORPORATION By: Neeraj Datta, CPA, CGMA Partner California Corporation Number: C0808648 Incorporation Date: February 10, 1977 Registered as: Brown Armstrong Accountancy Corporation 4200 Truxtun Avenue, Suite 300 Bakersfield, CA 93309 Title of person signing on behalf of the corporation: Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 11 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 3 TECHNICAL PROPOSAL Otay Water District 1. General Requirements We believe our proposal demonstrates the qualifications, competency, and capacity of our firm to undertake the independent audit of Otay Water District (the District) with the requirements of the request. We have prepared this proposal simply and economically to provide a straight forward and concise description of our Firm’s capabilities to satisfy the needs of your request for proposals. Please see the separate cost proposal which includes our proposed rates and fees presented in the format in Appendix E. 2. Independence Our firm, its shareholders and employees are independent of the District, as defined by generally accepted auditing standards and the U.S. General Accounting Office’s Government Auditing Standards. We have had no professional relationships involving the District for the past five (5) years. 3. License to Practice in California Our firm and all assigned key professional staff are properly licensed to practice in the State of California. Below is a copy of our firm license for the State of California. 4. Firm Qualifications and Experience Established in 1974, Brown Armstrong is one of the largest regional accounting firms serving California. We have built a full service accounting and consulting firm serving clients from San Diego to Humboldt County. The dimension that Brown Armstrong is able to offer the District is dedicated years in public accounting, which has enabled us to become a true advisor to your organization and an assistant to your financial success. Now, with fifty-four (54) highly skilled employees, Brown Armstrong continues its growth as a regional firm by offering auditing, tax, accounting, consulting, and assurance services to governmental entities, nonprofits, corporations, partnerships and individuals in California. FY22-2231-006Otay Water District BidSync10/12/2021 p. 12 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 4 TECHNICAL PROPOSAL Otay Water District The firm now employs 54 people as follows: Our Staff Audit Staff Partners 9 Partners 8 Shareholders in Training 2 Shareholders in Training 1 Managers 6 Managers 4 Seniors 5 Seniors 5 Supervisors 2 Supervisors 1 Staff Accountants 16 Staff Accountants 15 Support Staff 14 Support Staff 2 Total 54 Total 36 We are not proposing as a joint venture or consortium. Brown Armstrong is a full-service accounting firm. Our accountants have the expertise to provide audit, accounting, tax, and bookkeeping services. In addition to these services, the Firm’s accountants and consultants practice in the areas of risk assessment and Sarbanes-Oxley solutions, state and local tax, estate planning/wealth transfer, and information technology. We also perform peer reviews for other accounting firms. Our main Bakersfield office performs all listed services whereas our Stockton and Fresno offices perform mainly audit engagements. Our governmental audit staff is made up of thirty-six (36) professionals who are experts in their field. We have crafted expertise in auditing the public sector since the birth of the company. Through tireless planning, relationship building, and knowledge of the realm, we are dedicated to serving our clients and exceeding their needs and expectations. All staff assigned to your engagement will be employed on a full-time basis from the Bakersfield office. Peer Review Report As part of our commitment to quality control, our firm is a member of the Center for Public Firms Auditors Section (Center) of the American Institute of Certified Public Accountants (AICPA). We have completed several External Quality Control reviews under the AICPA's guidance, all of which included one or more governmental audits. Appendix II of this proposal contains a copy of our most recent report. As indicated in that report, our firm received a peer review rating of a “pass,” which is the highest rating available. Desk or Field Reviews and Disciplinary Actions In the normal course of business, our firm has been subjected to several field reviews during the past three years. Additionally, all of our reports are subjected to annual desk reviews by federal and state cognizant agencies. All of our reports for the past three years were accepted by these agencies. We have no disciplinary action taken or pending against the Firm during the past five years with state regulatory bodies or professional organizations. FY22-2231-006Otay Water District BidSync10/12/2021 p. 13 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 5 TECHNICAL PROPOSAL Otay Water District 5. Partner, Supervisory and Staff Qualifications and Experience Neeraj Datta will be the Engagement Partner and primary liaison responsible for all services to the District and he is authorized to contractually bind the firm. The members of the audit team assigned to your engagement are: The District requires auditors who can quickly identify and understand the pertinent issues and promptly provide assistance whenever and wherever needed. This cannot be accomplished without a comprehensive knowledge of operations. Brown Armstrong has assembled a key group of professionals that possess a firm grasp of the subject matter, as well as the experience, confidence, and friendliness you deserve. Our staff will be there when you need them, and they will be continually involved in the audit procedures. This will allow you to have access to decision makers and the resources you need at all times. Resumes and continuing professional education of the proposed engagement team can be found at Appendix I. We want to provide the most stable, consistent staffing available during our partnership. Excessive personnel turnover can complicate engagements and decrease the efficiency of the audit due to “catch-up” time needed. Our mission to the District’ maximum benefit from their working relationship with Brown Armstrong, we will continue to maintain the highest level of staff continuity throughout the course of the engagement. The engagement partners, managers, other supervisory staff and specialists may be changed if those personnel leave the firm, are promoted, or are assigned to another office. We understand that the District staff retains the right to approve or reject replacements. We also understand that other audit personnel may be changed at our discretion, provided that replacements have substantially the same or better qualification or experience. If the District wishes to rotate staff members to enhance independence, we are willing to discuss those terms in the engagement. Engagement Staff Engagement Senior Engagement Partner Neeraj Datta, CPA, CGMA Lindsey Gentry, CPA Lorena Matias Rage Sullivan Andrew Paulden, CPA Technical Review Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 14 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 6 TECHNICAL PROPOSAL Otay Water District 6. Similar Engagements with Other Government Entities The following are engagements performed in the last five (5) years similar to that of the engagement described in the RFP and can be contacted as references. Client Hours Contact Person Scope of Work Partner Goleta Water District 225 Francis Chan (805) 865-5250 fchan@goletawater.com Financial Statement Audit Compliance Audit Neeraj Datta Cawelo Water District 200 LeeAnn Giles (661) 393-6072 lgiles@cawelowd.org Financial Statement Audit Neeraj Datta Buena Vista Water Storage District 180 Marybeth Brooks (661) 324-1101 mbrooks@bvh20.com Financial Statement Audit Compliance Audit Lindsey McGuire Kern Delta Water District 150 Bryan Duncan (661) 834-4656 bryan@kerndelta.org Financial Statement Audit Lindsey McGuire Port Hueneme Water Agency 130 Lupe Acero (805) 986-6500 lacero@port- hueneme.ca.us Financial Statement Audit Compliance Audit Neeraj Datta 7. Audit Approach The audit shall be performed in accordance with generally accepted auditing standards, the standards set forth for financial audits in the General Accounting Office's (GAO) Government Auditing Standards (1994 and revisions), the provisions of the federal Single Audit Act of 1984 (and subsequent amendments), the California State Controller’s Minimum Audit Requirements for California Special Districts, and U.S. Office of Management and Budget (OMB) Circular If conditions are discovered which lead to the belief that material errors, defalcations, or other irregularities may exist, or if any other circumstances are encountered that require extended services, we will promptly notify the Board Chair, Executive Committee Chair, Executive Director (RGS) and the General Manager (SVBGSA). We will not perform extended services unless mutually agreed upon by both parties. a./b. Proposed Segmentation and Staff Hours The following is a detailed audit schedule which includes a breakdown of each phase of the audit, staff levels, and hours projected for each phase. Our plan would be to obtain the trial balance one week prior to fieldwork and come onsite to complete fieldwork in one week due to our preparation prior. FY22-2231-006Otay Water District BidSync10/12/2021 p. 15 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 7 TECHNICAL PROPOSAL Otay Water District Timing Phase Staff Hours Ma r c h - M a y Planning and Scope of Work  Entrance conference  Perform predecessor audit workpaper review  Obtain understanding of the District and its environment  Develop audit programs  Establish critical dates list with management in March  Provide information request to the District in March  Obtain confirmations from the District for mailing or emailing Partner Senior Staff Clerical 10 13 8 5 Au g u s t Internal Control Evaluation and Audit Risk Assessment, Establishment of Audit Plan, and Field Work  Trial balance and draft financial statements to be obtained to perform analytical and substantive procedures.  Document key accounting and compliance processes with management and/or District personnel  Obtain support for testing of controls. We will provide sample selections at least one week prior  Evaluate internal control testing results and findings, if any  Fraud risk assessment and fraud interviews  Evaluate key estimates and contingencies  Single Audit compliance assessment, procedures and reporting, if required  Progress/Exit conference Partner Senior Staff Clerical 7 35 90 2 Se p t e m b e r / O c t o b e r Completion of the Audit and Financial Reporting  Draft financial statements and provide to District by September 3rd  Complete review of financial reporting package  Detailed Quality Control review by technical partner  Issuance of required audit reports by October 10th  Presentation of Audit Report to the Committee – Week of October 18th  Presentation of the Audit Report Board of Directors – November 2nd o Explain overall audit approach o Discuss findings and recommendations o Report opinions on financial statements and single audit, if required o Address required communication topics Partner Senior Staff Clerical 25 35 15 10 Total Hours 255 Following is our detailed audit work plan to be followed to perform the services included in your request for proposal. We will begin with scheduling an entrance conference with District Management as soon as possible after award issuance. During this time, we will begin the following procedures: Planning During this phase of the audit, we will:  Confer with management to coordinate our efforts with the District’s efforts in terms of confirmations, schedules to be prepared, and critical dates to be met to ensure a smooth flow of the audit process;  Prepare a preliminary assessment of the District’s internal control structure utilizing the District’s manuals and programs, including controls over federal and state financial assistance programs;  Perform review of the Electronic Data Processing (EDP) controls relating to the District’s computer system;  Perform planning analytical procedures consisting of: (1) Comparative analytics (current balances versus budget and prior year); and (2) Predictive analysis (revenues and expenditures/expenses susceptible to such testing based on our expectations); FY22-2231-006Otay Water District BidSync10/12/2021 p. 16 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 8 TECHNICAL PROPOSAL Otay Water District  Confer with management regarding the results of our planning;  Submit questionnaires and requests for information to management regarding internal control. Our approach will emphasize transaction processing; investments, cash receipts, cash disbursements, payroll, capital assets, and external reporting;  Obtain an understanding of general ledger and related reports available for audit; and  Obtain basic information from management relating to risk assessment, including fraud risks. Internal Control Evaluation and Audit Risk Assessment During this phase we will obtain an understanding of and evaluate key components of the District’s internal control structure. We will also assess risk factors, including fraud risk relating to significant audit areas and transaction cycles. Procedures will consist of:  Reviewing questionnaires and documents obtained from management regarding the internal control structure.  Performing walk-throughs and tests of compliance with policies and procedures.  Identifying risk factors, including fraud risk, relating to significant audit areas and transaction cycles.  Interviewing key management personnel to verify or resolve complicated issues.  Summarizing potential significant deficiencies and opportunities for efficiencies and improvements for discussion with management. Establishment of Final Audit Plan Our audit plan will be based on the following:  Results of our compliance and control testing;  Analytical procedures applied to interim financial statements of the District;  Results of our risk assessment;  Results of audit brainstorming and team discussions; and  Discussions with management. Final Field Work We expect to begin the final stages of the work in August (subject to the District’s approval). During this phase, we will perform both analytical and substantive procedures such as variance analysis between prior year actual balances vs. current year actual balances and between current year actual balances vs. budget balances, predictive testing, confirming account balances, vouching revenues and expenditures and reviewing estimates for unpaid claims. At the end of our field work, we will discuss any proposed adjustments with management, and we will request a representation letter from management regarding the audit. Completion of the Audit At the completion of all of the above procedures, we will review the financial statements for GAAP compliance at our manager and partner level. We will then issue drafts of all required reports, draft financial statements, and discuss these drafts with appropriate District personnel. Upon approval by the District, we will issue our reports in final form and be available for a presentation to the Finance Committee and/or present all reports to District Board of Directors at the meeting of their choice. We will issue the following reports for the District: 1. Report on the fair presentation of the financial statements in conformity with generally accepted accounting principles in the United States of America; 2. Management Letter 3. Audit Committee Letter 4. Report on internal controls 5. Report on applying agreed upon procedures FY22-2231-006Otay Water District BidSync10/12/2021 p. 17 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 9 TECHNICAL PROPOSAL Otay Water District c. Sample Size and Extent to Which Statistical Sampling is to be Used Based on our preliminary assessment of the internal control structure and risk factors, we anticipate performing internal control testing in the following areas: Review Area Sample Size Receipts and revenues 25-60 Disbursements and accounts payable 25-60 Payroll and related liabilities 25-60 Controls over requirements of federal and state grants, if required 25-60 (per major program) Staff will perform internal control testing in August, with direct supervision by Ms. Gentry. Sample sizes will depend on the extent of reliance placed on the given sample and the volume of transactions involved. Statistical and random sampling will be used to ensure that all samples truly represent the population being tested. We will use audit command language (ACL) software and your on-site automated data system on an "inquiry only" basis for purposes of identifying the postings of items selected for testing. Findings will be discussed with management for accuracy and the process of recommendations immediately started. d. Type and Extent of Analytical Procedures We will perform analytical procedures during all phases of our audit (audit planning, field work and audit completion). We will build our expectations based on historical experience and known current year factors and will investigate significant departures at the financial statement level to decide if we can reach our comfort level for certain audit areas. We will also perform substantive analytical procedures, where we use analytical procedures as the principal substantive test of a significant financial statement assertion, based on the auditor’s judgment and on the expected effectiveness and efficiency of available procedures. e. Approach to be Taken to Gain and Document an Understanding of the Internal Control Structure Our primary approach to assimilating and gaining an understanding of internal controls is through inquiry and observation of your accounting and compliance staff, performing walkthroughs of all key accounting processes, and preparing detailed documentation annually. During this phase we will obtain an understanding of and evaluate key components of the JPB’s internal control structure. We will also assess risk factors, including fraud risk relating to significant audit areas and transaction cycles. Procedures will consist of:  Reviewing questionnaires and documents obtained from management regarding the internal control structure.  Performing walk-throughs and tests of compliance with policies and procedures.  Identifying risk factors, including fraud risk, relating to significant audit areas and transaction cycles.  Interviewing key management personnel to verify or resolve complicated issues.  Summarizing potential significant deficiencies and opportunities for efficiencies and improvements for discussion with management. f. Approach to Taken in Determining Laws and Regulations Our experience with various special districts has created a reservoir of knowledge of many laws and regulations. However, by inquiry and observation, we will determine all major programs (over $750,000 annually) participated in by the District. We then consult the actual law, the Federal Register, Catalogue of Federal programs, or the California State Controllers guide to State and Federal Compliance to obtain understanding of the requirements of the law. For major programs, we specifically test those requirements by inspection of documents. g. Approach to be Taken in Drawing Audit Samples for Compliance Tests Compliance test samples will be drawn usually by statistical sampling techniques. The universe from which the sample is drawn begins at the beginning of the year under audit, and ends with the end of that year. If a null is picked, it is replaced in draw sequence until sufficient live items comprise the planned sample size. FY22-2231-006Otay Water District BidSync10/12/2021 p. 18 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 10 TECHNICAL PROPOSAL Otay Water District 8. Identification of Anticipated Potential Audit Problems While we do not anticipate any issues with the audit, we will vigilantly examine and monitor the following relevant accounting issues. Financial Reporting Investments  ACFR compliance with current reporting and GASB disclosure requirements  ACFR eligibility for financial reporting conformance awards issued by GFOA  Compliance with infrastructure obligations and regulatory provisions  Compliance with GASB 34  Authorization and approval process for District investments  Controls to assure District’s compliance with investment limitations and specific types of engagements  Monitoring by the District of its investments Internal Control Structure Miscellaneous  District’s internal control functions and compliance with proper internal control philosophies  Computer-system processes and controls and adequacy of the control environment  Fiduciary Activities  Note disclosures  Evaluation and documentation of Internal Control In the event problems are identified during the course of our audit procedures, we will resolve the problem as follows:  Discussion amongst audit team at the time of identified potential audit problem for consultation and consensus amongst the team.  Consultation and discussion with appropriate District personnel when identified to ensure all facts are known and agreed upon with the audit team.  Consultation and discussion with liaison(s).  Resolution with appropriate District personnel.  If applicable, a management letter will be submitted documenting the criteria, condition, cause and effect of the issue, along with our recommendation and management’s response and corrective action plan. Method of Providing the District with Important Accounting Changes As the selected firm, we will keep the District informed of new state and national developments affecting government finance and reporting, standards and trends including changes in federal/state grant program accounting, new GASBs and reporting requirements. Each year Brown Armstrong organizes four days of CPE seminars in Bakersfield (two, two-day sessions covering 32 hours of CPE) for its professional staff and clients’ personnel. One of the two-day CPE seminars is in the middle of January. It covers accounting and auditing updates relating to for-profit businesses (FASB, PCAOB, and SAS). Another two-day CPE seminar covering primarily governmental accounting and auditing updates (GASB, Yellowbook, Single Audit) is typically in May. The course material covers emerging issues, current pronouncements, auditing standards, risk alerts, information systems, reporting issues, and other topics of interest which concern auditing and accounting with an emphasis on governmental issues. Course materials are prepared by professional lecturers, our partners, managers, and seniors based on their own experience, research, and learning. Last year’s attendance included Brown Armstrong professionals and nearly 60 clients and their accounting staff. All staff assigned to governmental entities meets the CPE requirements in accordance with Government Auditing Standards. FY22-2231-006Otay Water District BidSync10/12/2021 p. 19 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 11 APPENDICES Otay Water District Appendix I Resumes BACKGROUND Neeraj is the engagement partner of the project. He has more than 12 years of governmental auditing experience and 20 years of auditing experience. He has been with the firm since August of 2012, after 8 years of auditing experience that includes Big Four accounting firms, KPMG San Francisco, KPMG New York, Ernst and Young New York, and Deloitte and Touché, Toronto. His primary business focus is governmental entities audit and accounting. His audit specialties include special districts, counties, cities, retirement systems, and investment funds. Neeraj has always ensured that we provide the highest level of audit and consulting services to all our clients. He will be easily accessible for the District at all times. He is actively involved in a number of professional organizations such as the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. NEERAJ DATTA ENGAGEMENT PARTNER, CPA, CGMA EDUCATION Delhi University, India Bachelor of Commerce Honors Degree with a Concentration in Accounting CONTACT PHONE: 661-324-4971 WEBSITE: www.bacpas.com EMAIL: ndatta@bacpas.com ASSOCIATIONS American Institute of Certified Public Accountants Certified Global Management Accountant Institute of Chartered Accountants of India California Society of Certified Public Accountants Certified Public Accountant, State of New York Certified Public Accountant, Delaware State Board of Accountancy EXPERIENCE Cities City of Fresno City of Pasadena City of Tulare Counties County of Fresno County of Tulare Special Districts Cawelo Water District Carpinteria Valley Water District Goleta Water District Mojave Air and Space Port Pixley Public Utility District Port Hueneme Water Agency North of the River Municipal Water District Retirements Fresno County Employees’ Retirement Association Imperial County Employees’ Retirement System Marin County Employees’ Retirement Association San Bernardino County Employees’ Retirement Association San Diego County Employees’ Retirement Association Tulare County Employees’ Retirement Association Ventura County Employees’ Retirement Association Nonprofits California State University, Sonoma Campus Pasadena Community Access Corporation Rotary Club of Bakersfield Rotary Waterman Foundation National Test Pilot School ROLES AND RESPONSIBILITIES  Audit and client deliverables responsibility  Approves the overall audit risk assessment and audit procedures  Communicates with executive management, and members of the District, regarding audit planning, fieldwork and reporting  Available throughout the year to ensure proactive issue identification and service delivery FY22-2231-006Otay Water District BidSync10/12/2021 p. 20 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 12 APPENDICES Otay Water District BACKGROUND Andrew is a principal with over 35 years of experience in governmental accounting and has been with the firm since 1985. He has grown within the firm serving a diverse client base. His expertise ranges from special districts and retirement systems to municipal entities and nonprofit organizations. Andrew enjoys working “hands-on” with his clients and will never be too far away from the audit procedures. Andrew has always ensured that we have the highest level of audit, tax, and consulting services for all of his clients. He is actively involved in a number of professional organizations such as the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants, SACRS, and CALAPRS. He will use this valuable experience to assist the District in continuing to improve your financial reports. ANDREW PAULDEN TECHNICAL REVIEW PARTNER, CPA EDUCATION California State University, Chico, 1985 Bachelor of Science Degree in Business Administration with a Concentration in Accounting CONTACT PHONE: 661-324-4971 WEBSITE: www.bacpas.com EMAIL: apaulden@bacpas.com ASSOCIATIONS American Institute of Certified Public Accountants California Society of Certified Public Accountants Governmental Auditing and Accounting Committee California Association of Public Retirement Systems State Association County Retirement Systems AICPA Employee Benefit Plan Audit Quality Center EXPERIENCE Special Districts Bear Mountain Recreation & Park District Belridge Water Storage District Coachella Valley Resource Conservation District Goleta Water District Kern Water Bank Authority Mojave Public Utility District North of the River Municipal Water District Port Hueneme Water Agency Retirements Fresno County Employees' Retirement Association Los Angeles County Employees' Retirement Association Ventura County Employees' Retirement Association San Mateo County Employees' Retirement Association Tulare County Employees' Retirement Association Marin County Employees' Retirement Association Fresno City Employees' Retirement System San Diego County Employees' Retirement Association Los Angeles City Employees' Retirement System Contra Costa County Employees' Retirement Association Sonoma County Employees' Retirement Association Santa Barbara County Employees' Retirement System Los Angeles Fire and Police Pension Plan Imperial County Employees' Retirement System San Francisco Bay Area Rapid Transit Money Purchase Plan San Francisco Bay Area Rapid Transit Deferred Compensation Plan ROLES AND RESPONSIBILITIES  Responsible for assisting the Engagement Partner in performing the audit risk assessment and design audit procedures  Assists in audit documentation review in significant areas  Reviews financial statements to ensure they are in conformance with GAAP and GFOA requirements  Advises the audit team regarding technical matters and provides concurring approval of financial statements and audit reports FY22-2231-006Otay Water District BidSync10/12/2021 p. 21 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 13 APPENDICES Otay Water District BACKGROUND Lindsey is an audit senior at our Bakersfield office with three (3) years of governmental auditing experience. She has shown excellent performance in leading fieldwork, compiling and preparing financial statements, performing tests and analytical reviews, as well as creating strong working relationships with clients. She has executed audits in the past with little issues and is great at maximizing efficiency while performing audit work. LINDSEY GENTRY ENGAGEMENT SENIOR, CPA EDUCATION California State University, Fullerton, 2018 Bachelor of Arts Degree in Business Administration, Concentration in Accounting CONTACT PHONE: 661-324-4971 WEBSITE: www.bacpas.com EMAIL: lgentry@bacpas.com ASSOCIATIONS California Society of Certified Public Accountants EXPERIENCE Counties County of Merced County of Napa Retirements Imperial County Employees’ Retirement System Merced County Employees Retirement Association San Bernardino County Employees’ Retirement Association San Diego County Employees’ Retirement Association Stanislaus County Employees’ Retirement Association Sacramento County Employees’ Retirement System Special Districts Carpinteria Valley Water District Cawelo Water District Goleta Water District Kern Tulare Water District Lake Isabella Community Services District Mojave Air and Space Port Westside Mosquito & Vector Control District Pixley Public Utilities District Port Hueneme Water Agency Southwest Health Care District Nonprofits Community Action Partnership of San Luis Obispo Community Action Partnership of Kern National Test Pilot School Rotary Club of Bakersfield Stockdale Christian School ROLES AND RESPONSIBILITIES  Leading fieldwork audit team  Reviews, analyzes, and documents client internal controls  Completes complex audit procedures  Researches and performs tests and analytical reviews on issues under direction of the Engagement Manager  Reviews financial statements and workpapers before sending the drafts to Engagement Manager and Partners for further review FY22-2231-006Otay Water District BidSync10/12/2021 p. 22 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 14 APPENDICES Otay Water District LORENA MATIAS ENGAGEMENT STAFF EDUCATION California State University, Bakersfield Bachelor of Science Degree in Business Administration Concentration in Accounting RAGE SULLIVAN ENGAGEMENT STAFF EDUCATION California State University, Bakersfield Bachelor of Science Degree in Business Administration Concentration in Accounting EXPERIENCE Cities City of Bakersfield Counties County of Kern County of Merced County of Napa County of Riverside County of Santa Barbara County of Santa Cruz County of Tulare Ventura County Treasurer-Tax Collector Retirements Imperial County Employees’ Retirement System Special Districts Carpinteria Valley Water District Goleta Water District Lamont Public Utility District Pixley Public Utility District Port Hueneme Water Agency Mojave Air and Space Port Transits Golden Empire Transit District Gold Coast Transit District Kern Council of Governments Solano County Transit Nonprofits Hoffman Hospice of the Valley, Inc. Victory Family Services First 5 Santa Barbara Interim Healthcare EXPERIENCE Cities City of Fresno Counties County of Kern Retirements Contra Costa County Retirement Association Fresno County Employees’ Retirement Association Los Angeles City Employees’ Retirement System San Bernardino County Employees’ Retirement System Ventura County Employees’ Retirement Association Special Districts Buena Vista Water Storage District Carpinteria Valley Water District Eastern Kern Air Pollution Control District Kern Delta Water District Kern Water Bank Authority Pixley Public Utility District Mojave Public Utility District Olcese Water District Transits Tulare County Association of Governments Gold Coast Transit District Nonprofits Bakersfield ARC Bakersfield Homeless Center Community Action Partnership of Kern Community Action Partnership of Madera County Community Action Partnership of San Luis Obispo Friends of Mercy Foundation Greater Bakersfield Legal Assistance Kern Local Area Formation Commission Proteus, Inc. Victory Family Services FY22-2231-006Otay Water District BidSync10/12/2021 p. 23 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 15 APPENDICES Otay Water District Continuing Professional Education Neeraj Datta, CPA, CGMA Annual Update: Top Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs, 2020 Governmental Accounting and Auditing Update, 2020 Applying Key Provisions of Risk Assessment Standards to Improve Audit Effectiveness and Efficiency, 2020 Recent Changes to Key Topics in Accounting, Auditing, and Attest, 2020 Webinar to follow up the Practice Management, People Development, Change and Speaking Workshop, 2019 Practice Management, People Development, Change and Speaking Workshop, 2019 The New Yellow Book: Government Auditing Standards, 2018 Revision, 2019 Governmental Accounting and Auditing Update, 2019 Annual Conference of the State Association of District Auditors, 2019 California Ethics and Fraud Case Studies, 2019 GAAP Update, 2019 2017/18 Federal and CA Tax Update Seminar, 2018 Avoiding Problems in Conducting Single Audits, 2018 Accounting Industry Update, 2018 Ethical Responsibilities for CPAs, 2018 What Every CPA Should Know About Fraud, 2018 Andrew J. Paulden, CPA Farmers Tax and Accounting Conference, 2020 Fundamentals of Single Audit Webcast, 2020 Nonprofit Accounting and Auditing Update Webcast, 2020 Annual Update: Top Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs, 2020 Governmental Accounting and Auditing Update, 2020 Compilations and Reviews: Risks, Procedures and Fraud Webcast, 2020 Governmental Accounting and Auditing Virtual Conference, 2020 Accounting and Auditing Update Webcast, 2020 Construction Accounting - The Impact of the New Standards, 2020 Spidell's 2019/2020 Federal and California Tax Update The New Yellow Book: Government Auditing Standards, 2018 Revision, 2019 Spidell's 2018/2019 Federal and California Tax Update, 2018 Not-for-Profit Organizations: Accounting Principles and Risk Managements, 2018 Government Auditing Standards Webcast, 2018 Accounting Industry Update, 2018 Ethical Responsibilities for CPAs, 2018 What Every CPA Should Know About Fraud, 2018 Spidell's 2017/18 Federal and California Fall Tax Update Seminar, 2018 Lindsey Gentry, CPA The Mindful CPA, 2020 AuditWatch Level 4 - Day 3: Experienced In-Charge Training, 2020 AuditWatch Level 4 - Day 2: Experienced In-Charge Training, 2020 AuditWatch Level 4 - Day 1: Experienced In-Charge Training, 2020 Effective Leadership - Finding Common Ground Despite Differing Points of View, 2020 Annual Update: Top Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs, 2020 Governmental Accounting and Auditing Update, 2020 Applying Key Provisions of Risk Assessment Standards to Improve Audit Effectiveness and Efficiency, 2020 Recent Changes to Key Topics in Accounting, Auditing, and Attest, 2020 The New Yellow Book: Government Auditing Standards, 2018 Revision, 2019 Governmental Accounting and Auditing Update, 2019 New Hire Training - Day 5, 2019 New Hire Training - Day 3, 2019 California Ethics and Fraud Case Studies, 2019 GAAP Update, 2019 Audit Planning Training, 2018 New Staff Audit Training, 2018 Lorena Matias Governmental and NP Accounting & Auditing, 2021 Real World Frauds Found in Governments, 2021 Governmental and Not-For-Profit Annual Update, 2021 Professional Conducts & Ethics: Dealing with Ethical Crises, 2021 Government Pension Accounting and Financial Reporting, 2021 Professional Conducts & Ethics: Dealing with Ethical Crises, 2021 Government Pension Accounting and Financial Reporting, 2021 The Good (Ethical Leadership), the Bad (Fraud), and the Ugly (SSARS), 2021 GAAP - Update of Significant Accounting Topics, 2021 Annual Update: Top Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs, 2020 Governmental Accounting and Auditing Update, 2020 Applying Key Provisions of Risk Assessment Standards to Improve Audit Effectiveness and Efficiency, 2020 Recent Changes to Key Topics in Accounting, Auditing, and Attest, 2020 Spidell's 2019/2020 Federal and California Tax Update, 2019 The New Yellow Book: Government Auditing Standards, 2018 Revision, 2019 Governmental Accounting and Auditing Update Leadership Training for Supervisors, 2019 GAAP Update, 2019 Spidell's 2018/2019 Federal and California Tax Update, 2018 Avoiding Problems in Conducting Single Audits, 2018 Governmental Accounting and Auditing Update, 2018 Accounting and Auditing Update Retirements, 2018 Accounting Industry Update, 2018 Ethical Responsibilities for CPAs, 2018 What Every CPA Should Know About Fraud, 2018 Rage Sullivan Governmental and NP Accounting & Auditing, 2021 Real World Frauds Found in Governments, 2021 Governmental and Not-For-Profit Annual Update, 2021 The Good (Ethical Leadership), the Bad (Fraud), and the Ugly (SSARS), 2021 GAAP - Update of Significant Accounting Topics, 2021 AuditWatch University Level 3 - Day 3: Beginning In-Charge Training, 2021 AuditWatch University Level 3 - Day 1: Beginning In-Charge Training, 2021 AuditWatch University Level 3 - Day 2: Beginning In-Charge Training, 2021 Annual Update: Top Governmental and Not-for-Profit Accounting and Auditing Issues Facing CPAs, 2020 Governmental Accounting and Auditing Update, 2020 Applying Key Provisions of Risk Assessment Standards to Improve Audit Effectiveness and Efficiency, 2020 Recent Changes to Key Topics in Accounting, Auditing, and Attest, 2020 Spidell's 2019/2020 Federal and California Tax Update, 2019 The New Yellow Book: Government Auditing Standards, 2018 Revision, 2019 Governmental Accounting and Auditing Update, 2019 New Hire Training - Day 5, 2019 New Hire Training - Day 4, 2019 New Hire Training - Day 3, 2019 New Hire Training - Day 2, 2019 California Ethics and Fraud Case Studies, 2019 GAAP Update, 2019 Audit Planning Training, 2018 New Staff Audit Training, 2018 FY22-2231-006Otay Water District BidSync10/12/2021 p. 24 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 16 APPENDICES Otay Water District Appendix II External Quality Control Review Report FY22-2231-006Otay Water District BidSync10/12/2021 p. 25 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 17 APPENDICES Otay Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 26 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 18 APPENDICES Otay Water District Appendix III Summary of Recent Governmental Experience CITIES RETIREMENT PLANS SPECIAL DISTRICTS City of Baldwin Park Contra Costa County Employees’ Retirement Association Antelope Valley East Kern Water Agency City of Bakersfield Fresno City Employees’ Retirement System Bear Mountain Recreation and Park District City of Burlingame Fresno County Employees’ Retirement Association Buena Vista Water Storage District City of Fresno Imperial County Employees’ Retirement System California Valley Community Services District City of Huron Kern County Employees’ Retirement Association Carpinteria Valley Water District City of Laguna Woods Los Angeles Fire and Police Pension System Cawelo Water District City of Morro Bay Los Angeles City Employees’ Retirement System East Bay Regional Park District City of Paso Robles Los Angeles County Employees’ Retirement Association Eastern Kern Air Pollution Control District City of St. Helena Marin County Employees’ Retirement Association Goleta Water District City of Tulare Merced County Employees’ Retirement Association Indian Wells Valley Groundwater Authority City of Visalia Sacramento County Employees’ Retirement System Kern Tulare Water District San Diego City Employees’ Retirement System Kern Water Bank Authority San Diego County Employees’ Retirement Association Lamont Public Utility District San Francisco Bay Area Rapid Transit District Money Lebec County Water District Purchase Plan and Deferred Compensation Plan Mojave Public Utility District San Joaquin County Employees’ Retirement Association North Kern Cemetery District San Joaquin Regional Transit District Retirement Plans North Coast Unified Air Quality Management District FIRST 5s San Luis Obispo County Employees’ Pension Trust Riverside County Habitat Conservation Agency First 5 Kern San Mateo County Employees’ Retirement Association Pixley Public Utility District First 5 Merced Santa Barbara County Employees’ Retirement System Port Hueneme Water Agency First 5 Monterey Sonoma County Employees’ Retirement Association San Joaquin Area Flood Control Agency First 5 Napa Tulare County Employees’ Retirement Association San Joaquin Valley Air Pollution Control District First 5 San Mateo Ventura County Employees’ Retirement Association Shafter Recreation and Park District First 5 Sonoma Sonoma County Public Safety Consortium First 5 Ventura South San Joaquin Irrigation District West Valley County Water District Westside Mosquito Abatement District COUNTIES NONPROFITS HEALTHCARE County of Fresno Bakersfield ARC Kern Health Systems County of Kern Community Action Partnership of Kern Kern Medical County of Merced Community Action Partnership of San Luis Obispo Liberty Health Advantage County of Riverside Community Action Partnership of Madera County Heritage Provider Network County of San Joaquin Kern County Bar Association Heritage California Medical Group County of Santa Barbara Kern County Library Foundation Heritage New York Medical Group County of Santa Cruz Missionary Church Western Regional Southwest Health Care District County of Stanislaus Tranquil Waters Guidance Center Riverside County Health System - Medical Center County of Tulare Valley Consortium for Medical Education San Joaquin County General Hospital County of Napa Women’s Center – High Desert SCHOOLS DISTRICTS Richland School District Anaheim Transportation Network Riverside County Transportation Commission Antelope Valley Transit Authority Riverside Transit Agency Central Contra Costa Transit Authority San Joaquin Council of Governments Eastern Contra Costa Transit Authority San Joaquin Regional Transit District Fresno County Transportation Authority San Luis Obispo Council of Governments Gold Coast Transit District Santa Barbara Metropolitan Transit District Golden Empire Transit District Santa Cruz Metropolitan Transit District Kern Council of Governments Solano County Transit Kings County Area Public Transit Agency Stanislaus Council of Governments Marin County Transit District Tulare County Association of Governments Napa Valley Transportation Authority TRANSIT DISTRICTS FY22-2231-006Otay Water District BidSync10/12/2021 p. 27 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 19 APPENDICES Otay Water District Appendix IV Proposer Guarantees FY22-2231-006Otay Water District BidSync10/12/2021 p. 28 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 20 APPENDICES Otay Water District Appendix V Proposer Warranties FY22-2231-006Otay Water District BidSync10/12/2021 p. 29 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 21 APPENDICES Otay Water District Appendix VI Formation of Contract; Additional Contract Provisions FY22-2231-006Otay Water District BidSync10/12/2021 p. 30 BROWN ARMSTRONG ACCOUNTANCY CORPORATION WWW.BACPAS.COM PROVIDING AUDITING AND ACCOUNTING SERVICES FOR OVER 45 YEARS 22 APPENDICES Otay Water District FY22-2231-006Otay Water District BidSync10/12/2021 p. 31 The Pun Group, LLP Bid Contact Ken Pun info@pungroup.com Ph 949-777-8800 Address 200 East Sandpointe Avenue Suite 600 SANTA ANA, CA 92707 Bid Notes  Please confirm receipt. Thank you. Item #Line Item Notes Unit Price      Qty/Unit Total Price  Attch.  Docs FY22-2231-006--01-01    Professional Auditing Services Supplier Product Code: First Offer -1 / lot Y Supplier Total $0.00 FY22-2231-006Otay Water District BidSync10/12/2021 p. 1 Attachment F  The Pun Group, LLP  Item: Professional Auditing Services  Attachments  Otay Water District_Technical Proposal_FINAL.pdf  Otay Water District_Cost Proposal_FINAL.pdf FY22-2231-006Otay Water District BidSync10/12/2021 p. 2 Partner 4365 Executive Drive, Suite 710 San Diego, CA 92121 (858) 242-5101 | coley.delaney@pungroup.com Coley Delaney, CPA Submitted By: FY22-2231-006Otay Water District BidSync10/12/2021 p. 3       WHY CHOOSE THE PUN GROUP LLP?  Big firm expertise with small firm values  Personal attention that utilizes technical expertise  A unique collaborative, workable firm culture  Innovation is embraced  Achievable plans to move your organization forward The Pun Group’s most valuable asset is its people and their deep experience that drives our every interaction with clients. “ ” The Pun Group LLP is recognized for its professionalism, integrity, and providing clients with practical solutions tailored to the circumstances and issues. The District will receive a superior level of service and a quality audit. Thank You! Thank you for allowing us to submit our qualifications to provide you with Professional Auditing Services. The Pun Group LLP Certified Public Accountants and Business Advisors   Kenneth H. Pun Founder & Managing Partner FY22-2231-006Otay Water District BidSync10/12/2021 p. 4 Otay Water District   Table of Contents Table of Contents ...................................................................................... A Letter of Transmittal .................................................................................. 1 Independence ........................................................................................... 3 License to Practice in California ............................................................... 3 Firm Qualifications and Experience .......................................................... 4 Partner, Supervisory, and Staff Qualifications and Experience ................ 8 Similar Engagement with Other Government Entities ............................ 17 Specific Audit Approach .......................................................................... 27 Let’s Start a Dialogue .............................................................................. 34 Appendix A – Certificate of Insurance ....................................................... i Appendix B – Available Training ................................................................ ii Appendix C – Proposer Guarantees ......................................................... iii Appendix D – Proposer Warranties .......................................................... iv Appendix F – Formation of Contract; Additional Contract Provisions....... v FY22-2231-006Otay Water District BidSync10/12/2021 p. 5 The Pun Group Wins 2021 “Best of Accounting” Award The Pun Group is proud to have won 2021’s Best of Accounting® award from ClearlyRated. ClearlyRated recognizes the best in staffing, accounting, and other professional services by recording Net Promoter Scores® (NPS) and reviews to measure client satisfaction. This award is unique in the U.S. and Canada because it is the only accolade that relies solely on ratings submitted from third-party validated survey responses. Firms that receive a ClearlyRated award are recognized as “leading their industry through their ongoing commitment to service excellence.” The Pun Group received a positive 75% NPS, reflecting an exceptionally loyal and satisfied audience. Our firm excelled in five key areas: Responsiveness, Quality, Value, Needs Understanding, and Proactive Approach. About ClearlyRated Rooted in satisfaction research for professional service firms, ClearlyRated utilizes a Net Promoter® Score survey program to help professional service firms measure their service experience, build an online reputation, and differentiate on service quality.   “The Pun Group has always provided  exceptional service. They are always there to  answer any questions we have throughout  the year.”  Kathleen J.     “The Pun Group returns our calls promptly,  provides responses to our questions  because they have a thorough  understanding of our needs and of the  District, and are proactive in their approach  to helping us. Also, the majority of the  Board really likes that Ken Pun himself  comes and presents the audit to them.”  State &Local Client   “I really appreciate in such a difficult time,  The Pun Group continually provides  valuable webinars, not only to extend our  knowledge but also to provide us the  updated status.      Thank you!”  Anonymous Client     “In all these years they have been wonderful  to work with and responsive.”  Graciela S.   FY22-2231-006Otay Water District BidSync10/12/2021 p. 6       Letter of Transmittal October 12, 2021 Otay Water District 2554 Sweetwater Springs Blvd., Spring Valley, CA 91978 Re: RFP for Professional Auditing Services Dear Sir or Madam: Please allow us to introduce our Firm and share our qualifications and proposed audit plan for the Otay Water District (the “District”) according to your Request for Proposals for Professional Auditing Services for fiscal year ending June 30, 2022, with an option to extend for four subsequent fiscal years. The Pun Group LLP (the “Firm”) has the knowledge and experience necessary to become the District’s next public accounting firm, and the work plan to ensure a smooth audit process. This letter is an acknowledgment of the Firm’s understanding of the work to be performed. We are offering our commitment to deliver all of the required work, complete the audit, and issue the necessary auditor’s reports within the periods outlined by the District. The Pun Group is the right choice for the Otay Water District because: Strong California Footprint. The Pun Group is reputable for its governmental practice. We are the principal auditors for districts such as Alameda County Water District, Central Basin Water District, Marina Coast Water District, Olivenhain Municipal Water District, Santa Fe Irrigation District. Accordingly, we have a deep understanding of the current issues special districts are facing, such as varying demographics, economic environments, and the constantly changing landscape of laws and regulations. Recognized Leader in the Governmental Industry. We are a small national Firm with licenses in the States of California, Arizona, and Nevada and a proven leader in professional services to the government sector. All key engagement team professionals are licensed to practice as Certified Public Accountants and meet the Continuing Professional Education requirements under US GAO’s Government Auditing Standards to perform the proposed audits. The partners and all employees proposed to perform the requested services do not have a record of substandard audit work nor have any outstanding claim of substandard practice or unsatisfactory performance pending with the State Board of Accountancy or other professional organizations. In addition, we are members of the national AICPA Audit Quality Center. We strongly believe that part of our success is credited to our professionals’ participation with various industry-leading organizations. Such affiliations are critical to addressing emerging accounting and auditing issues within the industry environment. The Firm is the recipient of several awards, including the SARC's Award for Excellence in Knowledge, Value, and Overall Client Satisfaction (2020). This particular award results from positive feedback from our clients in an independent survey, demonstrating our Firm’s highest commitment to Federal standards, quality, and client satisfaction. 200 E. Sandpointe Ave., Suite 600, Santa Ana, California 92707 Tel: 949-777-8800 • Fax: 949-777-8850 www.pungroup.cpa 3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM FY22-2231-006Otay Water District BidSync10/12/2021 p. 7 Otay Water District 2 | PUNGROUP.CPA You’ll Work with a Team that Embraces Innovation and Continuous Improvement. Our Firm is committed to continuous improvement as it relates to service delivery. We embrace innovation and identify areas of technological enhancements in our audit and project management approaches. For example: Secure Data File Transfer System. In order to improve audit efficiency, workflow management software plays an essential role between your organization and our engagement team. We employ a secure data file transfer system called Suralink. Suralink’s dynamic request list is integrated with our secure file hosting system for seamless document-request coordination, including the upload of large-size files. It means all our requests are in one place, updated in real-time, and accessible by everyone working on the engagement. You, as a client, no longer have to manually maintain a spreadsheet amongst several people only to repeat the process in a day or two. Not only makes the operation more cost-efficient, but it also enables you and your team to spend your time getting the job done, not reconciling a messy list of outstanding items. In addition, Suralink’s dashboard allows you to visualize the process of the document-request fulfillment. AI Auditor. The Pun Group leverages the technology and research tools required to provide excellent services to its clients. With the usage of Artificial Intelligence (AI) technology, the Firm is capable of issuing all reports requested faster than other audit firms, without exposing the District to unnecessary risks. Remote Auditing Capability. Remote working arrangements have suddenly become the “new normal” in these trying times. Our Firm has deployed top-notch technology and fully transitioned to “remote auditing,” offering our clients the quality services they deserve while being fully “remote” or operating in a “hybrid” schedule. “On-site” audits are still the Firm’s preferred method, and we’ll continue to offer and promote those as well. Knowledge is Shared with You. As part of our pledge to keep you updated on new technical accounting and financial issues, we implemented our 2021 Virtual Government Accounting Conference, which qualifies for up to15 hours of CPE – double of the industry’s standard. These online sessions are free of charge and part of the service package provided to you. More details and dates can be found on the “Client Training Webinars” topic under this proposal. The Pun Group is proud of its inclusive values and is an avid promoter of equality and diversity. In addition, the Firm is an equal opportunity employer and complies with all federal and state hiring requirements. We’re proud of supporting affirmative-action philosophies and work hard to provide opportunities for self-enhancement to members of disadvantaged groups. This proposal is a firm and irrevocable offer valid for one hundred seventy-five (175) days following the closing date for the receipt of all proposals. Also, we acknowledge the receipt of the Q&A dated October 5, 2021. Also, we would like to emphasize one additional point: We want to earn your trust and your business! We are confident that the energetic and experienced team we have assembled is the right one for the District. Our commitment to continue serving the Otay Water District cannot be adequately conveyed in a letter, and I look forward to continuing the discussion with you. I’m assigned as your primary contact for contract negotiations. I’m authorized to bind the Firm legally. Should you have any questions or wish to discuss this proposal, please do not hesitate to contact me at (858) 242-5101 or by email at coley.delaney@pungroup.com. Sincerely, Coley Delaney, CPA | Partner | The Pun Group LLP 4365 Executive Drive, Suite 710, San Diego, CA 92121 FY22-2231-006Otay Water District BidSync10/12/2021 p. 8 Otay Water District 3 | PUNGROUP.CPA Independence Independence The Pun Group LLP requires all employees to adhere to strict independence standards concerning the Firm’s clients. These independence standards exceed, in many instances, the rules promulgated by the American Institute of Certified Public Accountants (AICPA). The Pun Group LLP certifies that it is independent of the Otay Water District. The Firm meets independence requirements defined by the United States Government Accountability Office’s (US GAO’s) Government Auditing Standards and the American Institute of Certified Public Accountants (AICPA). Based on that, we have not identified an instance that constitutes a conflict of interest relative to performing the services requested by the District. License to Practice in California License to Practice in California The Firm and all key professional staff are licensed by the State of California to practice as Certified Public Accountants and meet the Continuing Professional Education requirements under U.S. GAO’s Government Auditing Standards to perform the proposed audits. Firm Registration: California State Board of Accountancy Number – PAR 7601 Federal Identification Number – 46-4016990 Insurance If selected, the Firm will maintain the minimum insurance requirements during the entire execution of the agreement with the Otay Water District. Within 15 days from the implementation of the contract, we will furnish the Otay Water District with satisfactory evidence of the insurance requirements and proof that each carrier is required to give at least 30 days prior written notice of the cancellation of any policy during the entire period of the agreement. The Otay Water District will be named as an additional named insured under the Firm’s policies. A sample of our current policy can be found in the appendices section of this proposal. FY22-2231-006Otay Water District BidSync10/12/2021 p. 9 Otay Water District 4 | PUNGROUP.CPA Firm Qualifications and Experience About The Pun Group LLP The Pun Group LLP, Certified Public Accountants, and Business Advisors, founded in 2012, is a limited liability partnership. We are a full-service accounting firm comprised of forty-five professionals providing auditing, accounting, and advisory services to our clients. Our Governmental Division consists of forty full-time individuals. The Firm has become one of the “Top Accounting Firms” in Orange County according to the Orange County Business Journal and is also on the list of CalCPA Top 150 firms. The combination of our hands-on experience and practical knowledge exercised by our audit professionals makes the Firm unique in our field. Our technical expertise and thorough understanding of current regulations and issues—along with the Firm’s commitment to hard work, integrity, and teamwork on every engagement—enable us to help our clients succeed. Our Partners’ Group—which includes Kenneth H. Pun, Coley Delaney, Vanessa I. Burke, Kenneth Macias, John F. Georger, Jr., Gary M. Caporicci, and Frances J. Kuo — provides auditing, accounting, and advisory services to numerous governmental entities throughout the United States. With more than two hundred years of combined experience in the industry, we have become a trusted business partner and are well-respected as leaders in the industry in one of the fastest-growing firms. With nearly one hundred government and not-for-profit audit clients, our Partners have a real passion for the industry and believe we are unmatched regarding our municipal experience. The firm also meets professional standards generally accepted in the United States of America and the standards applicable to financial audits contained in ‘Government Auditing Standards’ issued by the Comptroller General of the United States. The Firm’s headquarters are located in Orange County, California, with four branches in San Diego, Walnut Creek/Sacramento (California), Las Vegas (Nevada), and Phoenix (Arizona). Our San Diego office, located at 4365 Executive Drive, Suite 710, San Diego, CA 92121, will perform the requested services for the District. However, we may assign additional staff from our other offices to the engagement at no extra cost to the District. No hiring of subcontractors or joint-venture will be established for this engagement. Global Capabilities The Pun Group LLP is an independent member of Allinial Global, an association of over 100 independent accounting and consulting firms. Based in North America, Allinial Global offers international support by connecting its member firms to providers and global networks of accounting firms worldwide. OUR AFFILIATIONS OUR FIRM AT A GLANCE 45 full-time auditing, accounting, tax and advisory professionals One of the fastest growing firms serving California, Nevada and Arizona 5 offices across 3 states Client retention rate: 90 – 95% FY22-2231-006Otay Water District BidSync10/12/2021 p. 10 Otay Water District 5 | PUNGROUP.CPA Full-Time Government Auditors As full-time government auditors, we understand that governmental entities do not operate independently but in an increasingly complex web of local, state, and federal relationships. We know how these relationships work, what they mean at the local level, and how every public organization’s focus on resource management is critical to success. Also, while many accounting Firms can provide services, not all can build an excellent working relationship with their clients. The Pun Group LLP prides itself on developing lasting, personal relationships with our clients. Our hands-on partner involvement and low personnel turnover are crucial tools to our success and highly beneficial to the District. Local Office’s Information Technology (IT) Audit Capabilities The Pun Group LLP continues our efforts to invest in our IT system to enhance our security further and promote audit efficiency. Top security for your data is the key to our success. When we have your data virtualized, our Firm takes all the preventive steps to avoid putting your information at risk. Our In-House IT administrator maintains our server to ensure our IT environment is continuously updated with the latest security fixes. Through VPN and Microsoft Remote Desktop, our In-House network administrator can lockdown files and system access from a single point, limiting the ability for remote sites to take data from our server. Access to systems from anywhere and anytime. With more mobility being the norm rather than the exception, our engagement team needs robust access to the engagement files when they are working in your office. Accounting and Auditing Software applications are installed in our “Private” server and can be securely accessed through VPN and Microsoft Remote Desktop. The Firm uses CCH ProSystem fx® Engagement for audit documentation, which allows real-time synchronization of the work papers and instant collaboration quality control review. Secure Data File Transfer System. In order to improve audit efficiency, workflow management software plays an essential role between your organization and our engagement team. We employ a secure data file transfer system called Suralink. Suralink’s dynamic request list is integrated with our secure file hosting system for seamless document-request coordination. It means all our requests are in one place, updated in real-time, and accessible by everyone working on the engagement. As a client, you no longer have to manually maintain a spreadsheet amongst several people, only to repeat the process in a day or two. Not only makes the operation more cost-efficient, but it also enables you and your team to spend your time getting the job done, not reconciling a messy list of outstanding items. The Suralink dashboard, as shown below, allows you to visualize the process of the document-request fulfillment. BIG FIRM EXPERTISE. SMALL FIRM VALUES. Our professional backgrounds at major national firms showed us how to solve complicated business and accounting challenges, but the sense of personal connection was missing. We launched The Pun Group because we believe every client deserves to work with experienced business advisors and CPAs who have the time – and take the time – to create an authentic connection. Every client is our top priority! A UNIQUE CULTURE. “Personalization” is not just a buzzword – it’s part of our firm’s culture. We take a personal approach to everything we do. We collaborate with our clients, so they’re always part of the process. We listen to our staff to make sure they have the right support and resources to do a great job. Getting to know others and discovering how we can serve them better is not just a sign of good business practices; it’s a sign of good people. INNOVATION EMBRACED. New ideas keep you ahead of the game. From leveraging the value of emerging technologies to further refining trusted processes, we adopt proven solutions to meet your needs. WHERE YOU GO, WE GO. WHERE YOU GROW, WE GROW. Our success is defined by how you achieve yours. Partner with accomplished accounting and financial professionals who are laser-focused on taking your business to the next level. FY22-2231-006Otay Water District BidSync10/12/2021 p. 11 Otay Water District 6 | PUNGROUP.CPA Our Services Our partners and seasoned professionals are always available, guiding clients through their periods of rapid growth as well as difficult times. We are able to do that by offering a portfolio of accounting services that is as diverse as the jurisdictions and entities themselves. The Pun Group LLP has successfully provided professional auditing, accounting, financial reporting, and management advisory/consulting services to a broad spectrum of governmental entities. ASSURANCE ADVISORY     OTHER SERVICES   Financial statements audits  Compliance audits  Performance audits  Internal audits  Service organization controls audits    Operational reviews/risk advisory services  Forensic investigation  Financial condition analysis  Organizational structure review  Cash flow analysis  Debt restructuring consultation  Litigation restructuring consultation    Assistance with the preparation and review of the Annual Comprehensive Financial Report  Government property lease excise tax compliance review  Sub-recipient monitoring  Implementation of new GASB pronouncements  Audit readiness services  Contract Finance Director/Accountant services Our Commitment to Public Sector All of our partners actively participate in industry associations focused on state and local governments. By participating in industry associations and activities, we are always up to date on the latest industry changes and their impact on your operations. We will keep you and our colleagues in the Firm fully informed of these developments. Our team is committed to bringing the full breadth and depth of our expertise to the audit of the District, offering outstanding value to you and your stakeholders. Our Managing Partner has published several thought leadership articles in the California State Municipal Finance Office magazine on auditing and other relevant topics. Quality Control System Our Firm meticulously monitors the quality and contents of our reports. The Pun Group LLP is 100% committed to providing only the highest grade of work possible for our clients and for those who rely on our audits. The Firm strives to exceed professional industry standards because of the continuing respect for our clients and our emphasis on creating long-lasting relationships. The Pun Group LLP works exclusively with those who share the same moral integrity and values. Our quality-control system is crafted with excellence in mind. It not only meets AICPA standards but also matches our high standards, which includes the following of professional development activities. Federal or State Desk Review No federal or state desk reviews or field reviews have been undertaken of any audits performed by the Firm or any of its partners, managers, or professionals during the past three (3) years. Disciplinary Action State regulatory bodies or professional organizations have taken no disciplinary action against the Firm or any of its partners, managers, or professionals during the past three (3) years. The Firm has no conditions such as bankruptcy, pending litigations, planned office closures, mergers, or any organizational conflict of interest that may affect the ability of the Firm to perform the required duties requested by the Otay Water District. FY22-2231-006Otay Water District BidSync10/12/2021 p. 12 Otay Water District 7 | PUNGROUP.CPA Peer Review Being a member of the American Institute of Certified Public Accountants (AICPA), The Pun Group LLP is required to obtain an independent peer review of our audit and accounting practice every three (3) years. The peer reviewer assessed the Firm’s quality-control policies, reviewed administrative records, interviewed professional personnel, and inspected the Firm’s working papers and reports from a representative sample of accounting and auditing engagements, including governmental audits. The reviewer concluded that the Firm fully complied with the AICPA’s stringent standards for quality control and issued a peer review rating of “Pass.” Our 2021 Peer Review is currently underway, and it’s anticipated to be completed by November 30, 2021. FY22-2231-006Otay Water District BidSync10/12/2021 p. 13 Otay Water District 8 | PUNGROUP.CPA Partner, Supervisory, and Staff Qualifications and Experience The engagement team was carefully selected to provide the District with all the services needed to complete the audit successfully. Your assigned Engagement and Technical Partners will be personally involved in the project, leading a team that has significant experience in governmental auditing. You can be confident that our broad experience and technical capabilities will allow us to provide technical support, interpret findings, and offer practical solutions to any issues that may arise. About Your Engagement Team The personnel assigned to this engagement are fully qualified to perform an effective audit of the District, and their extensive experience will be critical to the audit process. Our professionals are familiar with the complexities of governmental accounting, auditing, and financial reporting, including but not limited to all GASB pronouncements, the Single Audit Act, Uniform Guidance (formerly known as OMB Circular A-133), and fund operations. They have held positions as professional certified public accountants, as well as held significant roles within and outside of government agencies. Such qualities will bring to an entity like the Otay Water District the thought leadership, quality, and level of experience it requires. Because of the “familiarity threat” under the professional audit and independence standards that may exist in long- term relationships with audit firms, the Firm is committed and has sufficient resources to rotate engagement partners, managers, and or supervisors assigned to the District’s audit with personnel with similar or higher qualifications and experience in order to overcome this threat. If the Firm changes key personnel, we will provide the District with a written notification. Engagement personnel will only be changed with express prior written permission from the District. Audit personnel may be replaced only by those with similar or better qualifications and experience. Staff Continuity The Pun Group LLP is committed to maintaining staff continuity throughout audit engagements, and we can assure that the partners assigned to this audit will be involved throughout the entire contract term. While we cannot guarantee that our staff level members will stay with the Firm, we encourage loyalty by paying competitive wages, offering opportunities for promotion, using state-of-the-art equipment, and providing excellent working conditions. Also, we offer benefits, including retirement plans, medical plans, profit-sharing programs, and continuing education. In addition, the Firm is an equal opportunity employer and complies with all federal and state hiring requirements. We’re proud of supporting affirmative-action philosophies and work hard to provide opportunities for self-enhancement to members of disadvantaged groups. FY22-2231-006Otay Water District BidSync10/12/2021 p. 14 Otay Water District 9 | PUNGROUP.CPA Coley Delaney, CPA | Engagement/Lead Partner Coley Delaney is a Partner within The Pun Group LLP’s Assurance division. In his fifteen (15) years of accounting and auditing experience. He has performed audits and other attestation services for several governmental agencies throughout California, including cities, counties, transportation agencies, public financing authorities, housing authorities, redevelopment agencies, and special districts. He is a Certified Public Accountant. Mr. Delaney will actively serve as the Engagement Partner overseeing the Engagement Team, developing the audit plan, reviewing fieldwork for quality, approving final reports, and communicating with the District’s management. He will also be responsible for the timely delivery of all services for the District. Kenneth H. Pun, CPA, CGMA | Technical/Concurring Partner Kenneth Pun is the Managing Partner and an Assurance Partner at the Firm. With over twenty-one years of public accounting experience in the state and local government sector, he specializes in audits, management, and consulting for governmental organizations. Mr. Pun has served as the Contract Deputy Finance Director for the City of San Marino in 2017. He has served as the Chair of the California Society of CPAs Governmental Auditing Accounting Committee. He is a Certified Public Accountant and a Chartered Global Management Accountant. Mr. Pun will act as the Technical/Concurring Partner and provide a second partner review of significant high-risk areas, audit reports, and resolution of significant accounting, auditing, and reporting matters. John (“Jack”) F. Georger, CPA, CIA, CGMA | Quality Control Reviewer Throughout his forty years of experience, Mr. Georger has spent many years in Big 4 and national firms. He worked diligently alongside numerous governmental municipalities, including cities, counties, and transportation agencies, as well as not-for-profit entities, providing clients with financial and compliance auditing as well as consultation services. Mr. Georger annually instructs over 300 hours in accounting and auditing subjects and has authored training material in governmental accounting and auditing for the AICPA. Mr. Georger is also the technical reviewer of the CCH Knowledge-Based Audits™ of State and Local Governments with Single Audits, GAAP Guide (FASB), and Governmental GAAP Guide (GASB), the gold standard for audit firms throughout the United States. As the Chief Quality Officer in our Firm, he advises clients with their complex accounting questions and supports the engagement team with audit issues. He is a Certified Public Accountant, a Certified Internal Auditor, and a Chartered Global Management Accountant. Mr. Georger is responsible for reviewing all reports issued by the Firm to ensure the utmost quality and compliance with professional standards and the final quality-control assessment within the engagement. Gary M. Caporicci, CPA, CGFM, CFF | GASB Implementation Specialist Gary Caporicci is an appointed member of the State Controller’s Retirement Advisory Committee. Mr. Caporicci is a leading expert and has authored and taught the courses for CalCPA and AICPA on GASB 68, Accounting and Financial Reporting for Pensions and on GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. Mr. Caporicci will utilize his expertise in providing advice and consultation during the implementation of the new GASB standards. As an assurance partner with over forty years of experience, Mr. Caporicci has performed financial, compliance audit, and consultation services to government clients, including cities, counties, transportation agencies, and school districts, as well as various not-for-profit entities. He is a Certified Public Accountant, a Certified Government Financial Manager, and Certified in Financial Forensics. Mr. Caporicci will be responsible for providing advice and consultation for the implementation of new accounting standards. FY22-2231-006Otay Water District BidSync10/12/2021 p. 15 Otay Water District 10 | PUNGROUP.CPA Andrew Roth, CPA | Compliance Director Andrew Roth is a Director within the Firm who holds an Advanced Certification in Single Audits through the AICPA. He draws more than a decade of governmental and not-for-profit experience in the areas of financial audit and reporting under governmental and financial accounting standards, evaluation of internal controls under the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Integrated Framework, the performance of Single Audits under the Uniform Guidance, subrecipient monitoring of Federal Grants, corporate financial reporting, data analytics, and exempt taxation. He is a Certified Public Accountant. Mr. Roth will direct and supervise the audit team in its daily activities and tasks in order to deliver all services requested. Paul AbdelSayed, CMA | Audit Supervisor Paul is a Supervisor within the Firm. He will work with the engagement team and District’s finance personnel during the auditing process. He is a Certified Management Accountant. Mr. AbdelSayed will secure the effective implementation of the services approach while assisting in the timely delivery of the requested services. Continuing Education Because of our commitment to provide the highest quality of services to the District, we provide our professionals with technical training to ensure our people stay current on topics within the industry sectors and better equipped themselves to serve our clients. All professionals are required to obtain continuing education that exceeds the requirements of the American Institute of Certified Public Accountants (AICPA) and, where applicable, Government Auditing Standards. Our professionals participate in continuing education programs through the following means:  Governmental Accounting and Auditing Conference sponsored by AICPA.  Webinar sponsored by AICPA Government Audit Quality Center.  Annual Conference sponsored by California Society Municipal Finance Officers.  Governmental Accounting and Auditing Conference sponsored by CalCPA.  The Pun Group in-house training on government-specific topics, including but not limited to GASB updates, 2018 Revision Government Auditing Standards, Fraud in State and Local Governments, COSO Internal Control-Integrated Framework, Audit of State and Local Governments, Single Audit, and Mindbridge AI Auditors™. In 2021, our government professionals received an average of 52 hours of continuing professional education, compared with the 40 hours accounting industry requirement. By expanding our knowledge through these seminars/conferences, we can provide the right solutions to our clients. Engagement Team Resumes The Otay Water District deserves experienced professionals who work as a team. The Pun Group LLP will provide qualified professionals to perform the audit. Resumes for key engagement team members follow: FY22-2231-006Otay Water District BidSync10/12/2021 p. 16 Otay Water District 11 | PUNGROUP.CPA EXPERIENCE Coley Delaney is a Partner within The Pun Group LLP Assurance division. In his fifteen (15) years of accounting and auditing experience, Coley has worked with governmental agencies, not-for-profit entities, and private for-profit entities. He specializes in conducting financial audits under GAO Yellow Book standards and compliance audits in accordance with Uniform Guidance (formerly known as OMB Circular A-133). Mr. Delaney has performed audits and other attestation services for several governmental agencies throughout California, including cities, counties, redevelopment agencies, public financing authorities, housing authorities, transportation agencies, and special districts, and he has helped them publish their Comprehensive Annual Financial Reports in compliance with GASB Statement No. 34. Mr. Delaney develops training materials and shares his expertise internally with other Firm professionals. Coley is a frequent speaker at in-house seminars on topics related to government auditing standards and Single Audits. EDUCATION University of California, Santa Barbara B.A. Degree – Business Economics, Emphasis in Accounting LEADERSHIP & AFFILIATIONS  Member, American Institute of Certified Public Accountants (AICPA)  Member, California Society of Certified Public Accountants (CalCPA) RELEVANT EXPERIENCE  Olivenhain Municipal Water District  San Dieguito Water District  Encinitas Ranch Golf Authority  Southwestern Community College District  San Diego Community College District  Marina Coast Water District  San Elijo Joint Powers Authority  Ventura County Transportation Commission  Menlo Park Fire Protection District  North County Fire Protection District CONTINUING PROFESSIONAL EDUCATION Various courses offered by the Firm, online through Thompson Reuters, AICPA, CalCPA Education Foundation, including:  Governmental and Nonprofit Annual Update  Government Auditing Standards  GASB Basic Financial Statements for State and Local Governments  Single Audits: Uniform Guidance (formerly OMB Circular A-133)  Financial Accounting Standards Board Annual Updates  Statement on Standards for Accounting and Review Services Updates Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies. Expertise: CITIES COUNTIES TRANSPORTATION AGENCIES SPECIAL DISTRICTS HIGHER EDUCATION NOT-FOR-PROFIT Licensed to Practice in: California Coley Delaney CPA Engagement/ Lead Partner EMAIL coley.delaney@pungroup.com WEBSITE www.pungroup.cpa FY22-2231-006Otay Water District BidSync10/12/2021 p. 17 Otay Water District 12 | PUNGROUP.CPA EXPERIENCE Kenneth H. Pun is the Managing Partner and an Assurance Partner at The Pun Group LLP, which he founded in 2012 after serving in senior-level positions for well-established national and regional firms. Under his leadership, The Pun Group has become one of the “Top Accounting Firms” in Orange County, according to the Orange County Business Journal. The Pun Group is also on the list of CalCPA Top 150 firms. Prior to founding The Pun Group, Ken has served clients in a variety of industries, including small to very large state and local governmental agencies, insurance companies, not-for-profits, healthcare, technology, and manufacturing and distribution clients. His career in public accounting was spent primarily with the Regional firms and National firms. Leveraging more than 21 years of public accounting experience, Ken has earned a reputation of being a trusted advisor to governmental and Healthcare organizations throughout California and neighboring states. Municipalities and public agencies engage him because of his premier level of client service, commitment, and innovative methods of increasing operational efficiencies and reducing costs. Ken maintains his deep commitment to professional education through his work as an instructor for the California Education Foundation. He has authored training materials in governmental accounting and auditing, such as Financial Reporting for State and Local Governments, 2018 Government Auditing Standards, and Single Audit Fundamentals for California Education Foundation. He is also the technical reviewer of the CCH Knowledge-Based Audits™ of State and Local Governments with Single Audits. He advises clients on those topics at influential industry forums. Internally, Ken mentors audit teams by providing direction and technical guidance to ensure adherence to the firm’s quality controls. EDUCATION University of California, Riverside B.S. Degree – Business Administration, Emphasis in Accounting LEADERSHIP & AFFILIATIONS  Member, American Institute of Certified Public Accountants (AICPA)  Member, California Society of Certified Public Accountants (CalCPA)  Past Chair, CalCPA Governmental Accounting and Auditing Committee  Member, CalCPA California Committee on Municipal Accounting  Member, CalCPA Governmental Accounting and Auditing Conference Planning Committee  Member, Government Finance Officers Association (GFOA)  Member, California Society of Municipal Finance Officers (CSMFO)  Member, CSMFO Professional Standards Committee  Speaker, CSMFO Conference (2014 and 2018)  Instructor, CalCPA Education Foundation  Technical Reviewer, CCH Knowledge-Based Audits™ of State and Local Governments with Single Audits RELEVANT EXPERIENCE  Alameda County Water District  Central Basin Municipal Water District  El Toro Water District  Las Virgenes Municipal Water District  Marina Coast Water District  Orange County Coastkeeper  Riverside County Flood Control and Water Conservation District  South Orange County Wastewater Authority  Sativa Los Angeles County Water District  Alameda County Water District  Central Basin Municipal Water District CONTINUING PROFESSIONAL EDUCATION Various courses offered by the Firm, online through Thompson Reuters, AICPA, CalCPA Education Foundation, including:  Governmental and Nonprofit Annual Update  Government Auditing Standards  GASB Basic Financial Statements for State and Local Governments  Single Audits: Uniform Guidance (formerly OMB Circular A-133)  Financial Accounting Standards Board Annual Updates  Statement on Standards for Accounting and Review Services Updates Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies. Kenneth H. Pun CPA, CGMA Concurring/ Technical Partner EMAIL ken.pun@pungroup.com WEBSITE www.pungroup.cpa Expertise: CITIES COUNTIES TRANSPORTATION AGENCIES ENTERPRISE OPERATIONS HIGHER EDUCATION NOT-FOR-PROFIT Licensed to Practice in: California FY22-2231-006Otay Water District BidSync10/12/2021 p. 18 Otay Water District 13 | PUNGROUP.CPA EXPERIENCE Jack Georger is the Chief Quality Officer within The Pun Group LLP’s Assurance division. By leveraging more than forty (40) years of public accounting and auditing experience in the government, agribusiness, financial services, manufacturing, and nonprofit sectors, Mr. Georger brings in-depth knowledge and practical expertise to each engagement. Jack coordinates, plans, and manages financial audit activities, consulting activities, federal and state compliance audit activities, performance audits, and numerous quality control and internal control reviews for a broad mix of governmental agencies and programs throughout the United States. Mr. Georger leads our Peer Review department providing peer review services to other firms under the practice monitoring program of the AICPA. Mr. Georger is a continuing professional education course instructor for the AICPA. Annually, he instructs over 300 hours in accounting and auditing subjects. Jack has authored training material in governmental accounting and auditing for the AICPA. He is the technical reviewer of the CCH Knowledge-Based Audits™ of State and Local Governments with Single Audits, GAAP Guide (FASB), and Governmental GAAP Guide (GASB). Mr. Georger is licensed to practice as a certified public accountant in the states of California, New York, Virginia, Maryland, District of Columbia, Missouri (inactive), Connecticut (inactive), and Wyoming (inactive). He is a Certified Internal Auditor (CIA). EDUCATION George Mason University Fairfax, Virginia B.S. Degree – Accounting LEADERSHIP & AFFILIATIONS  Member and Instructor, American Institute of Certified Public Accountants (AICPA)  Member, Institute of Internal Auditors  Member, California Society of Certified Public Accountants (CalCPA)  Member, New York Society of Certified Public Accountants (NYSSCPA)  Chairman, NYSSCPA Government Accounting and Auditing Committee  Member, NYSSCPA Auditing Standards Committee  Member, NYSSCPA Sustainability Committee  Member, NYSSCPA Not-for-Profit Committee  Nevada Society of Certified Public Accountants (NSCPA)  Member, Government Finance Officers Association (GFOA) – Reviewer  Member, Institute of Internal Auditors CONTINUING PROFESSIONAL EDUCATION He has instructed over 300 hours of municipal accounting courses offered by the AICPA. Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies. John F. Georger, Jr. CPA, CIA, CGMA Quality Control Reviewer EMAIL jack.georger@pungroup.com WEBSITE www.pungroup.cpa Expertise: CITIES COUNTIES TRANSPORTATION AGENCIES ENTERPRISE OPERATIONS HIGHER EDUCATION NOT-FOR-PROFIT Licensed to Practice in: California Arizona Nevada FY22-2231-006Otay Water District BidSync10/12/2021 p. 19 Otay Water District 14 | PUNGROUP.CPA EXPERIENCE Gary M. Caporicci has more than forty years of diversified business experience, including a specialization in audit and management consulting for government organizations. Gary’s clients include public and private universities and colleges, city and county governments, state agencies, joint power authorities, healthcare agencies, transportation agencies, and special districts. Known for his expertise in the areas of construction and government, Gary wrote the AICPA audit guides on these topics, and he has authored many audit and accounting courses for professional groups, as well as academic institutions. He frequently speaks and lectures at many professional organizations, governmental seminars, and conferences held by industry associations, other accounting firms, and universities. Also, he authors white papers for the California Committee on Municipal Accounting. Before working with the Firm, Gary founded his accounting practice. He also spent eleven years with a “Big Eight” professional services firm, where he was an Audit Manager and gained broad experience in a wide range of industries such as government, construction, manufacturing, mutual funds, and insurance. Gary has held a consultant position with a “Big Four” practice and was Vice President of a national insurance and financial services company. In 2015 Gary Caporicci was appointed to the State Retirement Advisory Committee by the State Controller. EDUCATION Armstrong University B.S. Degree – Accounting and Finance LEADERSHIP & AFFILIATIONS  Member and Instructor, American Institute of Certified Public Accountants (AICPA)  Member, Author, and Instructor, California Society of Certified Public Accountants (CalCPA)  Past Chair, CalCPA Governmental Accounting and Auditing Committee  Chair and Speaker, CalCPA Governmental Accounting and Auditing State Conferences  Member, CalCPA Council  Chair, California Committee on Municipal Accounting (CCMA)  Member, Government Finance Officers Association (GFOA)  Member, California Society of Municipal Finance Officers (CSMFO)  Member, Governmental Accounting Standards Board (GASB)  Member, Deposit and Investment Risks Disclosure Task Force (GASB No. 40)  National Reviewer and Speaker, Government Finance Officers Association  Adjunct Professor, National University  Past Member, Texas Governmental Accounting and Auditing Committee  GFOA Certificate for Excellence in Financial Reporting – Reviewer CONTINUING PROFESSIONAL EDUCATION Author and instructor of various municipal accounting courses offered by the AICPA, CalCPA Education Foundation, and local universities, including:  Governmental and Non-profit Annual Update  Government Auditing Standards  GASB Basic Financial Statements for State and Local Governments  Single Audits: Uniform Guidance (formerly OMB Circular A-133)  Financial Accounting Standards Board Annual Updates  Statement on Standards for Accounting and Review Services Updates Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies. Gary M. Caporicci CPA, CGFM, CFF GASB Implementation Specialist EMAIL gary.caporicci@pungroup.com WEBSITE www.pungroup.cpa Expertise: CITIES COUNTIES TRANSPORTATION AGENCIES ENTERPRISE OPERATIONS HIGHER EDUCATION NOT-FOR-PROFIT Licensed to Practice in: California FY22-2231-006Otay Water District BidSync10/12/2021 p. 20 Otay Water District 15 | PUNGROUP.CPA EXPERIENCE Andrew Roth is a Director within The Pun Group LLP. He has more than twelve (12) years of governmental and not-for-profit experience in the areas of financial audit and reporting under governmental and financial accounting standards, evaluation of internal controls under the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Integrated Framework, the performance of Single Audits under the Uniform Guidance, subrecipient monitoring of Federal Grants, corporate financial reporting, data analytics, and exempt taxation. His client portfolio consists of moderate to large municipalities (cities and counties), municipal transportation districts, water districts, municipal electric utilities, and non-profit organizations whose missions involve building communities. His governmental agency clients have federal grant expenditures that range from $100 million to $750 million annually. In various engagements, Andrew has been responsible for leading the service delivery where he has actively contributed and managed the planning process, implementation of the audit work plan, supervision of multiple audit teams, provided yearly team updates on the changes in compliance testing requirements for the Single Audits, and preparation of all deliverables including the Comprehensive Annual Financial Reports, the Single Audit, Compliance Reports, Data Collection Forms, and City Council/Board presentations. He has also been a guest speaker on topics involving Federal grants such as Update to Yellow Book Standards, Compliance Auditing, and Updates to the Uniform Guidance Procurement Requirements. EDUCATION San Diego State University B.A. Degree – Accounting LEADERSHIP & AFFILIATIONS  Member, American Institute of Certified Public Accountants (AICPA)  Member, California Society of Certified Public Accountants (CalCPA) RELEVANT EXPERIENCE  Las Virgenes Municipal Water District  Marina Coast Water District  Olivenhain Municipal Water District  City of National City  City of Placerville  City of Shafter  City of Stockton  County of San Diego  County of Madera  County of Imperial CONTINUING PROFESSIONAL EDUCATION Various courses offered by the Firm, online through Thompson Reuters, AICPA, CalCPA Education Foundation, including:  Governmental and Non-profit Annual Update  Government Auditing Standards  GASB Basic Financial Statements for State and Local Governments  Single Audits: Uniform Guidance (formerly OMB Circular A-133)  Financial Accounting Standards Board Annual Updates  Statement on Standards for Accounting and Review Services Updates Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies.       Andrew Roth CPA Engagement Director   EMAIL andrew.roth@pungroup.com WEBSITE              www.pungroup.cpa      Expertise:  CITIES COUNTIES TRANSPORTATION AGENCIES ENTERPRISE OPERATIONS HIGHER EDUCATION NOT-FOR-PROFIT   Licensed to Practice in:  California  Arizona  FY22-2231-006Otay Water District BidSync10/12/2021 p. 21 Otay Water District 16 | PUNGROUP.CPA EXPERIENCE Paul AbdelSayed is a Supervisor within The Pun Group LLP’s Assurance division, with seven years of accounting and auditing experience. Mr. AbdelSayed has successfully performed audits and other attestation services for several governmental and nonprofit agencies. His portfolio includes cities, transportation agencies, and special districts. In addition, Paul has assisted several clients in publishing their Comprehensive Annual Financial Reports in compliance with GASB Statement No. 34. EDUCATION California State University, Fullerton BA Degree – Business Administrations, Emphasis in Accounting LEADERSHIP & AFFILIATIONS  Member, California Society of Certified Public Accountants (CalCPA)  Member, Institute of Management Accountants (IMA) RELEVANT EXPERIENCE  Valley Sanitary District  West Valley Water District  Las Virgenes Municipal Water District  Central Basin Municipal Water District  El Toro Water District  City of Hermosa Beach  Adelanto Public Utility Authority  City of Lynwood  Riverside County Flood Control and Water Conservative District  City of Seal Beach CONTINUING PROFESSIONAL EDUCATION Various courses offered by the Firm, online through Thompson Reuters, AICPA, CalCPA Education Foundation, including:  Governmental and Nonprofit Annual Update  Government Auditing Standards  GASB Basic Financial Statements for State and Local Governments  Single Audits: Uniform Guidance (formerly OMB Circular A-133)  Financial Accounting Standards Board Annual Updates  Statement on Standards for Accounting and Review Services Updates Has met/exceeded the current CPE educational requirements to perform audits of governmental agencies. Paul AbdelSayed CMA Audit Supervisor EMAIL paul.abdelsayed@pungroup.com WEBSITE www.pungroup.cpa Expertise: CITIES TRANSPORTATION AGENCIES ENTERPRISE OPERATIONS NOT-FOR-PROFIT Licensed to Practice in: California FY22-2231-006Otay Water District BidSync10/12/2021 p. 22 Otay Water District 17 | PUNGROUP.CPA Similar Engagement with Other Government Entities The following are examples of some of the engagements with similar requirements as the Otay Water District’s proposal. These clients can be used as references as well. Please feel free to contact these agencies to learn more about their experiences working with us. Name of Public Agency Alameda County Water District Contact Info Ms. Mariana Grajeda, CPA (510) 668-4258 mariana.grajeda@acwd.com Total Hours: Approximately 550 hours Contract Price $60,800/year Date of Services 2019 - Present Scope of Work/Reports Prepared Financial Audit and Compliance Services: Annual Comprehensive Financial Report Audit, GFOA Award, Debt Issues/Bond Covenants, SCO Report. Name of Public Agency Zone 7 Water Agency Contact Info Osborn Solitei, Treasurer/Assistant General Manager, Finance (925) 447-6704 osolitei@zone7water.com Total Hours: Approximately 400 hours Contract Price $30,500/year Date of Services 2020 - Present Scope of Work/Reports Prepared Financial Audit and Compliance Services: Annual Comprehensive Financial Report Audit, GFOA Award, Single Audit, OPEB Liability, SCO Report, Livermore Valley Water Financing Authority SCP, Debt Issues/Bond Covenants. Name of Public Agency Olivenhain Municipal Water District Contact Info Ms. Rainy Selamat RSelamat@olivenhain.com Phone: (760) 753-6466 Total Hours 200 Contract Price $25,500/year Date of Services 2018 – Present Scope of Work/Reports Prepared Financial Statements Audit. FY22-2231-006Otay Water District BidSync10/12/2021 p. 23 Otay Water District 18 | PUNGROUP.CPA Firm’s Current and Past Experience with Special Districts and Authorities Our Firm has provided professional services to several Districts and Authorities. Below is a representative listing of such engagements:  Adelanto Public Utility Authority  Alameda County Water District  Arbuckle Public Utility District  Bodega Bay Fire Protection District  Casitas Municipal Water District  Central Basin Municipal Water District  Civic – Recreational – Industrial Authority  City of Monterey Joint Powers Financing Authority  Coachella Valley Resource Conservation District  Coachella Fire Protection District  Diablo Water District  East Orange County Water District  El Toro Water District  Farm Mutual Water Company  Las Virgenes Municipal Water District  Las Virgenes – Triunfo Joint Powers Authority  Los Angeles Waterkeeper  Marina Coast Water District  Menlo Park Fire Protection District  Mountain Recreation Conservation Authority  North County Dispatch Joint Powers Authority  North County Fire Protection District  Olivenhain Municipal Water District  Orange County – City Hazardous Materials Emergency Response Authority  Orange County Coastkeeper  Palmdale Water District  Perris Joint Powers Authority  Presidio Municipal Services Agency  Rancho Santa Fe Fire Protection District  Riverside County Flood Control and Water Conservation District  San Diego Coastkeeper  San Bernardino County Fire District  San Elijo Joint Powers Authority  San Joaquin County Regional Fire Dispatch Authority  South Bay Regional Public Communications Authority  Santa Fe Irrigation District  Sativa Los Angeles County Water District  South Orange County Wastewater Authority  Sweetwater Springs Water District  Trabuco Canyon Water District  Twentynine Palms Water District  Valley Sanitary District  Water Replenishment District of Southern California  West County Wastewater District FY22-2231-006Otay Water District BidSync10/12/2021 p. 24 Otay Water District 19 | PUNGROUP.CPA Firm’s Experience with Single Audit and Grants The Pun Group LLP works with numerous organizations that receive extensive governmental funding and are subject to auditing under Uniform Grant Guidance. This Firm’s specialization helps our audit team understand the procedures’ nuances and execute the engagement accordingly. We also assist in preparing the data collection form and preparing the reporting package for submission to the federal audit clearinghouse. The Firm is a member of the AICPA Governmental Audit Quality Center and has demonstrated our commitment to audit quality, including those performed under Government Auditing Standards and Uniform Guidance. Also, we are a recipient of the Single Audit Resource Center’s Award for Excellence. This award bases on the positive feedback result from our clients in an independent survey, demonstrating our Firm’s highest commitment to quality and client satisfaction. We utilize standardized audit programs from the federal government’s Compliance Supplement to ensure that our procedures meet the federal standards. Our audit programs are continually updated to reflect the revisions of OMB. Our Uniform Guidance risk-based approach focuses on areas of higher risk of noncompliance. Such an approach truly reflects the federal government intent by concentrating on the following four steps: 1. Planning & Internal control assessment: The engagement team will obtain an understanding of the District and its operating environment and its internal control over the Schedule of Expenditures of Federal Awards. The engagement team will perform the major program determination and communicate with the District’s management before conducting major program testing. 2. Testing & compliance assessment: The engagement team will obtain an understanding of internal control over compliance on the direct and material compliance requirements for each major program. The engagement will perform testing on internal controls over compliance to ensure the controls are in place working effectively and properly and that the District is in compliance with the applicable regulations in administering major programs. 3. Reporting & Review: The engagement team will review and prepare the single audit reports and perform quality control procedures following the Quality Control Standards issued by the AICPA. Any comments will be issued to the management or the Charge with Governance, depending on the magnitude of the issues. Upon obtaining the final approvals from management, the Single Audit report will be issued. 4. Issuance to Clearing House: The engagement team will assist the District in drafting out the data collection form and complete the final submission, including uploading the audit package to the Federal Clearing House. FY22-2231-006Otay Water District BidSync10/12/2021 p. 25 Otay Water District 20 | PUNGROUP.CPA Our Firm has audited hundreds of millions of dollars in federal expenditures, making our engagement team uniquely experienced in single audits. We are familiar with grantors, such as: Following are a few examples of the types of federal programs our engagement team has experience auditing:   Corporation for National and Community Services Department of Agriculture Department of Education Department of Health and Human Services Department of Housing and Urban Development Department of Transportation Environmental Protection Agency Department of Commerce Department of Labor Department of Homeland Security Department of Justice Department of Treasury Executive Office of the President CFDA Child and Adult Care Food Program 10.558 Community Development Block Grants/Entitlement Grants 14.218 Home Investment Partnership 14.239 Housing Vouchers Cluster 14.871 Title XVI Water Reclamation and Reuse Program 15.504 Equitable Sharing Program 16.922 WIA/WIOA Adult Program 17.258 WIA/WIOA Youth Activities 17.259 WIA/WIOA Dislocated Worker Formula Grants 17.278 Airport Improvement Program 20.106 Highway Planning and Construction 20.205 Federal Transit - Capital Investments Grants 20.500 Federal Transit - Formula Grants 20.507 Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 Capitalization Grants for Clean Water State Revolving Funds Cluster 66.458 Special Programs for the Aging - Title III, Part B - Grants for Supportive Services and Senior Centers 93.044 Special Programs for the Aging - Title III, Part C - Nutrition Services 93.045 Nutrition Services Incentive Program 93.053 Temporary Assistance for Needy Families (TANF) State Programs 93.558 Community Service Block Grant 93.569 Child Care and Development Block Grant 93.575 Child Care Mandatory and Matching Funds of the Child Care and Development Fund 93.596 ARRA - Emergency Contingency Fund for Temporary Assistance for Needy Families (TANF) State Programs 93.714 National Urban Search and Rescue (US&R) Response System 97.025 Homeland Security Grant Program 97.067 FY22-2231-006Otay Water District BidSync10/12/2021 p. 26 Otay Water District 21 | PUNGROUP.CPA Our Professional’s Experience with Pensions and Other Post-Employment Benefits Members of our team have the experience of providing professional services to the following employee retirement systems:  California Public Employees' Retirement System (CalPERS)  Culver City Other Postemployment Benefit Plan  Nevada Public Employees Retirement Systems  Sacramento County Employees’ Retirement System  San Francisco Community College District  San Diego County Employees Retirement Association  San Diego City Employees’ Retirement System  San Diego Transit Corporation Employee’s Retirement Plan  San Jose Employee Retirement System  University of California Pension Plans   In addition, our team draws years of expertise reviewing budget documents as well as various pension and other post-employment benefits (“OPEB”) plan documents, including by not limited to trust agreements, pension and OPEB actuarial reports, GASB 68 and 75 reports, as well as GASB 75 reports prepared under Alternative Measurement Methods. A relevant list of plans includes:  California Public Employees' Retirement System GASB 68 reports  Public Agency Retirement System (“PARS”) GASB 68 reports  San Bernardino County Employees’ Retirement Association (“SBCERA”) GASB 68 reports  PARS GASB 75 reports FY22-2231-006Otay Water District BidSync10/12/2021 p. 27 Otay Water District 22 | PUNGROUP.CPA Firm’s Experience with State Controller’s Reports The Pun Group LLP has assisted numerous clients with the preparation of the required reports by the California State Controller’s Office. Some of this experience follows: Cities Financial Transactions Report:  City of Arvin  City of Bell  City of Coachella  City of Culver City  City of Desert Hot Springs  City of Hercules  City of Placentia  City of Laguna Niguel  City of Lakewood  City of Lynwood  City of Monterey  City of Morro Bay  City of Napa  City of National City  City of Palm Springs  City of Perris  City of Rohnert Park  City of South Gate  City of Stockton Annual Street Report:  City of Desert Hot Springs  City of Laguna Niguel  City of Napa  City of Palm Springs  City of Perris  City of Stockton Special Districts Financial Transactions Report:  Special District of West End Water Development Treatment and Conservation Joint Powers Authority  Special District of West Valley Water District  Special District of Coachella Financing Authority  Special District of Coachella Sanitary District (Riverside)  Special District of Coachella Water Authority  Special District of Desert Hot Springs Public Financing Authority  Special District of Desert Hot Springs Successor Agency  Special District of Perris Public Utility Authority  Special District of Perris Public Financing Authority  Special District of Perris Joint Powers Authority  Special District of Central Basin Municipal Water District  Special District of Marina Coast Water District  Special District of Menlo Park Fire Protection District  Special District of San Bernardino County Fire Protection District Transit Operators Financial Transactions Report:  City of Arvin  City of Culver City FY22-2231-006Otay Water District BidSync10/12/2021 p. 28 Otay Water District 23 | PUNGROUP.CPA Firm’s Expertise and Experience in Governmental Accounting Rules and Regulations Including Implementation of new GASB Pronouncements Changing federal laws, statutes, ordinances, and compliance provisions have created unprecedented complexity in public accounting today. Our GASB Implementation Specialist, Mr. Gary Caporicci, has helped our clients implement new standards while adapting to changes within the existing standards. Our partners serve on committees that have input into how new standards are written. They actively participate in industry associations focused on state and local governments. By participating in industry associations and activities, we are always up to date on the latest industry changes and their impact on your operations. We will keep you and our colleagues in the Firm fully informed of these developments. Also, our professionals are familiar with the complexities of governmental accounting, auditing, and financial reporting, including but not limited to all GASB pronouncements, the Single Audit Act, Uniform Guidance (formerly known as OMB Circular A-133), and fund operations. They have held positions as professional certified public accountants and taken on significant roles within and outside government agencies. Such experience brings to our clients the thought leadership, quality, and level of expertise they require. The Firm is well versed and experienced in assisting our clients with the implementation of the applicable GASB pronouncements every year, such as GASB 34, GASB 54, GASB 65, GASB 68, GASB 75, and GASB 84. Mr. Gary Caporicci, as a chair of the California Committee on Municipal Accounting “CCMA,” wrote “white-papers” on each of these pronouncements. Throughout the engagement, several new GASB pronouncements will become effective. The Engagement Team will pay specific attention to upcoming statements that will become effective and work with the District to create a plan to address new standards before the implementation period. This step will allow the finance department staff the needed time to be prepared. Special Attention: GASB Pronouncements in Effect Technical Bulletin No. 2020-a, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 and Coronavirus Diseases. This bulletin provides guidance on accounting and reporting for resources under the CARES Act. Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance This action is intended to provide temporary relief in light of the COVID-19 pandemic by postponing the effective dates of certain provisions in GASB statements and implementation guides. Earlier application of the affected pronouncements is encouraged. Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for IRC Section 457 Deferred Compensation Plans The requirements that exempt governments from reporting defined contribution pension/OPEB plans in a fiduciary trust fund, unless the government actually controls the assets, are effective immediately. This limits the applicability of paragraph 7 of GASB 84 to defined benefit pension/OPEB plans that are administered through qualifying trusts. (The requirements of this statement that are related to the financial accounting and reporting for IRC Section 457 plans are effective for reporting the year 2022) GASB Pronouncements Effective for Reporting Year 2021 Statement No. 89, Accounting for Interest Cost Incurred before the end of a Construction Period This statement suspends paragraphs 5-22 of GASB 62. Do not capitalize interest cost related to capital assets – expense as incurred. This statement was originally effective for the 2020 reporting year but was postponed by GASB 95. Implementation Guide 2019-1 This guide’s objective is to provide guidance that clarifies, explains, or elaborates on GASB Statements. This guide addresses OPEB, Derivative Instruments, Nonexchange Transactions, Impairment and Insurance Recoveries, and other accounting and reporting topics. This guidance was originally effective for the 2020 reporting year but was postponed by GASB 95. FY22-2231-006Otay Water District BidSync10/12/2021 p. 29 Otay Water District 24 | PUNGROUP.CPA Firm’s Governmental Clients The Pun Group LLP has performed numerous audits of organizations subject to financial and compliance audits. These audits were performed under auditing standards generally accepted in the United States (GAAS), Government Auditing Standards (GAGAS), Uniform Guidance, and its Compliance Supplement (when applicable), Office of the State Controller’s Minimum Audit Requirements and Reporting Guidelines. A representative list of current government audit clients follows: Municipalities Dates Financial Audit Single Audit GFOA Certificate Total Hours City of Alameda 2019 – Present Accounting and Consulting Services 150 City of Arvin 2013 – Present Yes Yes N/A 400 City of Bell 2018 – Present Yes Yes Yes 520 City of Bradbury 2012 – Present Yes N/A N/A 150 City of Calexico 2007 – Present Yes Yes N/A 750 City of Cerritos 2020 – Present Accounting and Consulting Services 300 City of Cerritos 2012 – 2019 Yes Yes Yes 400 City of Clovis 2006 – Present Yes Yes Yes 500 City of Coachella 2017 – Present Yes Yes Yes 410 City of Cottonwood, AZ 2007 – Present Yes Yes Yes 400 City of Corona 2021 – Present Yes Yes Yes 640 City of Culver City 2016 – Present Yes Yes Yes 700 Town of Danville 1999 – Present Yes Yes Yes 400 City of Douglas, AZ 2020 – Present Yes Yes Yes 300 City of Desert Hot Springs 2013 – Present Yes N/A N/A 400 City of Gardena 2007 – Present Yes Yes Yes 700 City of Gilroy 2020 – Present Yes Yes Yes 640 City of Glendora 2017 – Present Yes Yes Yes 430 City of Gustine 2017 – Present Yes N/A N/A 400 City of Hemet 2015 – Present Yes Yes N/A 380 City of Hercules 2020 – Present Yes Yes Yes 450 City of Lakewood 2013 – Present Yes Yes Yes 380 City of Lomita 2020 – Present Accounting and Consulting Services 150 City of Lodi 2018 – Present Yes Yes Yes 760 City of Lynwood 2016 – Present Yes Yes Yes 585 FY22-2231-006Otay Water District BidSync10/12/2021 p. 30 Otay Water District 25 | PUNGROUP.CPA Municipalities Dates Financial Audit Single Audit GFOA Certificate Total Hours City of Madera 2019 – Present Yes Yes Yes 470 City of Monterey 2016 – Present Yes Yes Yes 620 City of Morro Bay 2015 – Present Yes Yes N/A 600 City of Napa 2019 – Present Yes Yes Yes 750 City of National City 2013 – Present Yes Yes Yes 600 City of Palm Springs 2020 – Present Yes Yes Yes 1,000 City of Patterson 2017 – Present Yes Yes Yes 450 City of Perris 2019 – Present Yes Yes Yes 840 City of Placentia 2016 – Present Yes Yes Yes 620 City of Placerville 2008 – Present Yes Yes N/A 400 City of Redding 2016 – Present Yes Yes Yes 600 City of Ridgecrest 2009 – Present Yes Yes Yes 300 City of Rohnert Park 2020 – Present Yes Yes Yes 700 City of San Mateo 2021 – Present Yes Yes Yes 900 City of Seal Beach 2017 – Present Yes Yes Yes 410 City of Shafter 2017 – Present Yes Yes Yes 400 City of South Gate 2016 – Present Yes Yes Yes 480 City of Stockton 2012 – Present Yes Yes N/A 3,000 City of Tracy 2021 – Present Yes Yes Yes 960 City of Visalia 2021 – Present Yes Yes Yes Imperial County Transportation Authority 2018 – Present Yes Yes N/A 750 San Diego Metropolitan Transit System 2005 – Present Yes Yes Yes 1,850 Shasta Regional Transportation Agency 2015 – Present Yes N/A N/A 200 Alameda County Water District 2018 – Present Yes Yes N/A 550 Central Basin Water District 2018 – Present Yes Yes N/A 400 Gold Coast Transit District 2020 – Present Accounting and Consulting Services Hourly Las Virgenes Municipal Water District 2014 – Present Yes N/A N/A 400 Los Angeles County Law Library 2020 – Present Yes N/A N/A 180 Marina Coast Water District 2012 – Present Yes N/A Yes 240 Menlo Park Fire Protection District 2015 – Present Yes Yes Yes 240 FY22-2231-006Otay Water District BidSync10/12/2021 p. 31 Otay Water District 26 | PUNGROUP.CPA Municipalities Dates Financial Audit Single Audit GFOA Certificate Total Hours NALEO Educational Fund and NALEO 2020 – Present Yes N/A N/A 300 Olivenhain Municipal Water District 2019 – Present Yes Yes Yes 200 Rancho Murieta Community Services District 2019 – Present Accounting and Consulting Services 800 Rancho Santa Fe Fire Protection District 2015 – Present Yes N/A N/A 120 San Bernardino County Emergency Training Center 2020 – Present Yes N/A N/A 50 San Bernardino County Preschool Services Department 2020 – Present Yes Yes N/A 150 San Bernardino County Fire Protection District 2016 – Present Yes N/A N/A 200 San Elijo Joint Powers Authority 2016 – Present Yes N/A N/A 146 Santa Clara Stadium Authority 2020 – Present Yes N/A N/A 230 Santa Fe Irrigation District 2019 – Present Yes N/A N/A 250 South Bay Cities Council of Governments 2020 – Present Yes N/A N/A 100 South Orange County Water Authority 2017 – Present Yes Yes Yes 240 South Bay Cities Council of Governments 2020 – Present Yes N/A N/A 60 South Bay Regional Public Communications Authority 2015 – Present Yes N/A N/A 100 Southwestern Community College District 2009 – Present Yes Yes N/A 720 Valley Sanitary District 2015 – Present Yes N/A Yes 140 West Valley Mosquito and Vector Control District 2016 – Present Yes N/A N/A 100 Yuma Metropolitan Planning Organization, AZ 2015 – Present Accounting and Consulting Services Zone 7 Water Agency 2020 – Present Yes Yes Yes 400 GFOA Award Program The Pun Group LLP realizes the importance of maintaining the Certificate for Excellence in Financial Reporting from the GFOA. Our professionals are exceptionally well qualified in assisting governments in obtaining and maintaining their certificates. The Firm’s commitment and involvement in the development of auditing and accounting standards can be shown in our active participation in the GFOA’s financial statements certificate programs. 100% of our current clients who submitted their Annual Comprehensive Financial Report to the GFOA received these awards. Also, two of our senior partners, Mr. Gary Caporicci and Mr. John F. Georger, are members of the Government Finance Officers Association and participate in the GFOA Special Review Committee. FY22-2231-006Otay Water District BidSync10/12/2021 p. 32 Otay Water District 27 | PUNGROUP.CPA Specific Audit Approach The Otay Water District is requesting the Firm to perform Professional Auditing Services and issue opinions on the District’s financial statements. These audits are to be completed in accordance with all applicable and generally accepted auditing standards, including, but not limited to, the following:  Generally accepted auditing standards as set forth by the American Institute of Certified Public Accountants (AICPA).  US General Accounting Office’s (GAO) Standard for Audit of Governmental Organizations, Programs, Activities, and Functions.  Local Governments and Governmental Accounting Standards Board (GASB) Pronouncements.  The standards applicable to financial audits contained in the most current version of the Generally Accepted Government Auditing Standards (Yellow Book), issued by the Comptroller General of the United States.  The provisions of the Single Audit Act as amended in 1996.  The provisions of the US Office of Management and Budget (OMB) Uniform Guidance (formerly known as Circular A-133), Audits of State and Local Governments and Non-profit Organizations, and the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.  The California State Controller’s Minimum Audit Requirements for California Special Districts. Scope of Work The Firm will perform the following services:  Financial Statement Audits and issuance of an opinion statement on the Annual Comprehensive Financial Report of the Otay Water District. The audit will be conducted in accordance with Generally Accepted Government Auditing Standards. The report will be in full compliance with all current GASB pronouncements. The Firm will assist in meeting the requirements for the Government Finance Officers Association (GFOA) “Certificate of Achievement for Excellence in Financial Reporting.”  Issue a separate “Management Letters,” including recommendations for improvements on internal control, accounting procedures, and other significant observations considered to be non-reportable conditions. We will issue a report on internal controls related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards.  If required, prepare a Single Audit Report which will include the following: o Report on compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards. o Report on compliance with requirements applicable to each major program, internal control over compliance, and on the schedule of expenditures of federal awards in accordance with Uniform Guidance, “Audits of State and Local Governments,” and the Single Audit Act of 1984 (Public Law 98-502). o Schedule of Expenditures of Federal Awards. o Notes to Schedule of Expenditures of Federal Awards. o Schedule of Findings and Questioned Costs. o Any other required schedules or reports. o Prepare the Data Collection Form for Reporting on Audits of States, Local Governments, and Non- Profit Organizations.  Issue a report on a review of specific procedures that assure staff’s compliance with policies and procedures for the investment of District funds, in accordance with the District’s Investment Policy.  Prepare the State Controller’s Report and provide compilation services to the District with respect to the State Controllers Report. FY22-2231-006Otay Water District BidSync10/12/2021 p. 33 Otay Water District 28 | PUNGROUP.CPA Attendance at Meetings and Hearings: The engagement team will participate in as many meetings with staff as needed to perform the work scope tasks, present the audit plan prior to beginning fieldwork, and discuss the draft audit reports. The team will attend public meetings to present and discuss its findings and recommendations. Once all issues of discussion are resolved, the completed Annual Comprehensive Financial Report, Single Audit report (if applicable), and all other reports will be delivered to the District, according to the agreed-upon schedule. Proposed Audit Adjustments: All proposed adjusting journal entries by the Firm will be discussed and explained in a timely manner with the designated Finance Department personnel. Such proposed adjustments will be in a format that shows the lowest level of posting detail needed for data entry in the general ledger systems. Supplemental Reports, Audits, or Agreed-Upon Procedures: Other services, such as agreed-upon procedures, may be deemed necessary. These services will be performed at agreed-upon rates and will be added in a written agreement before commencing audit work. The Firm and the Otay Water District will discuss and approve the scope and associated costs of these tasks. Advice and Consultation: Will be provided throughout the year on matters relating to accounting and financial reporting. Such services do not include any task that entails significant research or a formal report. GASB Implementation: The Firm will provide technical assistance and training in the implementation of applicable GASB pronouncements not yet in effect. We have a dedicated partner, Mr. Gary Caporicci, who will be responsible for providing advice and consultation for the implementation of these new standards. The Firm will advise the District on the applicability of accounting and reporting standards and other accounting issues and provide guidance on new note disclosures, GASB implementations, and other reporting requirements. We will also provide training, resources, and information on topics relevant to the District’s financial reporting and operations. (Based on the scope, additional charges may apply.) Report of all Irregularities and Illegal Acts: The Firm will make an immediate written report of all irregularities and illegal acts or indications of illegal actions of which we may become aware to Jose Martinez, General Manager, Otay Water District. The engagement team will also make all communications to the District required by the audit standards under which the engagement is performed. Those communications include, but are not limited to: a) The auditor’s responsibility under generally accepted auditing standards. b) Significant accounting policies. c) Management judgment and accounting estimates. d) Significant audit adjustments. e) Other information in documents containing audited financial statements. f) Disagreements with management. g) Management consultation with other accountants. h) Major issues discussed with management prior to retention. i) Difficulties encountered in performing the audit. Working Paper Retention and Access to Working Papers: The Firm will retain, at its own expense, all working papers and reports for a minimum of three (3) years, unless the Otay Water District notifies the Firm in writing of the need to extend the retention period. The Firm will make working papers available to the District and/or their designees. Also, we will comply with reasonable requests from successor auditors and allow them to review working papers that relate to matters of continuing accounting significance. FY22-2231-006Otay Water District BidSync10/12/2021 p. 34 Otay Water District 29 | PUNGROUP.CPA Methodology and Segmentation of Engagement The Firm’s audit approach consists of six phases: Engagement Acceptance and General Planning, Planning and Internal Control Evaluation, Fieldwork, Post Fieldwork, Report Preparation and Review, and Final Production. 1. Engagement Acceptance and General Planning: The engagement partner and manager will meet with District’s management to obtain an update on current District policies and procedures, help identify risk areas and new operations, and establish any specific requirements they may have. Our team will work on the identification of unique transactions, implementation of new GASB pronouncements, and develop the audit work plan for the engagement. Proposed Timeline: March - April. 2. Planning and Internal Control Evaluation: The engagement team, including the engagement partner, will assess accounting policies adopted by the District in order to obtain an understanding of its structure and its operating environment. Also, our team will review internal controls on all significant transaction classes, perform walkthroughs and/or tests of internal controls, perform preliminary analytical procedures, develop initial risk assessment, evaluate Single Audit compliance, identify any audit issues, and prepare confirmation correspondence. The engagement team and District’s Management will establish expectations, including responsibilities and assignments for the year-end fieldwork, and will hold a progress status meeting at the end of the interim phase. Proposed Timeline: complete by June 30, 2022. 3. Fieldwork: The engagement team, including the engagement partner, will conduct audit procedures on account balances in the general ledger, finish confirmation procedures, perform data analysis using our AI tools, search for unrecorded liabilities, perform substantial analytical review procedures, complete work on compliance with Federal Assistance, and conclude fieldwork. The engagement team and District’s Management will hold an exit conference at year-end. Periodic update meetings will be held to communicate audit progress to management. Proposed Timeline: begin the week of August 22, 2022, and complete the week of August 29, 2022. 4. Post Fieldwork: During the phase, the engagement team, including the engagement partner, will review all documents and evaluate commitments and contingencies. The team will perform an assessment of the going concern and jointly plan for the next steps. Proposed Timeline: Exit interview with Chief Financial Officer and all key Finance Department personnel: August/September 2022. 5. Report Preparation and Review: The Firm will review and prepare audit reports and perform quality control procedures following the Quality Control Standards issued by the AICPA. We will also examine reports for compliance with GFOA reporting guidelines at no additional cost. Any comments will be recorded in a letter to management. At the District’s request, the engagement partner and manager will present the audit to District’s Management and other governing bodies. Proposed Timeline: drafts of the audit reports will be available for review by September 3, 2022. A final report will be delivered to the District by October 10, 2022, to allow time to meet the deadline for the October 18, 2022, Committee Meeting. 6. Final Production: The final phase of our approach entails obtaining the management representation letter and final financial statement report, which may include a final presentation to the District’s Management and other governing bodies (if applicable). Proposed Timeline: November 2, 2022 presentation to the Board. The Firm will complete the audit fieldwork and issue all reports within the established timeframe, assuming no internal circumstances within the District causes delays in the audit. FY22-2231-006Otay Water District BidSync10/12/2021 p. 35 Otay Water District 30 | PUNGROUP.CPA Level of Staff and Number of Hours to be Assigned to Each Segment of the Engagement The Pun Group LLP understands that the District is not only looking to employ our auditing services but is also seeking to receive value within that professional relationship. We believe that our value derives from the in-depth knowledge, experience, and commitment that our auditing firm employs. We stress and emphasize “employ” because all of the knowledge and expertise listed on paper will not benefit you unless it is applied. That is why we have developed a plan that we feel will accomplish the objectives of the District and your particular needs. Our Firm will utilize the information that you have shared with us and our experience from our previous audits of this nature from various government entities and cities to develop a practical plan for all major areas. Estimated Total Hours*: Partner(s) Manager(s) Senior(s) Staff Clerical Total Engagement Acceptance & General Planning1234010 Planning & Interal Control Evaluation 1445015 Fieldwork 7 18 19 26 2 73 Post Fieldwork 5 12 13 18 1 48 Report Preparation & Review 7 18 19 26 2 73 Final Production 2669124 Total* 24 60 64 88 6 242 *Does not include CPE hours related to Governmental Webinars and/or optional services. Sample Size and the Extent to Which Statistical Sampling is to be Used in this Engagement In our audit approach, random and statistical sampling is used in conjunction with our skilled judgment and knowledge of each situation. When designing an audit sample, our auditors consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn. We determine a sample size sufficient to reduce sampling risk to an acceptably low level and select items for such a task in a way that we can reasonably expect it to be representative of the relevant sample and likely to provide the auditor with a reasonable basis for conclusions about the population. Enhancing Auditing Quality with Artificial Intelligence There are plenty of challenges with established audit practices. Outdated CAAT tools, sampling practices, and the explosive growth of big data are some of the examples, and they all present significant barriers to detecting anomalies, intentional or otherwise, in financial data. The Pun Group deploys a comprehensive, risk-based approach, complemented by using MindBridge™'s Artificial Intelligence Platform, to conduct our audit. Through this tool, we can seamlessly analyze thousands and thousands of financial and operating data and records, identifying and cataloging significant risks in mere seconds. The AI Auditor platform works by our side, augmenting our capacity to detect errors or fraud in the collected data not only by analyzing the entire set but by cross-correlating dozens of testing criteria against pre-established data points, and presenting us with a view of every user, vendor, and transaction, by risk. All of this within moments of ingesting analyzed data, which is something standard audit procedures simply cannot accomplish. We utilize these tools to allow our audit team to increase efficiency in the audit process, to enhance the existing quality of our work, to provide directed testing in areas subject to the highest risk, and to quickly assimilate large amounts of data your staff would typically be asked to gather. The tools also help us to meet our professional requirements regarding fraud and internal control, allowing us to:  Run Benford’s analysis to check for fraud in transactions.  Increase the value of audit findings with complete, 100% data coverage.  Isolate risk and control issues before they impact your operations.  Improve productivity by automating procedures and eliminating manual tasks.  Conduct more direct, efficient, and effective audits to improve overall service quality. FY22-2231-006Otay Water District BidSync10/12/2021 p. 36 Otay Water District 31 | PUNGROUP.CPA Our engagement team easily imports data in a secure environment from the District’s financial software and extracts useful data for testing and analytical procedures particular to the following areas:  Successful Fraud Test  Kickback or Conflict-of-Interest Schemes  Questionable Invoices  Dormant Account Schemes  Phantom Vendor Schemes  Money Laundering Schemes Type and Extent of Analytical Procedures to be used in the Engagement Analytical procedures are one of many financial audit processes that help an auditor understand the client’s operation and changes in the environment and identify potential risk areas to plan other audit procedures. Such procedures include a comparison of financial information on prior periods, budget, forecast, and industry benchmark. We use trend and ratio analysis to identify any uncertain or unusual events. To perform these analyses, our Firm surveys cities and counties and develops benchmarks on specific vital financial indicators, such as the cost of services to tax revenues ratios, average general fund balance, capital assets, debt-to-capital, general fund unassigned fund balance to total general fund expenditures, etc. Our engagement members have extensive experience in successfully implanting analytical procedures to the District’s benefit. Our analytical procedures process is performed during three stages of audit: (a) at the start, (b) in the middle, and (c) at the end. These three stages are risk assessment procedures, substantive analytical procedures, and final analytical procedures:  Risk assessment procedures are used to assist the auditor in understanding the business better and to plan the nature, timing, and extent of audit procedures.  Substantive analytical procedures are used to obtain evidential matters about particular assertions related to the account balances or classes of transactions. During the interim phase, our engagement team will set up expectations for the year-to-date results and balances and compare them with budgeted and prior-year amounts. This process allows us to forecast year-end amounts, reducing the workload during the year-end phase and allowing us to focus on areas of concern.  Final analytical procedures are used as an overall review of the financial information in the last review stage of the audit. The Engagement Partner(s) and Manager(s) will perform a high-level analytical analysis of the financial information, comparing its data both quantitatively and qualitatively to ensure the amounts are fairly presented in all material respect in the financial statements. Approach to be Taken to Gain and Document an Understanding of the Internal Control Structure Audit risk assessment is established by an internal control review, combined with the engagement team’s understanding of the District’s operations and accounting software. Using the Committee of Sponsoring Organizations (COSO) Framework, staff members will evaluate the District’s processes and identify any control deficiencies. These diagnostic review procedures allow the engagement team to assess the District’s systems and controls and to provide constructive feedback to management. During our initial planning phase of the audit, our engagement team, including the engagement Partner and Manager, will obtain an understanding of the entity and its environment. It is an essential aspect of performing an audit under generally accepted auditing standards. That understanding establishes a frame of reference within which the auditor plans the procedures and exercises professional judgment about assessing risks of material misstatement of the financial statements and responding to those risks throughout the examination. During the interim phase of the audit, our engagement team will perform a walkthrough of all significant accounting systems, including processes for financial reporting, revenue recognition and cash receipts, purchasing/contract management and cash disbursements, and payroll and related liabilities, and others. Our auditors will obtain the written policies and procedures, inquiring accounting personnel, and document the process in either a flowchart or narrative summary format. After gaining an understanding of the accounting and internal control systems, our auditor will make a preliminary assessment of control risk, at the assertion level, for each material account balance or class of transactions. FY22-2231-006Otay Water District BidSync10/12/2021 p. 37 Otay Water District 32 | PUNGROUP.CPA The form and extent of this documentation are influenced by the size and complexity of the entity and the nature of its accounting and internal control systems. Generally, the more complex the entity’s accounting and internal control systems and the more extensive the auditor’s procedures, the broader our documentation will need to be. Approach to be Taken in Determining Laws and Regulations that Will be Subject to Audit Test Work The Firm stays continually up to date with audit requirements—including new regulations, compliance supplements, state guidelines, and related contracts—to ensure that we conduct audits under applicable laws and regulations. We test transactions for compliance with the Single Audit Act, California Government Code, GANN Appropriations Limit, provisions of applicable grant guidelines, requirements of local measures, and others. For example, the Single Audit Act requires that we determine which grants to include in our audit and select transactions from those grants for detailed testing. While most items will be tested as part of the Interim phase, we cannot determine which grants will be selected for the Single Audit until the year-end/fieldwork stage of the audit. Our compliance audits of cash, investments, debt covenants, and other areas will be performed following the California Government Code, which has many provisions and regulations covering investments. Approach to be Taken in Drawing Audit Samples for Purposes of Tests of Compliance To test compliance, we will follow the AICPA’s Audit Sampling Considerations of Uniform Guidance Compliance Audits. We will select an appropriate sample size based on our professional judgment and knowledge. Any deviations from control and compliance requirements will be documented. Audit Firm’s Expectations of the Role and Participation of District’s Staff in the Audit Process The engagement team will meet with the District’s management during the initial planning stage to discuss audit schedules and review prior year audit findings (if any). We will deliver a list of all documents to be provided by the District’s staff. Once such materials are agreed upon by the engagement team and District’s finance personnel, no other schedules will be requested unless new information comes to light in the course of test work. Our goal is to cause the least amount of interruptions to the District’s daily operations; therefore, to the extent possible, we will use information in the form available from the District’s records. We believe client/engagement team communication is vital to perform results satisfactorily. With that sentiment in mind, we will hold regular meetings with the District’s management to determine the status of the audit as well as any items which will require special attention. Open and frequent communication is critical. Objectives of Our Services Our primary objective for the proposed audit is to examine the District’s financial statements and express our opinion on their fairness of the presentation, following generally accepted accounting principles. Other objectives that will benefit the District include the following:  To offer beneficial observations and recommendations about policies and procedures for accounting and operating controls  To identify opportunities to make District operations more efficient and reduce costs  To perform the audit efficiently and effectively, so disruption to office operations is kept to a minimum  To provide continuing advisory services so the District can implement recommendations  To meet these objectives at no additional cost to the District The Engagement Team will perform the audit abiding by the Firm’s quality-control procedures, which include following standard audit programs, careful planning, using industry-standardized software for auditing and internal control documentation, and welcoming an objective review of audit work. In other words, our client-tailored approach emphasizes careful planning, open communication, and proper assignment of responsibilities. The Firm will supply portable computers to the on-site staff members. FY22-2231-006Otay Water District BidSync10/12/2021 p. 38 Otay Water District 33 | PUNGROUP.CPA Identification of Anticipated Potential Audit Problems While we do not expect any problems with the audit, we will carefully investigate and monitor the following relevant accounting issues: Investments:  Compliance with GASB 31 and GASB 34  Authorization and approval process for District investments  Controls to assure District’s compliance with investment limitations and types of specific investments  Monitoring by the District of its investments Financial Reporting:  Compliance with current reporting and disclosure requirements issued by GASB  Compliance with the various GASBs in effect  Perform valuations of OPEB benefits to determine the liability for all benefits promised to active, retired, and inactive plan members as of each valuation date  Compliance with Governmental Accounting Standards Board (GASB) Statements 74 and 75  Compliance with infrastructure obligations and regulatory provisions Internal Control Structure:  District’s internal control functions and compliance with proper internal control philosophies  Computer-system processes and controls, and adequacy of the control environment Special Audit Considerations for the Fiscal Years 2021/2022*  Grant Issues (FEMA, CARES)  In many cases, governments may not know until they submit for reimbursement how much money they will receive. In those cases, governments should not record revenue until they are awarded a specific amount  Governments should not report expenditures on the SEFA until the grant is awarded  CARES funding may be subject to single audit requirements  Government programs allowing deferral of customer payments (deferral of TOT payments, utility payments, and other lease holidays to help the community)  In governmental fund types, this may impact the government’s ability to record revenue because of the “measurable” and “available” criteria  In proprietary fund types, this may impact the allowance for doubtful accounts estimates  Internal controls during COVID – audit impact on possible circumvention of internal controls for emergency purchases or when individuals were not available to sign/approve activities  Investment losses and credit risk  Pension and OPEB plans – the impact of investment losses  Is there an increased risk of litigation?  Audit response to analytical variances – Set expectations for decreases in sales tax, hotel tax, fee-based revenues such as recreation, library or other community-based services, passenger facility charges, building permits, layoffs/furloughs, expanded senior and low/income program costs  Going concern evaluations  Subsequent events footnote disclosures of COVID  Intermediate changes in the internal controls as a result of a remote workforce We cannot speculate at this time on the contents of the auditor’s reports. However, we expect to be able to discuss the tentative content of the auditor’s reports well in advance of the issuance of such reports. *Not all examples may be applicable to the District. FY22-2231-006Otay Water District BidSync10/12/2021 p. 39 Otay Water District 34 | PUNGROUP.CPA Let’s Start a Dialogue Benefits of Choosing The Pun Group LLP The Pun Group LLP is recognized for its professionalism, integrity, and providing clients with practical solutions unique to their circumstances and issues. Our Firm prides itself on being able to provide personalized client services, and with that sentiment in mind, we have carefully chosen our engagement teams. The Pun Group’s primary objective is to give the Otay Water District solutions and directions, led by highly experienced and capable partners who can successfully implement the work and produce the results you expect. This philosophy and mindset allow us to provide a superior level of service and a quality audit. We trust that this proposal has given you the information needed about the Firm, the engagement team members, the overall audit approach, cost-saving measures, and audit fees. We are committed to exceeding your expectations, and we look forward to bringing our experience and expertise to the Otay Water District and providing you with the excellent level of service that you expect and deserve. Thank You Thank you for allowing us to submit our qualifications to provide you with Professional Auditing Services. Please direct inquiries to: Coley Delaney, CPA Partner Email: coley.delaney@pungroup.com Phone: (858) 242-5101 | Fax: (949) 777-8850 Kenneth H. Pun, CPA, CGMA Managing Partner Email: ken.pun@pungroup.com Phone: (949) 777-8801 | Fax: (949) 777-8850 Sincerely, The Pun Group LLP Certified Public Accountants and Business Advisors FY22-2231-006Otay Water District BidSync10/12/2021 p. 40 Otay Water District i | PUNGROUP.CPA Appendix A – Certificate of Insurance FY22-2231-006Otay Water District BidSync10/12/2021 p. 41 Otay Water District   ii | PUNGROUP.CPA Appendix B – Available Training Client Training Webinars We pride ourselves in leading the governmental auditing profession nationwide and statewide. Members of our team have been assigned to the AICPA and State Government Accounting and Audit committees. Our membership with these two levels of government keeps us current, and such involvement helps our Firm with the constant changes in accounting and auditing standards, laws and regulations, and compliance provisions, which have created an unprecedented complexity in public accounting for state and local governments. Every year, the Firm hosts a conference to update governmental clients on new technical accounting and financial issues. Since last year, by implementing “Webinars,” we’re expanding our horizons and offering our clients 15 hours of Continuing Professional Education (CPE). These sessions are free of charge and part of the service package provided to our clients. Our 2021 Virtual Governmental Accounting Webinars schedule follows: Following is a list of seminars/webinars and training offered to our clients and presented by the Firm during the past three years: 2018 In-Person Conference  Santa Ana, CA  Clovis, CA  Danville, CA Topics:  2018 GASB Update  Implementation of the New OPEB Standards  2018 Survey – Cities and Counties  Public Sector Benefits 2018: Big Ticket Items You Need To Plan For  Fraud in State and Local Governments  2018 Auditing Standards and Single Audit Update 2019 In-Person Conference  Santa Ana, CA  Clovis, CA  Danville, CA Topics:  2019 GASB Update  Implementation of GASB Leases Standards, Statement No. 87  2019 Survey – Cities and Counties  Implementation of GASB Fiduciary Activities, Statement No. 84  Fraud in State and Local Governments  ERP Implementation  2019 Auditing Standards and Single Audit Update 2020 Webinars Topics:  Potential Risk of Fraud During this Pandemic  2020 Survey of California Cities Fiscal Assessment of California Cities and its School System  Surviving the Pandemic’s Fiscal Crisis – Option for Municipalities  GASB Update  Implementation of GASB 84 Single Audit and Yellow Book Update for 2020 Jan GASB 84 Fiduciary Activities Feb GASB 87 Lease Accounting Mar Aftermath of COVID-19: What you need to know about for the 2021 audit Apr How to prevent fraud using the latest technology May GASB Update Jun GASB Financial Reporting Model Project Update Jul GASB Revenues and Expense Recognition Project Update Aug AICPA Auditing Standards Update Sep Single Audit Update for 2021 Oct FY22-2231-006Otay Water District BidSync10/12/2021 p. 42 Otay Water District   iii | PUNGROUP.CPA Appendix C – Proposer Guarantees FY22-2231-006Otay Water District BidSync10/12/2021 p. 43 Otay Water District   iv | PUNGROUP.CPA Appendix D – Proposer Warranties FY22-2231-006Otay Water District BidSync10/12/2021 p. 44 Otay Water District   v | PUNGROUP.CPA Appendix F – Formation of Contract; Additional Contract Provisions FY22-2231-006Otay Water District BidSync10/12/2021 p. 45 Otay Water District   vi | PUNGROUP.CPA FY22-2231-006Otay Water District BidSync10/12/2021 p. 46 ORANGE COUNTY SAN DIEGO BAY AREA LAS VEGAS PHOENIX www.pungroup.cpa FY22-2231-006Otay Water District BidSync10/12/2021 p. 47  Patel & Associates, LLP Bid Contact Sanwar Harshwal amita.jangid@harshwal.com Ph 510-452-5051 Address 266 17th Street, Suite 200 OAKLAND, CA 94612 Item #Line Item Notes Unit Price      Qty/Unit Total Price  Attch.  Docs FY22-2231-006--01-01    Professional Auditing Services Supplier Product Code: First Offer -1 / lot Y Supplier Total $0.00 FY22-2231-006Otay Water District BidSync10/12/2021 p. 1 Attachment G  Patel & Associates, LLP  Item: Professional Auditing Services  Attachments  Otay Water District - Cost Proposal to Provide Audit Services.pdf  Otay Water District - Technical Proposal to Provide Audit Services.pdf FY22-2231-006Otay Water District BidSync10/12/2021 p. 2 Technical Proposal to Provide Professional Audit Services For Fiscal Year ending June 30, 2022 with an Option to Extend for Four (4) Additional Years Submitted by: 16870 W. Bernardo Drive, Suite 250 San Diego, CA 92127 Phone: (858) 939-0017 Fax: (858) 964-3754 October 08, 2021 Contact Person Managing Partner: Sanwar Harshwal, CPA Cell Phone: (858) 784-1622 Federal Employer ID Number: 27-0741376 Email -sanwar@harshwal.com Website:www.harshwal.com FY22-2231-006Otay Water District BidSync10/12/2021 p. 12 TABLE OF CONTENTS 1.TITLE PAGE 2.TABLE OF CONTENTS................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................1 3.TRANSMITTAL LETTER................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................2 4.TECHNICAL PROPOSAL i.General Requirements................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................4 ii.Independence................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................4 iii.License to Practice in California................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................5 iv.Firm Qualifications & Experience................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................5 v.Partner, Supervisor and Staff Qualifications & Experience................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................8 vi.Similar Engagements with Other Government Entities................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................15 vii.Specific Audit Approach................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................17 viii.Identification of Anticipated Potential Audit Problems................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................24 5.PROPOSER GUARANTEES................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................26 6.PROPOSER WARRANTIES................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................27 7.ATTACHMENTS ix.Insurance Certificates................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................28 x.References Letter................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................31 xi.Peer Review Report................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................34 Page 1 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 13 October 08, 2021 Otay Water District ATTN: Jose Martinez, General Manager 2554 Sweetwater Springs Boulevard Spring Valley, CA 91978-2004 Dear Jose Martinez and Evaluation Committee Members, The partners and staff at Harshwal & Company, LLP are pleased to present our proposal to provide professional audit services. Our firm has experienced continuous growth and success as we meet and exceed client expectations. Our overall goal is to provide responsive, innovative services of the highest quality to our clients. We understand that the Otay Water District (referred to later in this proposal as the "District") requires a timely audit service; we are committed to meeting all terms, conditions and requirements addressed in this request for proposal. With our experience and knowledge, we fully understand the requirements and your expectations for the services to be provided. We believe our firm is the best qualified to perform this engagement because our audit services are best performed by utilizing specialized resources and technical proficiency. Our expertise in governmental auditing and accounting combined with our vast access to resources empowers us to solve challenges encountered during the audit. Our highly trained engagement team will maintain a knowledgeable, yet, non-intrusive, approach to the audit to deliver an audit that is of exceptional quality that requires minimal disruptions of the District's on-going operations. Understanding of the Work to be Done: We understand that you require us to conduct an audit of the financial statements of the District for the fiscal year ending June 30, 2022 with an option to extend for four (4) additional years, in accordance with generally accepted auditing standards; Government Auditing Standards; the Single Audit Act Amendments of 1996 (the Single Audit Act); the provisions of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; OMB Circular A-102, Grants and Cooperative Agreements with State and Local Governments; OMB Circular A-87; the State Controllers’ Minimum Audit Requirements for California Special Districts; and applicable laws and regulations. Ability to Perform the Work within Provided Time Frame: Harshwal & Company, LLP is benchmarked for providing the work within the time frame requested. Our team is committed to completing the audit on time, as they are fully equipped with contemporary technology, which will add value to a successful and timely delivery of the audit. We are responsive and solution oriented; providing quick responses on matters that require immediate attention, hence enhancing the quality of our audit. We focus on staff continuity, which enables us to develop and maintain an in- depth understanding of your operations, management style and operating practices, which ultimately allows us to offer you experienced resources, value-added services, specialization and overall better personal service, which again unequivocally results in a timely submission of the audit report. 2 16870 W. Bernardo Drive, Suite 250, San Diego, CA 92127 |www.harshwal.com | Ph.: 858.939.0017 | Fax: 858.964.3754 FY22-2231-006Otay Water District BidSync10/12/2021 p. 14 Why Harshwal & Company, LLP: Extensive partner involvement on each engagement Presence of a manager and/or CPA always on site during fieldwork Consistent and experienced staff Timeliness of communications Proactive approach in addressing complex issues early in the engagement Availability to clients as a specialized resource Professionalism with understanding Client Confidentiality and Security At Harshwal & Company, LLP, we are committed to safeguarding client information. Maintaining trust is one of the core values of our firm. Since your privacy is a priority to us, we will not share nonpublic information about you with third parties without your consent. In order to facilitate a highly secure method for exchanging electronic files between our firm and our clients, we have implemented a secure, trackable method for sharing large files via a hosted website called Suralink. All laptops of our audit and tax professionals are encrypted to protect our clients’ information. Our proposal is a firm and irrevocable offer until March 4, 2022 (175-days). Our Managing Partner, Mr. Sanwar Harshwal, is authorized to represent the firm and he is the authorized person to contractually obligate the firm, to negotiate the contract on behalf of the firm and to be contacted for clarification questions regarding the RFP. He can be reached at 16870 W. Bernardo Drive, Suite 250, San Diego CA 92127; Phone No. (858) 784-1622, Fax No. (858) 964-3754 or via an email at sanwar@harshwal.com. Harshwal & Company, LLP is a small business enterprise that is SBA 8(a) certified, GSA vendor and a 100% minority owned CPA firm. We thank you for your consideration and hope that you will provide us with the opportunity to serve your esteemed organization with our services. Sincerely, Harshwal & Company, LLP Certified Public Accountants Sanwar Harshwal,CPA, CIA, CISA, CFE Managing Partner 3 16870 W. Bernardo Drive, Suite 250, San Diego, CA 92127 |www.harshwal.com | Ph.: 858.939.0017 | Fax: 858.964.3754 FY22-2231-006Otay Water District BidSync10/12/2021 p. 15 Technical Proposal to Provide Professional Audit Services TECHNICAL PROPOSAL General Requirements We have strictly adhered with the beneath instructions as per the Request for Proposal: There are no dollar units or total costs included in this technical proposal document. We have demonstrated our firm's qualifications, capability and capacity in the forthcoming sections. We have demonstrated the firm qualifications and staff qualifications assigned to this engagement separately. We have specified the audit approach, which will be used to meet the required scope of work. We have included all points outlined in the RFP in this proposal. We have prepared a proposal, which is simple, economic and provides a straightforward and concise description of our firm's abilities. Independence We are independent of the Otay Water District and its component unit as defined by generally accepted auditing standards issued by the U.S. General Accounting Office’s Government Auditing Standards. Before accepting any new engagement, we conduct a thorough check to ensure that there are no conflicts of interest or independence issues. This procedure is in compliance with the independence requirements of all regulatory agencies and, specifically, in compliance with the Standard for Audit of Governmental Organizations, Programs, and Activity Functions, as published by the U.S. General Accounting Office (GAO). If selected as your audit firm, we will maintain and monitor our independence as well as reassess our independence with respect to your organization on an annual basis. We will continue to evaluate our independence as your external auditors and will give the District and its component unit written notice of any professional relationships involving the District and its component unit, if entered into, during the period of the audit contract. Conflict of Interest Statement Harshwal & Company, LLP does not have any past or current business or other relationship with the District. We also hereby agree that no member, officer, or employee of the District, no member of the local governing body of the locality in which the District is located and no other public official who exercises any function or responsibilities with respect to the District, during his tenure or for one year thereafter, shall have any interest, direct or indirect, in this contract or the proceeds thereof. Page 4 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 16 Technical Proposal to Provide Professional Audit Services License to Practice in California The firm and all key professional staff are licensed by the State of California to practice as Certified Public Accountants, and meet the Continuing Professional Education requirements under U.S. GAO’s Government Auditing Standards to perform the proposed audits. California State Board of Accountancy Number - PAR7299 FIRM'S QUALIFICATIONS AND EXPERIENCE Harshwal & Company, LLP was founded ten years ago and is a locally established firm of CPAs, offering auditing, accounting, management consulting, IT services and other specialized services to various clients. Our client base consists of special districts, state and local governments, educational entities, not-for- profit organizations, tribes and tribal governments, and housing authorities throughout the United States. Our commitment to our clients has provided our firm with continued growth and success at developing and maintaining strong professional relationships. Our engagement team also has extensive experience in auditing and reviewing financial statements and has received GFOA. The members of the firm have accumulated over four decades of experience in public auditing; primarily with international certified public auditing firms while employed in high-level supervisory positions. Individually, the partners and management staff are recognized in their respective areas for leadership roles, which they take part in promoting the high ideals of the auditing profession and for producing the highest quality services. Our San Diego office will be providing audit services to the Otay Water District. The address and phone number of our office is below: San Diego, CA 16870 W. Bernardo Dr., Suite 250 San Diego, CA 92127 Phone: (858) 939-0017 Fax: (858) 964-3754 Page 5 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 17 Technical Proposal to Provide Professional Audit Services Staff Size & Structure: Financial Audit Team Manpower Managing Partner 01 Additional Partners 01 Audit Manager 02 CPAs and Senior Staff 08 Additional Staff 08 Total 20 Services Provided by the Firm Harshwal & Company, LLP is a full-service professional firm, providing comprehensive services commonly associated with larger firms. The firm is divided into the following departments and provides the following services: Audit Department: Provides audit services to commercial, governmental and non-profit organizations with a special emphasis on compliance audits in Education, Health and Housing industries. Accounting Department: Provides consulting services in setting up businesses and establishing accounting systems, books and records; assistance in maintaining business records; and preparing financial statements. Tax Department: Provides a wide range of tax preparation, tax planning and consulting for corporations, partnerships and individuals. Management Advisory Services: Our technical knowledge, training and business experience enable us to provide a broad range of management advisory services, which includes the following: Designing and assisting in the installation of accounting systems to fit the requirements of a particular business. Analyze existing accounting systems and recommend ways to improve controls and efficiency. Assessment, installation and modification of computer hardware and software systems. Consulting in management information systems. Providing consultation about the use of management information systems for planning and control and the application of accounting and other controls. Joint Venture or Consortium:We are not proposing as a joint venture or consortium, nor will any portion of the proposed audits be subcontracted to another firm. Equal Opportunity Employer Harshwal & Company, LLP is an equal employment opportunity employer and is in compliance with the Civil Rights Act of 1964, the State Fair Employment Practice Act, and all applicable federal and state laws and regulations relating to equality. We prohibit discrimination of qualified persons based on race, religion, color, sex, age, national origin, disability, sexual orientation, military status, or any other characteristic protected by applicable federal, state, or local law. Page 6 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 18 Technical Proposal to Provide Professional Audit Services Firm's Most Recent External Quality Control Harshwal & Company, LLP is a member of the Governmental Audit Quality Center (GAQC) and Employee Benefit Plan Audit Quality Center (EBPAQC) of the American Institute of Certified Public Accountants (the AICPA) and the Center for Audit Quality, an affiliate of the AICPA. A key requirement for membership in these groups is to have our systems of quality control reviewed by another CPA firm once every three years. Our most recent peer review was completed in 2020, and we received a passing peer review rating. A copy of our most recent peer review report is included in the "ATTACHMENTS" section. Desk & Field Reviews From time to time, selected Harshwal & Company, LLP audit engagements are subject to desk review by federal or other regulators. In all such reviews during the past three years, the reviews have shown our work to be satisfactory, and no disciplinary or other administrative proceedings have resulted from those reviews. There has been no disciplinary action taken against Harshwal & Company, LLP’s offices by the AICPA, or any State Board or Society in the last three years. There are also no such actions currently pending. Disciplinary Action or Pending Litigation Harshwal & Company, LLP's emphasis on quality has provided the firm with an excellent track record regarding claims related to professional services. Harshwal & Company, LLP has an impressive history, free of litigation, penalties and debt, and we have no sanctions or restrictions imposed by professional organizations, regulatory authorities or other government institutions. Harshwal & Company, LLP has never been debarred, suspended or otherwise excluded from or ineligible for participation in federal assistance programs or from receiving federal contracts, subcontracts or financial or non-financial assistance or benefits, under Executive Order 12549, "Debarment and Suspension" (24 CRT 85.35) or other federal laws, statutes, codes, ordinances, regulations or rules, at any time during the term of the agreement. Insurance Requirements We will maintain such insurance coverage during the period of the engagement. Harshwal & Company, LLP maintains the following insurance: 1)Professional liability for $2,000,000 per claim and $4,000,000 aggregate. The carrier is Great Divide Insurance Company. 2)Commercial general liability and property damage for $2,000,000 and $4,000,000 aggregate per occurrence. The carrier is Hartford. 3)Automobile liability for $2,000,000. The carrier is Hartford. 4)Workers’ compensation (statutory amounts and limits) insurance carrier is Hartford. The per claim/aggregate limit of the liability is $1,000,000. A Certificates of Insurance is included in the "ATTACHMENTS" section. Page 7 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 19 Technical Proposal to Provide Professional Audit Services Partner, Supervisor and Staff Qualifications and Experience The expertise and experience of Harshwal & Company, LLP's principals and personnel are at the core of the firm's excellence in performing audits of special districts. Harshwal & Company, LLP has extensive experience providing exceptional client service and high-quality audit services through comprehensive knowledge and understanding of governmental auditing standards. Staff Continuity over the Term of the Agreement:We focus on our team members as well as our clients. Our turnover is significantly lower than other national and regional service firms. This staff continuity enables us to develop and maintain an in-depth understanding of your operations, management style and operating practices, which ultimately allows us to offer you experienced resources, value-added services, industry specialization, and overall better personal service. This commitment to people also resides at our executive level where you will find a refreshingly greater hands-on approach compared to other service providers. Our culture stresses the importance of executive presence throughout projects and engagements. Number of Staff Assigned to Audit Name of Team Member Role Experience Sanwar Harshwal, CPA, CIA, CISA, CFE Managing Partner 37+ Years Samson Reda, CPA Senior Auditor 5+ Years Garima Pathak Audit Manager 5+ Years Jitesh Bhakta (CPA 2 papers cleared)Senior Auditor 4+ Years Kinjal Patel (Awaiting CPA license)Staff Auditor 4+ Years Almost all of our assigned key personnel are licensed to practice as a Certified Public Accountant. In addition to the key personnel listed, additional staff will be assigned from our pool of highly qualified professionals. We assure you regarding the quality of staff over the term of the engagement. We will not replace audit personnel except with prior written permission of the District. In case we change, we will provide replacements having better qualifications and experience. We assure the District if we are selected as your auditors, we will not delegate or subcontract our responsibility without written consent of the District. Page 8 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 20 Technical Proposal to Provide Professional Audit Services Audit Team Responsibilities Name/Position Responsibility Sanwar Harshwal, CPA Managing Partner Sanwar Harshwal will be the managing partner in charge of administration, reviews, planning of the audit, approval of the audit scope and work, and review of work and liaison with the District. He is responsible for conducting the fieldwork, coordination of the audit plan, and ensuring that the plan formulated has been effectively followed and managed. He will coordinate with the manager and supervisor for proper fieldwork progress. He will also manage and organize the audit team's effort and ensure the various audit components are performed efficiently. He also has the responsibility for meeting with the District's management to keep them informed regarding the progress of the audit. The responsibility also extends to ensure smooth interaction of the firm with the District. He has final authority in the conduct of the engagement, and assumes full responsibility for the work performed. Samson Reda, CPA Senior Auditor Samson Reda, is a senior auditor in the firm's audit group and is in charge of the fieldwork. He will be responsible for preparation and maintenance of various work-papers required for audit report preparation. Garima Pathak Audit Manager Garima Pathak will provide District staff with updates to summarize our progress against the project timeline, and update the status of upcoming deliverables. She will also document discussions leading to important policy decisions and/or the choice of critical assumptions used in constructing the analysis and model. Jitesh Bhakta Senior Auditor Jitesh Bhakta, under the supervision of the auditor in charge of the fieldwork, will be responsible for preparation and maintenance of various work-papers required for audit report preparation. Kinjal Patel Staff Auditor Discharge audit duties and reviews under the direction and guidance of senior, perform studies, tests, reviews and analysis of accounts and financial transactions Overall Supervision to be Exercised The audit will be managed by our firm's audit manager, Garima Pathak, who has extensive experience in performing audits of special districts. Garima Pathak has been in charge of various large audit engagements, governmental funded programs, and community-based organizations receiving federal and state funds. Page 9 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 21 Technical Proposal to Provide Professional Audit Services Audit Team Resumes SANWAR HARSHWAL, CPA, CFE, CISA Managing Partner Sanwar Harshwal is the Managing Partner of Harshwal & Company, LLP. He is a globetrotter and a trained technical speaker on auditing and global accounting standards, IT and internal controls, on fraud prevention, and on examinations and internal audits. With over 37+ years of experience with governmental auditing engagements, Mr. Harshwal is also a leading expert on emerging accounting challenges for special districts. Mr. Harshwal has attended AICPA seminars on GASB's New Financial Reporting Model and Financial Statements of Special Districts. During the last 5 years, Mr. Harshwal has provided over 400 hours of training to several professionals on GASB, GAS, Uniform Guidance, FASB, SAAS, GAGAS, pension plan audits, COSO, COBIT, internal audits, fraud prevention and examination and tribal governmental governance issues. In addition to having significant experience in audits, strategic assessments of accounting functions, and internal control structures, Mr. Harshwal has extensive experience in evaluating complex accounting and finance issues.He has proficient knowledge of using CaseWare, CaseView, CaseWare IDEA software and other automated tools. Education: B.S. Business Accounting and Bachelor of Law Certification Certified Public Accountant - State of California (CPA) Certified Public Accountant - State of New Mexico (CPA) Certified Public Accountant - State of Arizona (CPA) Certified Public Accountant - State of Washington (CPA) Chartered Accountant - The Institute of Chartered Accountants of India Certified Information System Auditor (CISA) Certified Fraud Examiner (CFE) ORACLE Financial Consultant (Oracle Business Suite) Chartered Global Management Accountant (CGMA) Certified Risk Management Assurance (CRMA) Certified Construction Auditor (CCA) Professional Membership Member of AICPA Member of California CPA Society of Certified Public Accountants Member of Information Systems Audit and Control Association, USA Member of Association of Certified Fraud Examiners, USA Member of Institute of Certified Internal Auditors Member of National Association of Construction Auditors Member of NM CPA Society Page 10 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 22 Technical Proposal to Provide Professional Audit Services SAMSON REDA, CPA Senior Auditor Samson Reda is a senior auditor at Harshwal & Company and has five years of experience in auditing and providing accounting services to special districts, state and local governments, educational entities, not- for-profit organizations, tribes and tribal governments, and housing authorities. He is an expert in data analysis and reconciliation and his experience includes auditing, the recording and analysis of account transactions; establishing accounting records; reconciliation of cash balances; implementation of accounting controls; and statistical reports. He also conducts sampling, testing and is well experienced in performing audits in accordance with attestation standards established by the AICPA. He has proficient knowledge of using CaseWare, CaseView, CaseWare IDEA and other automated tools. He will assist in directing the staff and specialize in the timely completion of the audit. Education: BA in Accounting Certification: Certified Public Accountant - State of Virginia (CPA) GARIMA PATHAK, CA Audit Manager Garima Pathak is our audit manager and has been employed with Harshwal & Company, LLP for five years. She has been engaged in numerous audits of special districts, state and local governments, educational entities, not-for-profit organizations, tribes and tribal governments, and housing authorities. Garima has 5 years of experience working with all types of exempt organizations including 501(c) (3), 501(c) (4), 501(c) (6), and 501(c) (7). Garima has provided tax compliance services to clients in the retail, real estate, and not-for-profit industries. She concentrates on real estate clients, focusing on low-income housing, including both for profit and not-for-profit entities. Garima has a passion for her not-for-profit clients and the industry at large, providing them with hands-on tax compliance services including Form 990 filings. She has proficient knowledge of using CaseWare, CaseView, CaseWare IDEA Software and other automated tools. Education: Bachelor's in Commerce Certification: Chartered Accountancy of Institute of Chartered Accountants of India JITESH BHAKTA Senior Auditor Jitesh Bhakta is a senior auditor and has passed 2 CPA sections. He has been employed with Harshwal & Company, LLP for four years. He has been engaged in numerous audits and accounting engagements of special districts, state and local governments, educational entities, not-for-profit organizations, tribes and tribal governments, and housing authorities. Page 11 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 23 Technical Proposal to Provide Professional Audit Services He is an expert in data analysis and reconciliation and his experience includes auditing, the recording and analysis of account transactions; establishing accounting records; reconciliation of cash balances; implementation of accounting controls; and statistical reports. He also conducts sampling, testing and is well experienced in performing audits in accordance with attestation standards established by the AICPA. He has proficient knowledge of using CaseWare, CaseView, CaseWare IDEA and other automated tools. He will assist in directing the staff and specialize in the timely completion of the audits. Education: AIU equivalent of MBA in Arts KINJAL PATEL Staff Auditor Kinjal Patel is a staff auditor and awaiting her CPA license. She has been engaged with several audits and accounting engagements of state and local governments, educational entities, special districts, not-for- profit organizations, tribes and tribal governments, and housing authorities. Kinjal is proficient in the operating nuances of accounting and auditing packages and demonstrates up-to-date knowledge of auditing and accounting pronouncements. Kinjal has worked on financial and compliance engagements under the Single Audit Act of 1984 and OMB Circular (Uniform Guidance). She has proficient knowledge of using CaseWare, CaseView, CaseWare IDEA software and other automated tools. Education: Master of Business Administration in Accounting Continuing Professional Education The following table details CPE hours for each key member of the proposed audit team: Audit Team Member Governmental CPE Non-Governmental CPE Sanwar Harshwal, CPA, CIA, CISA, CFE 140 124 Samson Reda, CPA 80 56 Garima Pathak 84 57 Jitesh Bhakta 82 28 Kinjal Patel 58 28 Page 12 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 24 Technical Proposal to Provide Professional Audit Services Harshwal & Company, LLP has performed numerous audits of governmental organizations, including several special districts, counties, cities, etc., that are subject to financial and compliance audits. The following is a list of our clients: Special Districts Ambrose Recreation and Park District Rodeo-Hercules Fire District Coast side Fire Protection District Humboldt Bay Harbor, Recreation and Conservation District Burbank Sanitary District Goshen Community Services District San Miguel Community Services District Yolo Local Agency Formation Commission Fort Dick Fire Protection District Cupertino Sanitary District Alameda County Fire Department Border Coast Regional Airport Authority Del Norte Solid Waste Management Authority El Rancho Simi Cemetery District South Santa Clara Co. Fire District Saratoga Fire Protection District Menlo Park Fire Protection District Lions Gate Community Service District Los Medanos Community Health Care District Alameda County Law Library Oakland-Alameda County Coliseum Authority Los Altos Hills County Fire District Santa Clara County Sanitation District 2-3 Solano County Local Transportation Fund Alameda County Community Development Department State and Local Governments County of Del Norte Town of Apple Valley City of Port Hueneme City of Sanger City of Oakland City of East Palo Alto City of Crescent City City of Vallejo County of Santa Clara City of San Mateo Cibola County Sierra County First 5 Alameda County First 5 Marin Children & Families Commission First 5 Monterey County First 5 Santa Cruz County First 5 San Bernardino First 5 Inyo County Town of Edgewood Town of Springer Town of Mesilla Town of Cochiti Lake Counties County of Alameda Community Based Organization Audits Alameda County Housing and Community Development Agency - Housing and Community Development and Lead Poisoning Prevention Alameda County Public Works Department Alameda County Housing and Community Development - Bond Audit Alameda County Social Services - Food Stamp Oakland-Alameda County Coliseum Authority Alameda County Congestion Management Agency Alameda County Health Care Services Agency Alameda County Auditor-Controller’s Agency City of Oakland, Office of Public Works Alameda County Fire Department Alameda County Transportation Authority Page 13 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 25 Technical Proposal to Provide Professional Audit Services County of San Mateo JTPA Program Menlo Park Fire Protection District Department of Community Services Contra Costa County Public Works Department Emergency Medical Services Santa Clara County Single Audit (Sub Contractor) County of Santa Clara JTPA Program Mental Health Short Doyle Program Sheriff’s Department – Inmate Welfare Fund Santa Cruz County Single Audit Mental Health - Short Doyle Program Solano County City of Vallejo (Sub Contractor)Mental Health - Short Doyle Program Local Transportation Fund Del Norte County Del Norte County Del Norte County Solid Waste Management Authority Housing Entities Housing Authority of the City of Benicia Housing Authority of the County of San Mateo Housing Authority of the City of Port Hueneme Eastern Regional Housing Authority White Mountain Apache Housing Authority Pueblo of San Felipe Housing Authority Santa Clara Pueblo Housing Authority Housing Authority of the City of Richmond Housing Authority of the County of Alameda Housing Authority of the County of Butte Hopi Tribal Housing Authority Rincon Band Housing Department Wagon Mound Housing Authority Sisseton Wahpeton Housing Authority Educational Entities El Segundo Unified School District Richland School District Conejo Valley Unified School District Lamont School District La Honda-Pescadero Unified School District Belmont-Redwood Shores School District Sacramento Valley Charter School Manzanita Charter Middle School Ravenswood City School District Napa Valley Unified School District Fairfield-Suisun Unified School District Benicia Unified School District San Mateo - Foster City School District Brisbane School District Jefferson School District Pacifica School District Jefferson Union High School District Page 14 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 26 Technical Proposal to Provide Professional Audit Services Similar Engagements with Other Government Entities We encourage you to contact these references to inquire about the quality of our services, their overall satisfaction, the effectiveness of our auditing and accounting approach, the expertise of our professionals, and the timeliness and overall value of our services. We would be happy to provide additional references upon request, if you would like. 1. Rodeo Hercules Fire Protection District Scope of Work: Audit and preparation of the Basic Financial Statements and CAFR presentation. Date of Services: Fiscal years ended June 30, 2017 to present Total Audit Hours: 175 Engagement Partner: Sanwar Harshwal, Managing Partner Principal Contact: Getachew Demeku-Ousman Phone Number: (510) 799-4561 E-Mail: cgdemeku@gmail.com 2. Coast Side Fire Protection District Scope of Work: Financial Statement audit and CAFR prepared in conformance with GAAP requirements. Date of Services: Fiscal years ended June 30, 2017 to present Total Audit Hours: 160 Engagement Partner: Sanwar Harshwal, Managing Partner Principal Contact: Contact Person: Ginny Petras, Administrative Officer Phone Number: (650) 726-5213 E-Mail: Ginny.Petras@fire.ca.gov 3. Ambrose Recreation and Park District Scope of Work: Financial Statement audit and CAFR prepared in conformance with GAAP requirements. Date of Services: Fiscal years ended June 30, 2017 to present Total Audit Hours: 155 Engagement Partner: Sanwar Harshwal, Managing Partner Principal Contact: Jessica Hernandez, Senior Accountant Phone Number: (925) 458-1601 E-Mail: jhernandez@ambroserec.org Page 15 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 27 Technical Proposal to Provide Professional Audit Services 4. Cupertino Sanitary District Scope of Work: Audit and preparation of the Basic Financial Statements and CAFR presentation. Date of Services: Fiscal years ended June 30, 2015 to present Total Audit Hours: 130 Engagement Partner: Sanwar Harshwal, Managing Partner Principal Contact: Lorie Yako, Accounting Specialist Phone Number: (408) 477-7319 E-Mail: lyako@markthomas.com 5. Buena Park Library District Scope of Work: Audit and preparation of the Basic Financial Statements Date of Services: Fiscal years ended June 30, 2020 to present Total Audit Hours: 110 Engagement Partner: Sanwar Harshwal, Managing Partner Principal Contact: Marina Tutty, Business Officer Phone Number: (714) 826-4100 E-Mail: businessofficer@buenapark.lib.ca.us Page 16 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 28 Technical Proposal to Provide Professional Audit Services SPECIFIC AUDIT APPROACH Scope of the Work to be Performed: At Harshwal & Company, LLP, our professionals have extensive experience performing audits of special districts. Our team has a broad understanding of the standards and requirements necessary to conduct an audit of the financial statements of the District. We understand that you require us to perform an audit of the financial statements of the District for the fiscal year ending June 30, 2022, with an option to extend for four (4) additional years. We will adhere to the requirements of the RFP and will be performing the following tasks (including, but not limited to): Audit will be performed in accordance with generally accepted auditing standards, the standards set forth for financial audits in the General Accounting Office’s (GAO) Government Auditing Standards (1994 and revisions), the provisions of the federal Single Audit Act of 1984 (and subsequent amendments), the California State Controller’s Minimum Audit Requirements for California Special Districts, and U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organization. Express an opinion on the fair presentation of its basic financial statements in conformity with generally accepted accounting principles. We will also be responsible for performing certain limited procedures involving supplementary information required by the Governmental Accounting Standards Board, as mandated by generally accepted auditing standards. We will not audit the schedule of expenditures of federal awards, if any. However, the Auditor is to provide an “in-relation-to” report on that schedule based on the auditing procedures applied during the audit of the financial statements, if necessary. Reports to be Issued Opinion: Following the completion of the audit of the fiscal year’s financial statements, we will issue a report on the fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles. Management Letter: We will communicate in a letter to the General Manager any reportable conditions found during the audit. A reportable condition will be defined as a significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. In addition, the following conditions shall be considered reportable: Irregularities and Illegal Acts: We will make an immediate, written report of any irregularities and illegal acts of which they become aware to the following parties: Jose Martinez, General Manager, Otay Water District Page 17 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 29 Technical Proposal to Provide Professional Audit Services Audit Committee Letter: We will ensure that the Finance Committee is informed of each of the following: i.The Auditor’s responsibility under generally accepted auditing standards. ii.Planned scope and timing of the audit. iii.Significant audit findings. · Qualitative aspects of accounting practice. · Difficulties encountered in performing the audit. · Corrected and uncorrected misstatements. · Disagreements with management. · Management representations. · Management consultation with other accountants. · Other audit findings or issues Report on internal Controls: We will issue a report on internal controls related to the financial statements and compliance with laws, regulations and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. Report on Applying Agreed-Upon Procedures: In accordance with the District’s Investment Policy, we will issue a report on a review of specific procedures that assure staff’s compliance with policies and procedures for the investment of District funds. Additional Services The District is required to submit an Annual Report of Financial Transactions to the State Controller (State Controllers Report), in accordance with California Government Code Section 53891. We will prepare the State Controllers Report and provide compilation services to the District with respect to the State Controllers Report. Perform Single Audit, if required. The single audit in accordance with the provisions of the Single Audit Act of 1984 (as amended) and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. When required the performance of any such audit will be separately quoted and contracted upon. We will provide assistance to the District to meet the technical requirements of the Annual Comprehensive Financial Report (ACFR) to the Government Finance Officers Association of the United States and Canada (GFOA) for review in their Certificate of Achievement for Excellence in Financial Reporting program as a part of the financial statement audit. Understanding of the Project to be Performed: The two most critical components of the audit are (1) to have continuity and consistency in the auditors involved and (2) have the entire audit team from partners to staff, understand and be aware of the technical requirements for the engagement. Therefore, careful audit planning is emphasized along with written instructions and a comprehensive workshop is carried out for the staff engaged. We have ascertained that this effort not only serves to state the line of organization and responsibility from the commencement but also serves to discuss the areas of concern and applicable audit techniques to be adopted in the examinations proposed to be conducted. Page 18 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 30 Technical Proposal to Provide Professional Audit Services Our plan will involve a comprehensive entrance meeting with the District’s audit committee and management. During this phase, we hope to establish the timetable for examination and identify dates for future meetings to report upon our progress of the examination. Shortly thereafter, the partners and an audit manager will meet with the District Manager and Finance Director to be able to obtain a more detailed outline of the District’s financial systems and processes. This will help us to determine the extent and concentration of our audit effort, obtain knowledge and an understanding of the legal and reporting requirements by obtaining pertinent statues, regulations, charter provisions, bond coverage and other requirements. The meeting will serve as a guideline to prepare and outline our audit-planning memorandum and the audit plan. Upon completion of the audit plan, we will meet with the District officials to go over our plan. During the meeting, we hope to share our understanding of the audit approach and fine-tune the dates of commencement, the assistance available to us, the assistance the District may need from us, and the introduction of the audit team seniors to the District officials. In the next step, a conference will be initiated by the audit team to be assigned. The conference will serve as a platform to share our audit plan and programs, discuss areas of concern, identify audit teams and dates, and address any and all pertinent questions from the staff. Specific Audit Approach Our audit process begins with the assignment of staff to the engagement. Our engagement team has the expertise to provide the level of service desired and deserved by your organization. Our engagements are supervised by the engagement partner and an audit manager. As high-level involvement is vital to a quality audit, the partner and manager's time will account for approximately 30% of the total hours spent on the engagement. Our team's approach is to be efficient, yet non-intrusive. We believe on-going communication throughout the entire audit will ensure that all aspects of the audit are thoroughly addressed. We encourage regular communications throughout the year, not just during fieldwork. As such, we do not anticipate any potential audit problems to arise during our engagement. Audit Planning — Interim Phase Our audit planning process includes a risk assessment of the District and review of the control environment. We begin with a pre-planning meeting to ensure that management's expectations and our expectations are communicated prior to commencing the audit. We will confirm our understanding of the engagement deadlines and ensure these are met in a timely manner. In addition, we will provide a list and samples of schedules specifically tailored to the Otay Water District to aid the District's staff in preparing schedules and providing audit documentation. Risk Assessment — Interim Phase As part of our extensive planning phase, the engagement team will discuss with management issues surrounding the applicable industry, the District's internal and external environment, significant events, as well as economic, political, and social factors to determine and document areas of risk. Once areas of risk have been identified, the next process will be to review the control environment. Page 19 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 31 Technical Proposal to Provide Professional Audit Services Control Environment — Interim Phase We will document and test the following control processes to evaluate their effectiveness in preparing reliable financial statements: Disbursements Cash receipts Payroll Financial reporting Journal entry process Federal and state programs IT and general computer controls Based on our understanding of the District's risks and control environment, we will design our substantive procedures and communicate our audit approach to management. As part of our review and documentation of the control environment, we may have recommendations for enhancing controls and/or efficiencies. These recommendations will be discussed with management prior to any comments included in a formal management letter. Substantive Procedures — Year End Phase Substantive audit procedures are designed based on our risk assessment process. Complex and high-risk accounts will be identified early in the audit process and these accounts will be assigned to the manager and/or partner for actual testing. Our substantive audit procedures will include the following: Tests of account details — Detail transaction testing to source documentation Analytical procedures — Ratio analysis, variance analysis, trend analysis Use of data analysis software — Review of large volumes of data to detect anomalies Unpredictability tests — Varying timing and extent of tests Review of management's estimates —To determine reasonableness Review of subsequent events and contingencies — For proper adjustment and footnote disclosure Preparation of Audit Report and Review — Year-end Phase and Wrap-up Phase Audit work papers are reviewed throughout the audit by an audit manager and engagement partner. Before we leave your offices, the file will be substantially reviewed and any issues will be discussed and resolved. The financial statements are prepared by the audit manager. All reports are reviewed by the engagement partner and concurring partner. Upon approval, we will issue drafts of all reports based on the District's predetermined schedule as indicated in the Request for Proposal. This will allow adequate time for review and distribution of reports. Audit Sizes and Statistical Sampling Techniques Audit sampling provides the auditor an appropriate basis on which to conclude on an audit area by examining evidence from a sample of a population. We utilize both statistical and non-statistical-sampling techniques as described in the AICPA's Audit Sampling Guide, depending on the type of testing being performed. Internal control, substantive, and compliance testing samples are generally selected using non- statistical techniques. Sample sizes are determined by risk assessment and nature of the population. We may use statistical sampling to assist with forensic testing in areas, which have a higher risk of misstatement due to fraud. Page 20 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 32 Technical Proposal to Provide Professional Audit Services Laws and Regulations We will review the laws and regulations covering the District's grants and major programs as part of any Single Audit testing, if applicable. Based upon our inquiries with the District staff and review of any District's municipal code, etc., we will determine the relevant laws and regulations that will be subject to additional test work. Drawing Audit Samples (for tests of compliance): Auditor judgment will be used in selecting our audit samples for tests of compliance work. The majority of the testing of compliance will be centered around the single audit testing of the direct and material elements for the major programs. Technological Advantages We utilize the latest technology, including virtual servers, smart devices, and online libraries to provide us with the most up-to-date information to better serve our clients. Our online client portal Suralink gives us the capability of sending and receiving information to and from our clients faster and more securely. As portals are encrypted and use password protection to ensure that data can only be viewed by the appropriate client, we are dedicated to protecting the District's confidential information. Furthermore, we streamline our audit process and organize support documents through use of the paperless audit program - CaseWare Working Papers. By effectively reviewing large volumes of data through these programs, we are able to develop a better understanding and gain a broader view of the Otay Water District. These technologies enable us to increase both the scope of our engagement and the reliability of our audit opinion more efficiently, as a larger amount of information can be processed, analyzed, and interpreted in a shorter time frame. Working Paper Retention:We will retain audit working papers for a minimum of seven (7) years unless we are notified in writing by the District of the need to change the retention period. In addition, we will respond to reasonable inquiries of the District and successor auditors, and allow the District and successor auditors to review working papers relating to matters of continuing accounting significance. Management Letter Communication with management is crucial since it is essential to hear your concerns and comprehend the financial records to have a complete and thorough understanding of business operations. Management confirmation is required on all information contained within the financial statements to ensure that they are true and accurate and that all information has been properly disclosed. We will review all significant audit findings with the District as the work proceeds and once on completion of our audit procedures. It is standard practice for our firm to produce a management letter in conjunction with each engagement. The audit process provides an opportunity to assess performance and trends, to identify opportunities to improve internal controls and/or accounting efficiency and to spot emerging needs or opportunities. By reporting these conditions and opening them up for discussion, the management letter can play an important role in maintaining the future financial health of the organization. Should we become aware of any irregularities, illegal acts or indications of illegal acts, we will make an immediate verbal and written report of such findings to the District's Council. The report will be discussed with the members responsible for the financial statements before submitting it to the Board Members. Page 21 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 33 Technical Proposal to Provide Professional Audit Services Audit Work Schedule Proposed Segmentation of the Engagement and Timeline: Outlined below is an expected timeline and completion of the audit and the expected delivery of the financial statements and management letter: Milestones Timeframes Planning, risk assessment and system evaluation March 21, 2022 Interim audit fieldwork June 30, 2022 or before Final audit fieldwork and audit work to be completed August 25, 2022 or before Draft audit reports and management letters for review September 02, 2022 or before Final audit reports October 10, 2022 or before Presentation of audit report to the committee October 18, 2022 or before Electronic filing of single audit reports November 02, 2022 or before Level of staff and number of hours to be assigned to each proposed segment of the engagement The Harshwal & Company, LLP understands that the Otay Water District is not only looking to employ our auditing services, but is also seeking to receive value within that professional relationship. We believe that our value is derived from us in-depth knowledge, experience, and commitment that our auditing firm employs. We stress and emphasize “employ”, because all of the knowledge and expertise listed on paper will not benefit you unless it is applied. That is why we have developed a plan that we feel will accomplish the objectives of the Otay Water District and your particular needs. Our Firm will utilize the information that you have shared with us and our experience from our previous audits of this nature, from various government entities and cities to develop an effective plan for all major areas. Example of Major Areas (not limited to): Audit of the Otay Water District’s financial statements and the related notes to financial statements Single Audit procedures and required reporting (if applicable) Agreed-upon procedures on Appropriations Limit calculation Communication with those charged with governance Internal Control and Management Letters (if applicable) Total Hours: Staff Classification Performing Work Estimated Hours Annually Partners 10.00 Managers 15.00 Senior Auditor 74.00 Staff Auditor 100.00 Clerical 8.00 Total Annual Hours: 207.00 Page 22 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 34 Technical Proposal to Provide Professional Audit Services Hours by Audit Phase Hours Phase I - Planning 20.00 Phase II - Interim 62.00 Phase III - Year End 100.00 Phase IV- Reporting 25.00 Total Annual Hours: 207.00 Sample size and the extent to which statistical sampling is to be used in this engagement In our audit approach, statistical sampling is used in conjunction with our skilled judgment and knowledge of each situation. The population size and assurance level needed from any given test will determine the sample size used in our testing. Type and extent of analytical procedures to be used in the engagement We use analytical procedures during the interim phase to set up expectations for the year-to-date results and balances and compare them with budgeted and prior-year amounts. This allows us to forecast year- end amounts, reducing the workload during the year-end phase and allowing us to focus on areas of concern. We also use trend and ratio analysis to identify any uncertain or unusual events. In order to perform these analysis, our firm performs a survey of cities and counties and develops benchmarks on certain key financial indicators, such as cost of services to tax revenues ratios, average general fund balance, capital assets, debt per capital, general fund unassigned fund balance to total general fund expenditures, etc. Our staff members have previous experience in successfully implanting analytical procedures to the Otay Water District’s benefit. Approach to be taken to gain and document an understanding of the District’s internal control structure Audit risk assessment will be established by an internal control review, combined with the Engagement Team’s understanding of the Otay Water District’s operations and accounting software. Using the Committee of Sponsoring Organizations (COSO) Framework, staff members will evaluate the Otay Water District’s processes and identify any control deficiencies. These diagnostic review procedures allow the Engagement Team to evaluate the Otay Water District’s systems and controls and to provide constructive feedback to Otay Water District Management. The engagement team will perform a walkthrough of the Otay Water District’s accounting systems, including processes for financial reporting, revenue recognition and cash receipts, purchasing/contract management and cash disbursements, and payroll and related liabilities, etc. Auditors will document the process with a flowchart or narrative summary. Approach to be taken in determining laws and regulations that will be subject to audit test work The Firm stays continually up to date with audit requirements—including new regulations, compliance supplements, state guidelines, and pertinent contracts—to ensure that we conduct audits in accordance with applicable laws and regulations. We test transactions for compliance with the Single Audit Act, California Government Code, GANN Appropriations Limit, provisions of applicable grant guidelines, requirements of local measures, etc. Page 23 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 35 Technical Proposal to Provide Professional Audit Services For example, the Single Audit Act requires that we determine which grants to include in our audit and select transactions from those grants for detailed testing. While most transactions are tested as part of the Interim phase, we cannot determine which grants to test for the Single Audit until the Year-End phase of audit. Our compliance audits of cash, investments, debt covenants, and other areas are performed in accordance with the California Government code, which has many provisions and regulations covering investments. Approach to be taken in drawing audit samples for purposes of tests of compliance To test compliance, we follow the AICPA’s Audit Sampling Considerations of Uniform Grant Guidance Compliance Audits. We will select an appropriate sample size based on our professional judgment and knowledge. Any deviations from control and compliance requirements will be documented. GASB Implementation Specialist Mr. Sanwar Harshwal, the firm’s GASB Implementation Specialist, is an appointed member to the State Retirement Advisory Committee by the State Controller and has tremendous expertise in assisting clients with the implementation of GASB pronouncements. For more than 37+ years, Mr. Harshwal has successfully provided professional auditing, accounting, financial reporting and management advisory/consulting services to a broad spectrum of governmental entities. Mr. Harshwal is a leader in the new GASB standards going into effect in the coming years. He will actively assist the Otay Water District during the process of implementation and compliance related to new accounting standards. IDENTIFICATION OF ANTICIPATED POTENTIAL AUDIT PROBLEMS While we do not expect any problems with the audit, we will carefully investigate and monitor the following relevant accounting issues: Investments: Compliance with GASB 31 and GASB 34 Authorization and approval process for Otay Water District investments Controls to assure Otay Water District’s compliance with investment limitations and types of specific investments Monitoring by the Otay Water District of its investments Financial Reporting: CAFR compliance with current reporting and disclosure requirements issued by GASB CAFR eligibility for financial reporting conformance awards issued by GFOA Compliance with the various GASBs in effect, especially the implementation of GASB 68 and 71 related to pension accounting Compliance with infrastructure obligations and regulatory provisions Internal Control Structure: Otay Water District’s internal control functions and compliance with proper internal control philosophies Computer-system processes and controls, and adequacy of the control environment Page 24 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 36 Technical Proposal to Provide Professional Audit Services Over the period of the engagement, several new GASB pronouncements will become effective. The engagement team will pay specific attention to the following new and upcoming pronouncements, and any others that become effective during the proposal period, in order to determine proper implementation procedures: GASB 72 - Fair Value Measurement and Application GASB 73 - Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 GASB 74 - Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans GASB 75 - Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions GASB 76 - The Hierarchy of Generally Accepted Account Principles for State and Local Governments GASB 77 - Tax Abatement Disclosures GASB 78 - Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans GASB 79 - Certain External Investment Pools and Pool Participants GASB 80 - Blending Requirements for Certain Component Units—an amendment of GASB Statement 14. GASB 81 - Irrevocable Split-Interest Agreements GASB 82 - Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73 GASB 83 - Certain Asset Retirement Obligations GASB 84 - Fiduciary Activities GASB 85 - Omnibus 2017 GASB 86 - Certain Debt Extinguishment Issues GASB 87 - Leases GASB 88 - Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements GASB 89 - Accounting for Interest Cost Incurred before the End of a Construction Period GASB 90 - Majority Equity Interests—an amendment of GASB Statements No. 14 and No. 61. Page 25 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 37 Technical Proposal to Provide Professional Audit Services 24 APPENDIX C PROPOSER GUARANTEES I.The Proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required. Signature of Official: _____________________________ Name (typed):__________________________________ Title:__________________________________________ Firm:__________________________________________ Date: ___________________________________________ Sanwar Harshwal, CPA Managing Partner Harshwal & Company, LLP October 08, 2021 Page 26 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 38 Technical Proposal to Provide Professional Audit Services 25 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 JHQHUDOOLDELOLW\ ZRUNHU¶VFRPSHQVDWion; 3)errors and omissions providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. C.Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the District. D.Proposer warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: _____________________________ Name (typed): __________________________________ Title: __________________________________________ Firm: __________________________________________ Date: ___________________________________________ Sanwar Harshwal, CPA Managing Partner Harshwal & Company, LLP October 08, 2021 Page 27 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 39 Technical Proposal to Provide Professional Audit Services SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORETHE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED INACCORDANCE WITH THE POLICY PROVISIONS. INSURER(S) AFFORDING COVERAGE INSURER F : INSURER E : INSURER D : INSURER C : INSURER B : INSURER A : NAIC # NAME:CONTACT (A/C, No):FAX E-MAILADDRESS: PRODUCER (A/C, No, Ext):PHONE INSURED REVISION NUMBER:CERTIFICATE NUMBER:COVERAGES IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed.If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement onthis certificate does not confer rights to the certificate holder in lieu of such endorsement(s). THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THISCERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIESBELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZEDREPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. OTHER: (Per accident) (Ea accident) $ $ N / A SUBRWVDADDLINSD THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIODINDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THISCERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. $ $ $ $PROPERTY DAMAGE BODILY INJURY (Per accident) BODILY INJURY (Per person) COMBINED SINGLE LIMIT AUTOS ONLY AUTOSAUTOS ONLY NON-OWNED SCHEDULEDOWNED ANY AUTO AUTOMOBILE LIABILITY Y / N WORKERS COMPENSATIONAND EMPLOYERS' LIABILITY OFFICER/MEMBER EXCLUDED?(Mandatory in NH) DESCRIPTION OF OPERATIONS belowIf yes, describe under ANY PROPRIETOR/PARTNER/EXECUTIVE $ $ $ E.L. DISEASE - POLICY LIMIT E.L. DISEASE - EA EMPLOYEE E.L. EACH ACCIDENT EROTH-STATUTEPER LIMITS(MM/DD/YYYY)POLICY EXP(MM/DD/YYYY)POLICY EFFPOLICY NUMBERTYPE OF INSURANCELTRINSR DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) EXCESS LIAB UMBRELLA LIAB $EACH OCCURRENCE $AGGREGATE $ OCCUR CLAIMS-MADE DED RETENTION$ $PRODUCTS - COMP/OP AGG $GENERAL AGGREGATE $PERSONAL & ADV INJURY $MED EXP (Any one person) $EACH OCCURRENCEDAMAGE TO RENTED $PREMISES (Ea occurrence) COMMERCIAL GENERAL LIABILITY CLAIMS-MADE OCCUR GEN'L AGGREGATE LIMIT APPLIES PER: POLICY PRO-JECT LOC CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) CANCELLATION AUTHORIZED REPRESENTATIVE ACORD 25 (2016/03) © 1988-2015 ACORD CORPORATION. All rights reserved. CERTIFICATE HOLDER The ACORD name and logo are registered marks of ACORD HIREDAUTOS ONLY 6/25/2021 Amber Hattendorf CAMICO Insurance Services 1800 Gateway Drive, Suite 300 San Mateo, CA 94404 800-652-1772 800-227-2090 AHattendorf@camico.com Great Divide Insurance Company 25224 HARSHWAL & COMPANY LLP 16870 W. Bernardo Dr., Ste 250 San Diego, CA 92127 A Professional Liability CAB201933 7/1/2021 7/1/2022 Per Claim/ Aggregate $2,000,000/ $4,000,000 Should any of the above described policies be canceled before the expiration date thereof, CAMICO will mail 30 days written notice to the certificate holder. HARSHWAL & COMPANY LLP 16870 W. Bernardo Dr., Ste 250 San Diego, CA 92127 Page 28 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 40 Technical Proposal to Provide Professional Audit Services CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) 06/24/2021 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND,EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT:If the certificate holder is an ADDITIONAL INSURED,the policy(ies)must be endorsed.If SUBROGATIONIS WAIVED, subject tothe terms and conditions of the policy,certain policies may require an endorsement.A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCERCAMICO SERVICES INC/PHS 57141555 The Hartford Business Service Center 3600 Wiseman Blvd San Antonio, TX 78251 CONTACTNAME: PHONE (A/C, No, Ext): (866)4678730 FAX (A/C, No):(888)4436112 EMAIL ADDRESS: INSURER(S) AFFORDING COVERAGE NAIC# INSURED HARSHWAL & COMPANY, LLP. 16870 W BERNARDO DR STE 250 SAN DIEGO CA 92127 INSURER A :Sentinel Insurance Company Ltd.11000 INSURER B : INSURER C : INSURER D: INSURER E : INSURER F : COVERAGES CERTIFICATE NUMBER:REVISION NUMBER: THIS ISTO CERTIFYTHAT THE POLICIESOF INSURANCE LISTED BELOW HAVEBEEN ISSUED TO THE INSUREDNAMED ABOVEFORTHEPOLICYPERIOD INDICATED.NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL INSR SUBR WVD POLICY NUMBER POLICY EFF (MM/DD/YYYY) POLICY EXP (MM/DD/Y YYY)LIMITS A COMMERCIAL GENERAL LIABILITY 57 SBA BM7653 05/12/2021 05/12/2022 EACH OCCURRENCE $2,000,000 CLAIMSMADE X OCCUR DAMAGE TO RENTEDPREMISES (Ea occurrence)$1,000,000 X General Liability MED EXP (Any one person)$10,000 PERSONAL & ADV INJURY $2,000,000 GEN'L AGGREGATE LIMIT APPLIES PER:GENERAL AGGREGATE $4,000,000 POLICY PRO JECT X LOC PRODUCTS COMP/OP AGG $4,000,000 OTHER: A AUTOMOBILE LIABILITY 57 SBA BM7653 05/12/2021 05/12/2022 COMBINED SINGLE LIMIT (Ea accident)$2,000,000 ANY AUTO BODILY INJURY (Per person) ALL OWNEDAUTOS SCHEDULEDAUTOS BODILY INJURY (Per accident) X HIRED AUTOS X NONOWNED AUTOS PROPERTY DAMAGE (Per accident) UMBRELLA LIAB EXCESS LIAB OCCUR CLAIMSMADE EACH OCCURRENCE AGGREGATE DED RETENTION $ WORKERS COMPENSATIONAND EMPLOYERS' LIABILITY ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED?(Mandatory in NH) If yes, describe underDESCRIPTION OF OPERATIONS below N/ A X PERSTATUTE OTHER Y/N E.L. EACH ACCIDENT E.L. DISEASE EA EMPLOYEE E.L. DISEASE POLICY LIMIT DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES(ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Those usual to the Insured's Operations. CERTIFICATE HOLDER CANCELLATIONHARSHWAL & COMPANY, LLP 16870 W BERNARDO DR STE 250 SAN DIEGO CA 92127 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF,NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE © 19882015 ACORD CORPORATION. All rights reserved. ACORD 25 (2016/03)The ACORD name and logo are registered marks of ACORD Page 29 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 41 Technical Proposal to Provide Professional Audit Services CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) 06/24/2021 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND,EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT:If the certificate holder is an ADDITIONAL INSURED,the policy(ies)must be endorsed.If SUBROGATIONIS WAIVED, subject tothe terms and conditions of the policy,certain policies may require an endorsement.A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCERCAMICO SERVICES INC/PHS 57141555 The Hartford Business Service Center 3600 Wiseman Blvd San Antonio, TX 78251 CONTACTNAME: PHONE (A/C, No, Ext): (866) 4678730 FAX (A/C, No):(888) 4436112 EMAIL ADDRESS: INSURER(S) AFFORDING COVERAGE NAIC# INSURED HARSHWAL & COMPANY, LLP. 16870 W BERNARDO DR STE 250 SAN DIEGO CA 92127 INSURER A :Hartford Fire and Its P&C Affiliates 00914 INSURER B : INSURER C : INSURER D: INSURER E : INSURER F : COVERAGES CERTIFICATE NUMBER:REVISION NUMBER: THIS ISTO CERTIFYTHAT THE POLICIESOF INSURANCE LISTED BELOW HAVEBEEN ISSUED TO THE INSUREDNAMED ABOVEFORTHEPOLICYPERIOD INDICATED.NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL INSR SUBR WVD POLICY NUMBER POLICY EFF (MM/DD/YYYY) POLICY EXP (MM/DD/Y YYY)LIMITS COMMERCIAL GENERAL LIABILITY EACH OCCURRENCE CLAIMSMADE OCCUR DAMAGE TO RENTED PREMISES (Ea occurrence) MED EXP (Any one person) PERSONAL & ADV INJURY GEN'L AGGREGATE LIMIT APPLIES PER:GENERAL AGGREGATE POLICY PROJECT LOC PRODUCTS COMP/OP AGG OTHER: AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT (Ea accident) ANY AUTO BODILY INJURY (Per person) ALL OWNEDAUTOS SCHEDULEDAUTOS BODILY INJURY (Per accident) HIRED AUTOS NONOWNED AUTOS PROPERTY DAMAGE (Per accident) UMBRELLA LIABEXCESS LIAB OCCUR CLAIMSMADE EACH OCCURRENCE AGGREGATE DED RETENTION $ A WORKERS COMPENSATIONAND EMPLOYERS' LIABILITY ANYPROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED?(Mandatory in NH) If yes, describe underDESCRIPTION OF OPERATIONS below N/ A 57WEC AG8JZ9 07/21/2021 07/21/2022 X PERSTATUTE OTHER Y/N E.L. EACH ACCIDENT $1,000,000 E.L. DISEASE EA EMPLOYEE $1,000,000 E.L. DISEASE POLICY LIMIT $1,000,000 DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES(ACORD 101, Additional Remarks Schedule, may be attached if more space is required) Those usual to the Insured's Operations. CERTIFICATE HOLDER CANCELLATIONHARSHWAL & COMPANY, LLP 16870 W BERNARDO DR STE 250 SAN DIEGO CA 92127 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLEDBEFORETHEEXPIRATIONDATETHEREOF,NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE © 19882015 ACORD CORPORATION. All rights reserved. ACORD 25 (2016/03)The ACORD name and logo are registered marks of ACORD Page 30 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 42 Technical Proposal to Provide Professional Audit Services 1 May 5, 2021 Re: Professional Reference for Harshwal & Company, LLP To Whom It May Concern: I am pleased to offer an enthusiastic recommendation for the retention of Harshwal & Company, LLP (HCLLP). I have worked with the HCLLP team over the past three years, specifically with Garima Pathak, to perform financial statement audits for the Coastside Fire Protection District. I have found the HCLLP team to be diligent, supportive, proficient, and very easy to work with. HCLLP has always completed its contractual obligations on time and within our allocated budget and has remained cost competitive with their peers. Garima is very “hands-on” during field work activities and has provided invaluable guidance,supervision, and mentoring to our office. HCLLP offers a unique perspective and approach to auditing, in that they have taken the time to fully understand the individual nuances of our agency. This has enabled us to maintain an open and instructive dialogue and more importantly they generate a thorough, professional, and accurate final product. Please do not hesitate to call upon me directly at (831) 254-1759 for additional information regarding HCLLP. Sincerely, Ginny Petras Administrative Officer II Coast Side Fire Protection District COASTSIDE FIRE PROTECTION DISTRICT 1191 MAIN ST. HALF MOON BAY, CA 94019 TELEPHONE (650) 726-5213 FAX (650) 726-0132 Page 31 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 43 Technical Proposal to Provide Professional Audit Services SUPPLYING SANITARY SEWERAGE SERVICES FOR: CITY OF CUPERTINO, PORTIONS OF THE CITIES OF SARATOGA, SUNNYVALE,LOS ALTOS AND SURROUNDING UNINCORPORATED AREAS BOARD OF DIRECTORS JOHN M. GATTO WILLIAM A. BOSWORTH PATRICK S. KWOK ANGELA S. CHEN TAGHI S. SAADATI DISTRICT MANAGER-ENGINEER MARK THOMAS & COMPANY, INC. BENJAMIN T. PORTER, P.E. DISTRICT COUNSEL ZDEdKΘ,zE^͕>>W MARC HYNES 20863 STEVENS CREEK BOULEVARD, SUITE 100 CUPERTINO, CALIFORNIA 95014-2154 Phone (408) 253-7071 Ɣ)D[(408) 253-5173 Re: Professional Reference for Harshwal & Company, LLP To Whom It May Concern: Cupertino Sanitary District and Harshwal & Company, LLP have had a great working relationship over the last years. We have worked together and I have found their staff to be very professional, articulate, knowledgeable and dedicated. Their staff is always willing to help us with any questions we may have, responding in a prompt and courteous manner. HCLLP has provided us with excellent services and has the amount of experience and qualification required for the job assigned. I have found HCLLP cost competitive with their peers, due to the time efficiencies generated by their investment in computerized and electronic work papers.In short, they are willing to go the extra mile in order to ensure we are satisfied and happy. I highly recommend HCLLP for their excellent staff, integrity, professionalism and performance. Please feel free to contact me directly at (408) 477-7319 with any questions you may have. Sincerely, Lorie Yako Accounting Specialist Cupertino Sanitary District Page 32 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 44 Technical Proposal to Provide Professional Audit Services Page 33 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 45 Technical Proposal to Provide Professional Audit Services March 01, 2021 Sanwar Harshwal Harshwal & Company LLP 16870 W. Bernardo Dr, STE 250 San Diego, CA 92127 Dear Sanwar Harshwal: It is my pleasure to notify you that on February 25,2021,the California Peer Review Committee accepted the report on the most recent System Review of your firm.The due date for your next review is November 30,2023. This is the date by which all review documents should be completed and submitted to the administering entity. As you know,the report had a peer review rating of pass.The Committee asked me to convey its congratulations to the firm. Thank you for your cooperation. Sincerely, Peer Review Program The Peer Review Program Team peerreview@calcpa.org 650-522-3094 cc: Constance Coughlan Firm Number: 900005526362 Review Number: 578635 Page 34 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 46 Technical Proposal to Provide Professional Audit Services    5HSRUWRQWKH)LUP¶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¶V5HVSRQVLELOLW\  7KHILUPLVUHVSRQVLEOHIRUGHVLJQLQJDV\VWHPRITXDOLW\FRQWURODQGFRPSO\LQJZLWKLW WRSURYLGHWKHILUPZLWKUHDVRQDEOHDVVXUDQFHRISHUIRUPLQJDQGUHSRUWLQJLQFRQIRUPLW\ ZLWKDSSOLFDEOHSURIHVVLRQDOVWDQGDUGVLQDOOPDWHULDOUHVSHFWV7KHILUPLVDOVR UHVSRQVLEOHIRUHYDOXDWLQJDFWLRQVWRSURPSWO\UHPHGLDWHHQJDJHPHQWVGHHPHGDVQRW SHUIRUPHGRUUHSRUWHGLQFRQIRUPLW\ZLWKSURIHVVLRQDOVWDQGDUGVZKHQDSSURSULDWH DQGIRUUHPHGLDWLQJZHDNQHVVHVLQLWVV\VWHPRITXDOLW\FRQWUROLIDQ\  3HHU5HYLHZHU¶V5HVSRQVLELOLW\  2XUUHVSRQVLELOLW\LVWRH[SUHVVDQRSLQLRQRQWKHGHVLJQRIWKHV\VWHPRITXDOLW\FRQWURO DQGWKHILUP¶VFRPSOLDQFHWKHUHZLWKEDVHGRQRXUUHYLHZ     Page 35 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 47 Technical Proposal to Provide Professional Audit Services    5HTXLUHG6HOHFWLRQVDQG&RQVLGHUDWLRQV (QJDJHPHQWVVHOHFWHGIRUUHYLHZLQFOXGHGHQJDJHPHQWVSHUIRUPHGXQGHUGovernment Auditing Standards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passpass with deficiency(ies) RU fail+DUVKZDO &RPSDQ\//3KDVUHFHLYHGDSHHUUHYLHZUDWLQJRIpass   &RXJKODQ1DSD&3$&RPSDQ\,QF  Page 36 of 36 FY22-2231-006Otay Water District BidSync10/12/2021 p. 48 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 5, 2022 SUBMITTED BY: Eid Fakhouri, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Review of the FY 2021 Actuarial Valuation Report of the Retiree Healthcare Benefits; and Request the Board Approve the Redirection of the FY 2022 Budgeted OPEB Contribution from the CERBT OPEB Fund to the CalPERS Pension Fund GENERAL MANAGER’S RECOMMENDATION: This staff report is to present the results of the latest actuarial valuation performed as of June 30, 2021, to the Board of Directors. Staff is also recommending that the Board approve the redirection of the budgeted FY 2022 Other Post-Employment Benefits (OPEB) contribution from the California Employers’ Retiree Benefit Trust (CERBT) Fund, to CalPERS as an advance pension contribution, reducing the District’s unfunded pension liability. COMMITTEE ACTION: See Attachment A. PURPOSE: Every two years the District is required to hire an Actuary to perform a study that determines the District’s liability for OPEB and the annual actuarially determined Employer Contribution Target (ECT). The District has received the 2021 Actuarial Valuation Report prepared by Luis Murillo of Total Compensation Systems, Inc. The District’s Contribution Target for the fiscal periods ending June 30, 2022 and June 30, 2023 is calculated as part of the actuarial report; this is the amount reported in the Administrative Expenses section of the District’s financial statements and budget reports. AGENDA ITEM 5 ANALYSIS: Every two years the District hires an actuarial firm to prepare the OPEB evaluation which is used to determine the District’s liability associated with the OPEB benefits and the ECT. This evaluation has been completed and the findings are presented in this staff report. Employer Contribution Target (ECT) The ECT is equal to the normal service cost plus an amortization of the Net OPEB Liability. When comparing the FY 2021 Contribution Target from the prior Actuarial Valuation Report to the FY 2022 contribution of the current report, the Contribution Target increased from $807,867 to $1,078,527. The increase is due to the most recent updated employee census data, service cost of new employees hired on or after July 1, 2019, and interest expense. Total OPEB Liability The Total (Accrued) OPEB Liability for June 30, 2021 was $32.5 million. This is a net increase of $2.7 million from June 30, 2020. The liability increase is primarily due to the additional service years earned by eligible employees between 2019 and 2021, interest on the Total OPEB Liability, changes related to employee census data, and higher actual medical premiums costs than what was expected. These increases were partially offset by changes in key assumptions. Key assumption changes had an overall $1.6 million positive net effect on the liabilities set forth in the actuarial report. The key assumption changes include the following; Description 2021 Valuation 2019 Valuation Comments Discount Rate 6.75%7.0% Updated to refect most recent Discount Rate. Spouse Coverage 3 Yrs Older 2 Yrs Older Updated to reflect most current data that shows male spouses are assumed to be 3 years older than female spouses. Long Term Medical Trends 4.5%5.0% Updated to reflect most current medical plan expense trends. KEY ASSUMPTION CHANGES Funding Status In addition to the District funding the ECT for the plan, it also budgeted and paid for the retiree medical premiums, including the implied subsidy. As a result of funding the retiree medical premiums through the budget and not from the Trust, a funding level of 100% was reached in 2019. This current OPEB valuation report indicates a funding level of 109%. The increased funding level is the result of the District’s commitment to contribute the actuarial determined ECT each year and funding the retiree medical premiums through the budget. The retiree medical plan assets are held in the CERBT Fund. In FY 2021, the District received its first medical retiree benefit reimbursement of $1,120,406 from the OPEB trust fund and made an equivalent additional contribution to CalPERS for this same amount. In FY 2022, the District submitted and received its second medical retiree benefit reimbursement from the OPEB trust for $1,201,678. As directed by the Board during the FY 2022 Budget adoption, staff will make an equivalent additional contribution to CalPERS. In the most recent year-end (FY 2021) CERBT annual statement, it was reported by CalPERS that the OPEB’s CERBT Fund earned 28.33%; this resulted in earnings of $7,890,090 for the District’s trust fund. The expected return was 7%. With the additional earnings from the higher than expected earnings rate, the funding status has reached 109%. This provides the District an opportunity to utilize the budgeted OPEB contribution to further reduce the District’s unfunded CalPERS pension liability while maintaining a fully funded OPEB plan. (See Attachment C, page 10). Similar to the Board’s plan to use the reimbursed funds to make an additional CalPERS contribution, reducing the District’s unfunded pension liability, staff is proposing that the budgeted FY 2022 OPEB contribution of $989,000 be used to make an additional CalPERS contribution, reducing the District’s unfunded pension liability. Budget Impact The FY 2022 budgeted OPEB ECT and implicit subsidy of $989,000 was based on the 2019 actuarial valuation. These funds were included in the FY 2022 rate model and associated rate projections; therefore, the proposed use of the funds will not put any added pressure on rates. The current actuarial valuation projects the District will be reimbursed $1,173,603 for retiree medical expenses in FY 2023. As part of the FY 2023 Budget, staff will be proposing to continue the Board’s plan to use the reimbursed funds to make an additional CalPERS contribution, reducing the District’s unfunded pension liability. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The funds have been budgeted for in the FY 2022 budget. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning. LEGAL IMPACT: N/A Attachments: A – Committee Action B – FY 2022 Actuarial OPEB Valuation Report C – Total Compensation Systems, Inc. Presentation ATTACHMENT A SUBJECT/PROJECT: Review of the FY 2021 Actuarial Valuation Report of the Retiree Healthcare Benefits; and Request the Board Approve the Redirection of the FY 2022 Budgeted OPEB Contribution from the CERBT OPEB Fund to the CalPERS Pension Fund COMMITTEE ACTION: Total Compensation Systems, Inc. Otay Water District Actuarial Study of Retiree Health Liabilities Valuation Date: June 30, 2021 Prepared by: Total Compensation Systems, Inc. Date: November 17, 2021 Attachment B Total Compensation Systems, Inc. Table of Contents PART I: EXECUTIVE SUMMARY ............................................................................................................ 1 A. INTRODUCTION ............................................................................................................................................................................ 1 B. KEY RESULTS .............................................................................................................................................................................. 1 C. SUMMARY OF VALUATION RESULTS ........................................................................................................................................... 2 1. Actuarial Liabilities ................................................................................................................................................................ 2 2. Reconciliation of Market Value of Assets .............................................................................................................................. 2 3. Actuarial Value of Assets ........................................................................................................................................................ 2 3. CONTRIBUTIONS ............................................................................................................................................................................ 2 D. TEN-YEAR PROJECTION OF NOL AND CONTRIBUTIONS ............................................................................................................. 3 E. RECONCILIATION OF NET OPEB LIABILITY ................................................................................................................................ 3 1. Changes in Net OPEB Liability.............................................................................................................................................. 3 F. DESCRIPTION OF RETIREE BENEFITS ........................................................................................................................................... 4 E. SUMMARY OF VALUATION DATA ................................................................................................................................................ 4 F. CERTIFICATION ............................................................................................................................................................................ 5 PART II: LIABILITIES AND COSTS FOR RETIREE BENEFITS ..................................................... 7 A. INTRODUCTION. ........................................................................................................................................................................... 7 B. LIABILITY FOR RETIREE BENEFITS. ............................................................................................................................................. 7 C. ACTUARIAL ACCRUAL ................................................................................................................................................................. 8 D. ACTUARIAL ASSUMPTIONS ......................................................................................................................................................... 8 E. TOTAL OPEB LIABILITY ............................................................................................................................................................. 9 F. VALUATION RESULTS ................................................................................................................................................................ 10 1. Actuarial Present Value of Projected Benefit Payments (APVPBP) .................................................................................. 10 2. Service Cost .......................................................................................................................................................................... 10 3. Total OPEB Liability and Net OPEB Liability .................................................................................................................... 11 4. “Pay As You Go" Projection of Retiree Benefit Payments ................................................................................................... 11 G. DEVELOPMENT OF EMPLOYER CONTRIBUTION TARGET ........................................................................................................... 12 1. Reconciliation of Market Value of Assets ............................................................................................................................ 12 2. DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS ................................................................................................................... 12 3. UNFUNDED LIABILITY FOR AMORTIZATION .............................................................................................................................. 12 4. AMORTIZATION OF THE UNFUNDED LIABILITY ......................................................................................................................... 13 5. CONTRIBUTIONS ......................................................................................................................................................................... 13 G. ADDITIONAL RECONCILIATION OF NET OPEB LIABILITY ........................................................................................................ 14 PART III: ACTUARIAL ASSUMPTIONS AND METHODS .............................................................. 15 A. ACTUARIAL METHODS AND ASSUMPTIONS: .............................................................................................................. 15 B. ECONOMIC ASSUMPTIONS: ............................................................................................................................................... 16 C. NON-ECONOMIC ASSUMPTIONS: ..................................................................................................................................... 17 PART IV: APPENDICES ........................................................................................................................... 18 APPENDIX A: DEMOGRAPHIC DATA BY AGE .................................................................................................................... 18 APPENDIX B: ADDITIONAL DISCLOSURES ........................................................................................................................ 19 APPENDIX C: GLOSSARY OF RETIREE HEALTH VALUATION TERMS ........................................................................ 21 Total Compensation Systems, Inc. 1 Otay Water District Actuarial Study of Retiree Health Liabilities PART I: EXECUTIVE SUMMARY A. Introduction This report was produced by Total Compensation Systems, Inc. for Otay Water District to determine the liabilities associated with its current retiree health program as of a June 30, 2021 valuation date and to determine employer contributions for the fiscal periods ending June 30, 2022 and June 30, 2023. Because the actuarial accrued liability for this funding report is based on the same actuarial methods and assumptions as those used for GASB 75, we have used the same GASB 75 terminology by referring to the Actuarial Accrued Liability as the Total OPEB Liability, referring to the unfunded actuarial accrued liability as the Net OPEB Liability (NOL), and referring to the Normal Cost as the Service Cost. This report may not be suitable for other purposes such as GASB 75 accounting requirements or assessing the potential impact of changes in plan design. A separate report will be provided to Otay Water District to assist in complying with Governmental Accounting Standards Board Accounting Statement 74 and 75. Different users of this report will likely be interested in different sections of information contained within. We anticipate that the following portions may be of most interest depending on the reader:  A high level comparison of key results from the current year to the prior year is shown on this page.  The employer contribution amounts for the periods ending June 30, 2022 and June 30, 2023 are shown on pages 4.  Description and details of measured valuation liabilities can be found beginning on page 10. B. Key Results Otay Water District performed a full valuation as of June 30, 2021. Key Results Current Year June 30, 2021 Measurement Date Prior Year June 30, 2020 Measurement Date Total OPEB Liability (TOL) $32,530,042 $29,859,997 Market Value of Assets (MVA) $35,539,035 $28,058,838 Net OPEB Liability (NOL) ($3,008,993) $1,801,159 Funded Status 109% 94% Service Cost (for year following) $991,108 $755,756 Estimated Pay-as-you-go Amount (for year following) $1,173,603 $1,283,210 Contribution (for year following) $1,078,527 $807,867 Contribution as a percent of payroll 7.75% 5.97% Refer to results section beginning on page 10 or the glossary on page 21 for descriptions of the above items. Key Assumptions Current Year June 30, 2021 Valuation Date Prior Year June 30, 2019 Valuation Date Valuation Interest Rate 6.75% 7.00% Expected Rate of Return on Assets 6.75% 7.00% Long-Term Medical Trend Rate 4.50% 5.00% Projected Payroll Growth 2.75% 2.75% Total Compensation Systems, Inc. 2 C. Summary of Valuation Results 1. Actuarial Liabilities Refer to results section beginning on page 10 or the glossary on page 21 for descriptions of the above items. 6/30/2021 1. Actuarial Present Value of Projected Benefit Payments $40,740,082 2. Total OPEB Liability $32,530,042 3. Annual Service Cost $991,108 4. Present Value of Future Service Costs (1 – 2 – 3) $7,218,932 2. Reconciliation of Market Value of Assets FY 2020/21 FY 2019/20 Beginning Market Value of Assets $28,058,838 $27,197,350 Employer Contributions $889,399 $1,011,358 Fund Earnings $7,890,090 $983,790 Benefit Payments ($1,283,210) ($1,120,146) Administrative Expenses ($16,082) ($13,514) Net Change $7,480,197 $861,488 Ending Market Value of Assets $35,539,035 $28,058,838 3. Actuarial Value of Assets For funding purposes, the District has selected an asset smoothing method to determine the actuarial value of assets. The smoothing method recognizes any asset gains or losses over 5 years recognizing 20% per year. Please see page 13 for the development of the actuarial value of assets. The District has set a corridor of 20%, meaning that the actuarial value of assets cannot be less than 80% or greater than 120% of the market value of assets. 6/30/2021 Market value of assets (MVA) $35,539,035 Actuarial value of assets (AVA) $31,785,876 AVA as a percent of MVA 89% 3. Contributions Below is a summary of the Employer Contribution Target for the next two fiscal years. Please see page 13 for the development of the contribution. FY 2021/22 Employer Contribution Target $1,078,527 Estimated payroll (PERSable wages) $13,917,932 Contribution as a % of payroll 7.75% FY 2022/23 Employer Contribution Target $1,108,186 Estimated payroll (PERSable wages) $14,300,675 Contribution as a % of payroll 7.75% Total Compensation Systems, Inc. 3 D. Ten-Year Projection of NOL and Contributions The ten-year projections are based on an open group projection that assumes the total aggregate payroll increases in accordance with the aggregate payroll assumption, new hires are assumed to have the same service cost percentage as the current actives and no new hires will retire during the ten-year projection period. Actual results may vary significantly based on the District’s actual experience in future years. Future gains from the District payments in excess of the Employer Contribution Target are amortized over 20 years. Year Beginning July 1 Employer Contribution Target Direct Pay-go Costs Implicit Subsidy Trust Funding Trust Reimbursement NOL Funded % 2021 $1,078,527 $1,039,816 $133,787 $1,078,527 ($1,173,603) ($3,008,993) 109% 2022 $1,108,186 $1,084,835 $129,513 $1,108,186 ($1,214,348) ($3,265,731) 109% 2023 $1,138,661 $1,146,996 $131,947 $1,138,661 ($1,278,943) ($3,539,944) 110% 2024 $1,169,974 $1,224,340 $150,927 $1,169,974 ($1,375,267) ($3,832,735) 110% 2025 $1,202,148 $1,306,413 $169,768 $1,202,148 ($1,476,181) ($4,145,301) 110% 2026 $1,235,207 $1,456,599 $184,877 $1,235,207 ($1,641,476) ($4,478,944) 110% 2027 $1,269,175 $1,651,651 $231,967 $1,269,175 ($1,883,618) ($4,835,055) 111% 2028 $1,304,077 $1,800,028 $231,122 $1,304,077 ($2,031,150) ($5,215,179) 111% 2029 $1,339,939 $1,934,242 $257,584 $1,339,939 ($2,191,826) ($5,621,048) 111% 2030 $1,376,787 $2,073,099 $282,647 $1,376,787 ($2,355,746) ($6,054,410) 111% * The projections assume the District makes a contribution to the CERBT equal to the Employer Contribution Target amount and reimburses itself for the direct pay-go costs and implied subsidy for the fiscal year. E. Reconciliation of Net OPEB Liability 1. Changes in Net OPEB Liability The following table shows the reconciliation of the June 30, 2020 Net OPEB Liability (NOL) in the prior valuation to the June 30, 2021 NOL. A more detailed version of this table can be found on page 14. TOL FNP NOL Balance at June 30, 2020 Measurement Date $29,859,997 $28,058,838 $1,801,159 Service Cost $755,756 $0 $755,756 Interest on TOL / Return on FNP $2,077,446 $7,890,090 ($5,812,644) Employer Contributions $0 $889,399 ($889,399) Benefit Payments ($1,283,210) ($1,283,210) $0 Administrative Expenses $0 ($16,082) $16,082 Experience (Gains)/Losses $2,677,387 $0 $2,677,387 Changes in Assumptions ($1,557,334) $0 ($1,557,334) Other $0 $0 $0 Net Change $2,670,045 $7,480,197 ($4,810,152) Actual Balance at June 30, 2021 Measurement Date $32,530,042 $35,539,035 ($3,008,993) 2. Trend and Interest Rate Sensitivities The following presents what the Net OPEB Liability would be if it were calculated using a discount rate assumption or a healthcare trend rate assumption one percent higher or lower than the current assumption. Net OPEB Liability at June 30, 2021 Measurement Date Discount Rate Healthcare Trend Rate 1% Decrease in Assumption $1,569,450 ($7,334,506) Current Assumption ($3,008,993) ($3,008,993) 1% Increase in Assumption ($6,782,356) $2,353,100 Total Compensation Systems, Inc. 4 F. Description of Retiree Benefits Following is a description of the current retiree benefit plan: Unrepresented Employees Represented Employees Benefit types provided Medical & Dental Medical & Dental Duration of Benefits Lifetime Lifetime Required Service Hired prior to 1/1/2013: 15 years Hired 1/1/2013 and after: 20 years 20 years Minimum Age 55 55 Dependent Coverage Yes Yes District Contribution % 100% 100% District Cap None None This valuation does not reflect any cash benefits paid unless the cash benefits are limited to be used for or reimburse the retiree’s cost of health benefits. Costs and liabilities attributable to cash benefits paid to retirees are reportable under applicable Governmental Accounting Standards Board (GASB) Standards. E. Summary of Valuation Data This report is based on census data provided to us as of August, 2021. Distributions of participants by age and service can be found on page 18. The active count below excludes employees for whom it is not possible to receive retiree benefits (e.g. employees who are already older than the maximum age to which benefits are payable or who will not accrue the required service prior to reaching the maximum age). Current Year June 30, 2021 Valuation Date Prior Year July 1, 2019 Valuation Date Active Employees eligible for future benefits Count 132 133 Average Age 47.8 47.8 Average Years of Service 11.3 10.9 Retirees currently receiving benefits Count 80 76 Average Age 71.0 69.4 We were not provided with information about any terminated, vested employees. Total Compensation Systems, Inc. 5 F. Certification The actuarial information in this report is intended solely to assist Otay Water District in determining the liabilities associated with its current retiree health program as of a June 30, 2021 and to provide the Employer Contribution Targets for the periods ending June 30, 2022 and June 30, 2023. Nothing in this report should be construed as an accounting opinion, accounting advice or legal advice. TCS recommends that third parties retain their own actuary or other qualified professionals when reviewing this report. TCS’s work is prepared solely for the use and benefit of Otay Water District. Release of this report may be subject to provisions of the Agreement between Otay Water District and TCS. No third party recipient of this report product should rely on the report for any purpose other than accounting compliance. Any other use of this report is unauthorized without first consulting with TCS. This report is for fiscal year July 1, 2021 to June 30, 2022, using a measurement date of June 30, 2021. The calculations in this report have been made based on our understanding of plan provisions and actual practice at the time we were provided the required information. We relied on information provided by Otay Water District. Much or all of this information was unaudited at the time of our evaluation. We reviewed the information provided for reasonableness, but this review should not be viewed as fulfilling any audit requirements. We relied on the following materials to complete this study:  We used paper reports and digital files containing participant demographic data from the District personnel records.  We used relevant sections of collective bargaining agreements provided by the District. All costs, liabilities, and other estimates are based on actuarial assumptions and methods that comply with all applicable Actuarial Standards of Practice (ASOPs). Each assumption is deemed to be reasonable by itself, taking into account plan experience and reasonable future expectations and in combination represent our estimate of anticipated experience of the Plan. This report contains estimates of the Plan's financial condition and future results only as of a single date. Future results can vary dramatically and the accuracy of estimates contained in this report depends on the actuarial assumptions used. This valuation cannot predict the Plan's future condition nor guarantee its future financial soundness. Actuarial valuations do not affect the ultimate cost of Plan benefits, only the timing of Plan contributions. While the valuation is based on individually reasonable assumptions, other assumption sets may also be reasonable and valuation results based on those assumptions would be different. Determining results using alternative assumptions (except for the alternate discount and trend rates shown in this report) is outside the scope of our engagement. Future actuarial measurements may differ significantly from those presented in this report due to factors such as, but not limited to, the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the measurement methodology (such as the end of an amortization period or additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or applicable law. We were not asked to perform analyses to estimate the potential range of such future measurements. The signing actuary is independent of Otay Water District and any plan sponsor. TCS does not intend to benefit from and assumes no duty or liability to other parties who receive this report. TCS is not aware of any relationship that would impair the objectivity of the opinion. Total Compensation Systems, Inc. 6 On the basis of the foregoing, I hereby certify that, to the best of my knowledge and belief, this report is complete and has been prepared in accordance with generally accepted actuarial principles and practices and all applicable Actuarial Standards of Practice. I meet the Qualifications Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Respectfully submitted, Luis Murillo, ASA, MAAA Actuary Total Compensation Systems, Inc. (805) 496-1700 Total Compensation Systems, Inc. 7 PART II: LIABILITIES AND COSTS FOR RETIREE BENEFITS A. Introduction. We calculated the actuarial present value of projected benefit payments (APVPBP) separately for each participant. We determined eligibility for retiree benefits based on information supplied by Otay Water District. We then selected assumptions that, based on plan provisions and our training and experience, represent our best prediction of future plan experience. For each participant, we applied the appropriate assumption factors based on the participant's age, sex, length of service, and employee classification. The actuarial assumptions used for this study are summarized beginning on page 15. B. Liability for Retiree Benefits. For each participant, we projected future premium costs using an assumed trend rate (see Appendix C). To the extent Otay Water District uses contribution caps, the influence of the trend factor is further reduced. We multiplied each year's benefit payments by the probability that benefits will be paid; i.e. based on the probability that the participant is living, has not terminated employment, has retired and remains eligible. The probability that benefit will be paid is zero if the participant is not eligible. The participant is not eligible if s/he has not met minimum service, minimum age or, if applicable, maximum age requirements. The product of each year's benefit payments and the probability the benefit will be paid equals the expected cost for that year. We multiplied the above expected cost figures by the probability that the retiree would elect coverage. A retiree may not elect to be covered if retiree health coverage is available less expensively from another source (e.g. Medicare risk contract) or the retiree is covered under a spouse's plan. Finally, we discounted the expected cost for each year to the measurement date June 30, 2021 at 6.75% interest. For any current retirees, the approach used was similar. The major difference is that the probability of payment for current retirees depends only on mortality and age restrictions (i.e. for retired employees the probability of being retired and of not being terminated are always both 100%). The value generated from the process described above is called the actuarial present value of projected benefit payments (APVPBP). We added APVPBP for each participant to get the total APVPBP for all participants which is the estimated present value of all future retiree health benefits for all current participants. The APVPBP is the amount on June 30, 2021 that, if all actuarial assumptions are exactly right, would be sufficient to expense all promised benefits until the last participant dies or reaches the maximum eligibility age. However, for most actuarial and accounting purposes, the APVPBP is not used directly but is instead apportioned over the lifetime of each participant as described in the following sections. Total Compensation Systems, Inc. 8 C. Actuarial Accrual Actuarial principles and best practices provide that the cost of retiree benefits should be “accrued” over employees' working lifetime. While this report is to be used for funding purposes and NOT to meet the requirements of GASB 75, we have used the actuarial methods required under GASB 75 in determining the actuarial liabilities for this report. For this reason, we have included references to GASB 75 where appropriate. The Governmental Accounting Standards Board (GASB) was issued in June of 2015 Accounting Standards 74 and 75 for retiree health benefits. These standards apply to all public employers that pay any part of the cost of retiree health benefits for current or future retirees (including early retirees), whether they pay directly or indirectly (via an “implicit rate subsidy”). To actuarially accrue retiree health benefits requires determining the amount to expense each year so that the liability accumulated at retirement is, on average, sufficient (with interest) to cover all retiree health expenditures without the need for additional expenses. There are many different ways to determine the annual accrual amount. The calculation method used is called an “actuarial cost method” and uses the APVPBP to develop expense and liability figures. Furthermore, the APVPBP should be accrued over the working lifetime of employees. In order to accrue the APVPBP over the working lifetime of employees, actuarial cost methods apportion the APVPBP into two parts: the portions attributable to service rendered prior to the measurement date (the past service liability or Total OPEB Liability (TOL) under GASB 74 and 75) and to service after the measurement date but prior to retirement (the future service liability or present value of future service costs). Of the future service liability, the portion attributable to the single year immediately following the measurement date is known as the normal cost or Service Cost under GASB 74 and 75. The service cost can be thought of as the value of the benefit earned each year if benefits are accrued during the working lifetime of employees. The actuarial cost method mandated by GASB 75 is the “entry age actuarial cost method”. Under the entry age actuarial cost method, the actuary determines the service cost as the annual amount needing to be expensed from hire until retirement to fully accrue the cost of retiree health benefits. Under GASB 75, the service cost is calculated to be a level percentage of each employee’s projected pay. D. Actuarial Assumptions The APVPBP and service cost are determined using several key assumptions:  The current cost of retiree health benefits (often varying by age, Medicare status and/or dependent coverage). The higher the current cost of retiree benefits, the higher the service cost.  The “trend” rate at which retiree health benefits are expected to increase over time. A higher trend rate increases the service cost. A “cap” on District contributions can reduce trend to zero once the cap is reached thereby dramatically reducing service costs.  Mortality rates varying by age and sex (and sometimes retirement or disability status). If employees die prior to retirement, past contributions are available to fund benefits for employees who live to retirement. After retirement, death results in benefit termination or reduction. Although higher mortality rates reduce service costs, the mortality assumption is not likely to vary from employer to employer.  Employment termination rates have the same effect as mortality inasmuch as higher termination rates reduce service costs. Employment termination can vary considerably between public agencies.  The service requirement reflects years of service required to earn full or partial retiree benefits. While a longer service requirement reduces costs, cost reductions are not usually substantial unless Total Compensation Systems, Inc. 9 the service period exceeds 20 years of service.  Retirement rates determine what proportion of employees retire at each age (assuming employees reach the requisite length of service). Retirement rates often vary by employee classification and implicitly reflect the minimum retirement age required for eligibility. Retirement rates also depend on the amount of pension benefits available. Higher retirement rates increase service costs but, except for differences in minimum retirement age, retirement rates tend to be consistent between public agencies for each employee type.  Participation rates indicate what proportion of retirees are expected to elect retiree health benefits if a significant retiree contribution is required. Higher participation rates increase costs.  The discount rate estimates investment earnings for assets earmarked to cover retiree health benefit liabilities. The discount rate depends on the nature of underlying assets for funded plans. The rate used for a funded plan is the real rate of return expected for plan assets plus the long term inflation assumption. For an unfunded plan, the discount rate is based on an index of 20 year General Obligation municipal bonds rated AA or higher. For partially funded plans, the discount rate is a blend of the funded and unfunded rates. E. Total OPEB Liability The assumptions listed above are not exhaustive, but are the most common assumptions used in actuarial cost calculations. If all actuarial assumptions are exactly met and an employer expensed the service cost every year for all past and current employees and retirees, a sizeable liability would have accumulated (after adding interest and subtracting retiree benefit costs). The liability that would have accumulated is called the Total OPEB Liability (TOL). The excess of TOL over the value of plan assets is called the Net OPEB Liability (NOL). Under GASB 74 and 75, in order for assets to count toward offsetting the TOL, the assets have to be held in an irrevocable trust that is safe from creditors and can only be used to provide OPEB benefits to eligible participants. Changes in the TOL can arise in several ways - e.g., as a result of plan changes or changes in actuarial assumptions. Change in the TOL can also arise from actuarial gains and losses. Actuarial gains and losses result from differences between actuarial assumptions and actual plan experience. Total Compensation Systems, Inc. 10 F. Valuation Results This section details the measured values of the concepts described on the previous pages. 1. Actuarial Present Value of Projected Benefit Payments (APVPBP) Actuarial Present Value of Projected Benefit Payments as of June 30, 2021 Valuation Date Total Unrepresented Employees Represented Employees Active: Pre-65 Benefit $9,142,290 $2,777,466 $6,364,824 Post-65 Benefit $17,240,669 $4,677,101 $12,563,568 Subtotal $26,382,959 $7,454,567 $18,928,392 Retiree: Pre-65 Benefit $2,042,755 $740,097 $1,302,658 Post-65 Benefit $12,314,368 $5,928,884 $6,385,484 Subtotal $14,357,123 $6,668,981 $7,688,142 Grand Total $40,740,082 $14,123,548 $26,616,534 Subtotal Pre-65 Benefit $11,185,045 $3,517,563 $7,667,482 Subtotal Post-65 Benefit $29,555,037 $10,605,985 $18,949,052 2. Service Cost The service cost represents the value of the benefit earned during a single year of employment. It is the APVPBP spread over the expected working lifetime of the employee and divided into annual segments. We applied an "entry age" actuarial cost method to determine funding rates for active employees. The table below summarizes the calculated service cost. Service Cost Valuation Year Beginning July 1, 2021 Total Unrepresented Employees Represented Employees # of Eligible Employees 132 32 100 First Year Service Cost Pre-65 Benefit $295,904 $74,304 $221,600 Post-65 Benefit $695,204 $162,304 $532,900 Total $991,108 $236,608 $754,500 Accruing retiree health benefit costs using service costs levels out the cost of retiree health benefits over time and more fairly reflects the value of benefits "earned" each year by employees. While the service cost for each employee is targeted to remain level as a percentage of covered payroll, the service cost as a dollar amount would increase each year based on covered payroll. Additionally, the overall service cost may grow or shrink based on changes in the demographic makeup of the employees from year to year. Total Compensation Systems, Inc. 11 3. Total OPEB Liability and Net OPEB Liability If actuarial assumptions are borne out by experience, the District will fully accrue retiree benefits by expensing an amount each year that equals the service cost. If no accruals had taken place in the past, there would be a shortfall of many years' accruals, accumulated interest and forfeitures for terminated or deceased employees. This shortfall is called the Total OPEB Liability. We calculated the Total OPEB Liability (TOL) as the APVPBP minus the present value of future service costs. To the extent that benefits are funded through a GASB 74 qualifying trust, the trust’s Fiduciary Net Position (FNP) is subtracted to get the NOL. The FNP is the value of assets adjusted for any applicable payables and receivables as shown in the table on page 2. Total OPEB Liability and Net OPEB Liability as of June 30, 2021 Valuation Date Total Unrepresented Employees Represented Employees Active: Pre-65 Benefit 6,551,091 $2,223,005 $4,328,086 Active: Post-65 Benefit $11,621,828 $3,442,458 $8,179,370 Subtotal $18,172,919 $5,665,463 $12,507,456 Retiree: Pre-65 Benefit $2,042,755 $740,097 $1,302,658 Retiree: Post-65 Benefit $12,314,368 $5,928,884 $6,385,484 Subtotal $14,357,123 $6,668,981 $7,688,142 Subtotal: Pre-65 Benefit $8,593,846 $2,963,102 $5,630,744 Subtotal: Post-65 Benefit $23,936,196 $9,371,342 $14,564,854 Total OPEB Liability (TOL) $32,530,042 $12,334,444 $20,195,598 Fiduciary Net Position as of June 30, 2021 $35,539,035 Net OPEB Liability (NOL) ($3,008,993) 4. “Pay As You Go" Projection of Retiree Benefit Payments We used the actuarial assumptions shown in Part III and Appendix B to project the District’s ten year retiree benefit outlay, including any implicit rate subsidy. Because these cost estimates reflect average assumptions applied to a relatively small number of participants, estimates for individual years are certain to be inaccurate. However, these estimates show the size of cash outflow. The following table shows a projection of annual amounts needed to pay the District’s share of retiree health costs, including any implicit rate subsidy. Year Beginning July 1 Total Unrepresented Employees Represented Employees 2021 $1,173,603 $545,086 $628,517 2022 $1,214,348 $564,922 $649,426 2023 $1,278,943 $585,868 $693,075 2024 $1,375,267 $629,710 $745,557 2025 $1,476,181 $681,377 $794,804 2026 $1,641,476 $731,747 $909,729 2027 $1,883,618 $813,827 $1,069,791 2028 $2,031,150 $821,477 $1,209,673 2029 $2,191,826 $869,267 $1,322,559 2030 $2,355,746 $941,841 $1,413,905 Total Compensation Systems, Inc. 12 G. Development of Employer Contribution Target 1. Reconciliation of Market Value of Assets FY 2020/21 FY 2019/20 Beginning Market Value of Assets $28,058,838 $27,197,350 Employer Contributions $889,399 $1,011,358 Fund Earnings $7,890,090 $983,790 Benefit Payments ($1,283,210) ($1,120,146) Administrative Expenses ($16,082) ($13,514) Net Change $7,480,197 $861,488 Ending Market Value of Assets $35,539,035 $28,058,838 2. Development of Actuarial Value of Assets The actuarial value of assets is based on the expected market value of appreciation. The actual market appreciation or depreciation, both realized and unrealized, is phased in over five years as the expected growth is phased out. The table below presents the development of the actuarial value of assets. The District has set a corridor of 20%, meaning that the actuarial value of assets must be between 80% and 120% market value of assets. 6/30/2018 6/30/2019 6/30/2020 6/30/2021 Market value of assets $35,539,035 Actual rate of return 7.78% 6.31% 3.63% 28.33% Expected rate of return 7.00% 7.00% 7.00% 7.00% Actual fund earnings $1,733,269 $1,584,182 $1,733,269 $7,890,090 $12,940,810 Expected fund earnings $1,559,230 $1,756,077 $3,342,392 $1,949,361 $8,607,060 Gain/(Loss) $174,039 ($171,895) ($1,609,123) $5,940,729 Percent of gain/(loss) recognized 80% 60% 40% 20% Recognized gain/(loss) $139,231 ($103,137) ($643,649) $1,188,146 $580,591 Blended value of assets $31,785,876 Percent increase/(decrease) (10.6%) Actuarial value of assets $31,785,876 3. Unfunded Liability For Amortization The table below presents the development of the unfunded liability for funding purposes. In determining the Employer Contribution Target, the unfunded liability is the excess of the Total OPEB Liability (TOL) over the actuarial value of assets. 6/30/2021 Total OPEB liability $32,530,042 Actuarial value of assets ($31,785,876) Unfunded liability for amortization $744,166 Total Compensation Systems, Inc. 13 4. Amortization of the Unfunded Liability The amortization of the unfunded liability component of the Employer Contribution Target is being amortized over a period of 20 years on a level-percentage of pay basis. Under the level-percentage of pay method, the amortization payment is scheduled to increase in future years based on wage inflation. 6/30/2021 Unfunded liability for amortization $744,166 Amortization factor 14.25415 Amortization payment of unfunded liability $52,207 5. Contributions The table below presents the development of the Employer Contribution Target for the fiscal year ending June 30, 2022 and for the fiscal years ending June 30, 2023. FY 2021/22 Service Cost $991,108 Amortization payment of unfunded liability $52,207 Interest assuming mid-year contributions $35,212 Contribution $1,078,527 Estimated payroll $13,917,932 Contribution as a % of payroll 7.75% FY 2022/23 Service Cost $1,018,363 Amortization payment of unfunded liability $53,643 Interest assuming mid-year contributions $36,180 Contribution $1,108,186 Estimated payroll $14,300,675 Contribution as a % of payroll 7.75% Total Compensation Systems, Inc. 14 G. Additional Reconciliation of Net OPEB Liability The following table shows the reconciliation of the June 30, 2020 Net OPEB Liability (NOL) in the prior valuation to the June 30, 2021 NOL. For some plans, it will provide additional detail and transparency beyond that shown in the table on Page 3. TOL FNP NOL Balance at June 30, 2020 $29,859,997 $28,058,838 $1,801,159 Service Cost $755,756 $0 $755,756 Interest on Total OPEB Liability $2,077,446 $0 $2,077,446 Expected Investment Income $0 $1,949,361 ($1,949,361) Administrative Expenses $0 ($16,082) $16,082 Employee Contributions $0 $0 $0 Employer Contributions to Trust $0 $807,867 ($807,867) Employer Contributions as Benefit Payments $0 $81,532 ($81,532) Benefit Payments from Trust ($1,201,678) ($1,201,678) $0 Expected Benefit Payments from Employer ($81,532) ($81,532) $0 Expected Minus Actual Benefit Payments** $163,064 $0 $163,064 Expected Balance at June 30, 2021 $31,573,053 $29,598,306 $1,974,747 Experience (Gains)/Losses $2,514,323 $0 $2,514,323 Changes in Assumptions ($1,557,334) $0 ($1,557,334) Changes in Benefit Terms $0 $0 $0 Investment Gains/(Losses) $0 $5,940,729 ($5,940,729) Other $0 $0 $0 Net Change during 2021 $2,670,045 $7,480,197 ($4,810,152) Actual Balance at June 30, 2021* $32,530,042 $35,539,035 ($3,008,993) * May include a slight rounding error. ** Deferrable as an Experience Gain or Loss. Total Compensation Systems, Inc. 15 PART III: ACTUARIAL ASSUMPTIONS AND METHODS Following is a summary of actuarial assumptions and methods used in this study. The District should carefully review these assumptions and methods to make sure they reflect the District's assessment of its underlying experience. It is important for Otay Water District to understand that the appropriateness of all selected actuarial assumptions and methods are Otay Water District’s responsibility. Unless otherwise disclosed in this report, TCS believes that all methods and assumptions are within a reasonable range based on applicable actuarial standards of practice, Otay Water District’s actual historical experience, and TCS’s judgment based on experience and training. A. ACTUARIAL METHODS AND ASSUMPTIONS: ACTUARIAL COST METHOD: The entry age actuarial cost method. Entry age is based on the age at hire for eligible employees. The attribution period is determined as the difference between the expected retirement age and the age at hire. The APVPBP and present value of future service costs are determined on a participant by participant basis and then aggregated. SUBSTANTIVE PLAN: We based the valuation on the substantive plan. The formulation of the substantive plan was based on a review of written plan documents as well as historical information provided by Otay Water District regarding practices with respect to employer and employee contributions and other relevant factors. EMPLOYER CONTRIBUTION TARGET PARAMETERS: While Otay Water District does not have a formal Board adopted funding policy. The Board annually evaluates the amount to contribute to the Trust taking into consideration the Employer Contribution Target determined in the Plan’s actuarial funding valuation report and formally adopts a contribution amount for the current fiscal year. In keeping with the District’s past practice, the Employer Contribution Target is calculated as the Service Cost plus an amortization of the Unfunded Liability over 20 years on a level percentage of pay basis. The 20-year period begins with the fiscal year ending June 30, 2022. ASSET SMOOTHING METHOD: The District has selected an asset smoothing method to determine the actuarial value of assets. The actuarial value of assets is based on the expected market value of appreciation. The actual market appreciation or depreciation, both realized and unrealized, is phased in over five years as the expected growth is phased out. The District has set a corridor of 20%, meaning that the actuarial value of assets cannot be less than 80% or greater than 120% of the market value of assets. Total Compensation Systems, Inc. 16 B. ECONOMIC ASSUMPTIONS: Economic assumptions are set under the guidance of Actuarial Standard of Practice 27 (ASOP 27). Among other things, ASOP 27 provides that economic assumptions should reflect a consistent underlying rate of general inflation. For that reason, we show our assumed long-term inflation rate below. INFLATION: We assumed 2.50% per year used for pension purposes. Actuarial standards require using the same rate for OPEB that is used for pension. INVESTMENT RETURN / DISCOUNT RATE: We assumed 6.75% per year net of expenses. This is based on assumed long-term return on employer assets. We used the “Building Block Method”. (See Appendix C for more information). Our assessment of long-term returns for employer assets is based on long-term historical returns for surplus funds invested pursuant to California Government Code Sections 53601 et seq. TREND: We assumed 4.50% per year. Our long-term trend assumption is based on the conclusion that, while medical trend will continue to be cyclical, the average increase over time cannot continue to outstrip general inflation by a wide margin. Trend increases in excess of general inflation result in dramatic increases in unemployment, the number of uninsured and the number of underinsured. These effects are nearing a tipping point which will inevitably result in fundamental changes in health care finance and/or delivery which will bring increases in health care costs more closely in line with general inflation. We do not believe it is reasonable to project historical trend vs. inflation differences several decades into the future. PAYROLL INCREASE: We assumed 2.75% per year. Since benefits do not depend on salary (as they do for pensions), using an aggregate payroll assumption for the purpose of calculating the service cost results in a negligible error. Total Compensation Systems, Inc. 17 C. NON-ECONOMIC ASSUMPTIONS: Economic assumptions are set under the guidance of Actuarial Standard of Practice 35 (ASOP 35). See Appendix B for more information. MORTALITY Participant Type Mortality Tables Miscellaneous 2017 CalPERS Mortality for Miscellaneous and Schools Employees RETIREMENT RATES Employee Type Retirement Rate Tables Unrepresented Employees Hired 2012 and before. 2017 CalPERS 2.0%@62 Rates for Miscellaneous Employees Hired 2013 and after. 2017 CalPERS 2.7%@55 Rates for Miscellaneous Employees Represented Employees Hired 2012 and before. 2017 CalPERS 2.0%@62 Rates for Miscellaneous Employees Hired 2013 and after. 2017 CalPERS 2.7%@55 Rates for Miscellaneous Employees COSTS FOR RETIREE COVERAGE Retiree liabilities are based on actual retiree premium plus an implicit rate subsidy of 42.9% of non-Medicare medical premium. Liabilities for active participants are based on the first year costs shown below, which include the implicit rate subsidy. Subsequent years’ costs are based on first year costs adjusted for trend and limited by any District contribution caps. Participant Type Future Retirees Pre-65 Future Retirees Post-65 Unrepresented Employees Employer portion of premium: $19,868 Implied rate subsidy: $8,581 $13,522 Represented Employees Employer portion of premium: $19,868 Implied rate subsidy: $8,581 $13,522 PARTICIPATION RATES Employee Type <65 Non-Medicare Participation % 65+ Medicare Participation % Miscellaneous 100% 100% TURNOVER Employee Type Turnover Rate Tables Miscellaneous 2017 CalPERS Turnover for Miscellaneous Employees SPOUSE PREVALENCE To the extent not provided and when needed to calculate benefit liabilities, 100% of retirees assumed to be married at retirement. After retirement, the percentage married is adjusted to reflect mortality. SPOUSE AGES To the extent spouse dates of birth are not provided and when needed to calculate benefit liabilities, female spouse assumed to be three years younger than male. AGING FACTORS We used aging factors from "Health Care Costs - From Birth to Death" prepared by Dale Yamamoto and published in 2013 by the Society of Actuaries as part of the Health Care Cost Institute's Independent Report Series - Report 2013-1. Total Compensation Systems, Inc. 18 PART IV: APPENDICES APPENDIX A: DEMOGRAPHIC DATA BY AGE ELIGIBLE ACTIVE EMPLOYEES BY AGE AND SERVICE Total Under 5 Years of Service 5 – 9 Years of Service 10 – 14 Years of Service 15 –19 Years of Service 20 – 24 Years of Service 25 – 29 Years of Service 30 – 34 Years of Service Over 34 Years of Service Under 25 0 25 – 29 5 5 30 – 34 7 6 1 35 – 39 16 7 6 2 1 40 – 44 19 5 8 4 2 45 – 49 31 4 7 8 7 4 1 50 – 54 22 4 3 6 5 4 55 – 59 20 4 2 3 5 3 1 2 60 – 64 9 1 1 2 4 1 65 and older 3 2 1 Total 132 36 27 28 25 12 2 2 0 ELIGIBLE RETIREES BY AGE AND EMPLOYEE CLASS Age Total Under 50 0 50 – 54 0 55 – 59 10 60 – 64 9 65 – 69 18 70 – 74 24 75 – 79 9 80 – 84 3 85 – 89 5 90 and older 2 Total 80 Total Compensation Systems, Inc. 19 APPENDIX B: ADDITIONAL DISCLOSURES Additional Information to Part III Related to Assumptions and Other Inputs Mortality Assumptions Following are the tables the mortality assumptions are based upon. Inasmuch as these tables are based on appropriate populations, and that these tables are used for pension purposes, we believe these tables to be the most appropriate for the valuation. Mortality Table 2017 CalPERS Mortality for Miscellaneous and Schools Employees Disclosure The mortality assumptions are based on the 2017 CalPERS Mortality for Miscellaneous and Schools Employees table created by CalPERS. CalPERS periodically studies mortality for participating agencies and establishes mortality tables that are modified versions of commonly used tables. This table incorporates mortality projection as deemed appropriate based on CalPERS analysis. Mortality Table 2017 CalPERS Retiree Mortality for All Employees Disclosure The mortality assumptions are based on the 2017 CalPERS Retiree Mortality for All Employees table created by CalPERS. CalPERS periodically studies mortality for participating agencies and establishes mortality tables that are modified versions of commonly used tables. This table incorporates mortality projection as deemed appropriate based on CalPERS analysis. Experience Studies Following are the tables the retirement and turnover assumptions are based upon. Inasmuch as these tables are based on appropriate populations, and that these tables are used for pension purposes, we believe these tables to be the most appropriate for the valuation. Retirement Tables Retirement Table 2017 CalPERS 2.0%@62 Rates for Miscellaneous Employees Disclosure The retirement assumptions are based on the 2017 CalPERS 2.0%@62 Rates for Miscellaneous Employees table created by CalPERS. CalPERS periodically studies the experience for participating agencies and establishes tables that are appropriate for each pool. Retirement Table 2017 CalPERS 2.7%@55 Rates for Miscellaneous Employees Disclosure The retirement assumptions are based on the 2017 CalPERS 2.7%@55 Rates for Miscellaneous Employees table created by CalPERS. CalPERS periodically studies the experience for participating agencies and establishes tables that are appropriate for each pool. Total Compensation Systems, Inc. 20 Turnover Tables Turnover Table 2017 CalPERS Turnover for Miscellaneous Employees Disclosure The turnover assumptions are based on the 2017 CalPERS Turnover for Miscellaneous Employees table created by CalPERS. CalPERS periodically studies the experience for participating agencies and establishes tables that are appropriate for each pool. For other assumptions, we use actual plan provisions and plan data. Discount Rate A discount rate of 6.75% was used in the valuation. The interest rate used in the prior valuation was 7.00%. Following is the assumed asset allocation and assumed rate of return for each. CERBT - Strategy 1 Asset Class Percentage of Portfolio Assumed Gross Return All Equities 59.0000 7.5450 All Fixed Income 25.0000 4.2500 Real Estate Investment Trusts 8.0000 7.2500 All Commodities 3.0000 7.5450 Treasury Inflation Protected Securities (TIPS) 5.0000 3.0000 We looked at rolling periods of time for all asset classes in combination to appropriately reflect correlation between asset classes. That means that the average returns for any asset class don’t necessarily reflect the averages over time individually, but reflect the return for the asset class for the portfolio average. We used geometric means. Additional Net OPEB Liability Information The interest assumption changed from 7.00% to 6.75%. Assumed rates of retirement, termination, and mortality have been updated to align with those currently being used by the statewide pension system. Medical trend in future years has been updated to 4% for all years from 6% tiered down by 0.5% per year to 5% in all future years. There were no changes in benefit terms since the prior valuation date. Total Compensation Systems, Inc. 21 APPENDIX C: GLOSSARY OF RETIREE HEALTH VALUATION TERMS Note: The following definitions are intended to help a non-actuary understand concepts related to retiree health valuations. Therefore, the definitions may not be actuarially accurate. Actuarial Cost Method: A mathematical model for allocating OPEB costs by year of service. The only actuarial cost method allowed under GASB 74/75 is the entry age actuarial cost method. Actuarial Present Value of Projected Benefit Payments: The projected amount of all OPEB benefits to be paid to current and future retirees discounted back to the valuation or measurement date. Discount Rate: Assumed investment return net of all investment expenses. Generally, a higher assumed interest rate leads to lower service costs and total OPEB liability. Implicit Rate Subsidy: The estimated amount by which retiree rates are understated in situations where, for rating purposes, retirees are combined with active employees and the employer is expected, in the long run, to pay the underlying cost of retiree benefits. Measurement Date: The date at which assets and liabilities are determined in order to estimate TOL and NOL. Mortality Rate: Assumed proportion of people who die each year. Mortality rates always vary by age and often by sex. A mortality table should always be selected that is based on a similar “population” to the one being studied. Net OPEB Liability (NOL): The Total OPEB Liability minus the Fiduciary Net Position. OPEB Benefits: Other Post Employment Benefits. Generally, medical, dental, prescription drug, life, long-term care or other postemployment benefits that are not pension benefits. Participation Rate: The proportion of retirees who elect to receive retiree benefits. A lower participation rate results in lower service cost and a TOL. The participation rate often is related to retiree contributions. Pay As You Go Cost: The projected benefit payments to retirees in a given year as estimated by the actuarial valuation. Actual benefit payments are likely to differ from these estimated amounts. For OPEB plans that do not pre-fund through an irrevocable trust, the Pay As You Go Cost serves as an estimated amount to budget for annual OPEB payments. Retirement Rate: The proportion of active employees who retire each year. Retirement rates are usually based on age and/or length of service. (Retirement rates can be used in conjunction with the service requirement to reflect both age and length of service). The more likely employees are to retire early, the higher service costs and actuarial accrued liability will be. Service Cost: The annual dollar value of the “earned” portion of retiree health benefits if retiree health benefits are to be fully accrued at retirement. Total Compensation Systems, Inc. 22 Service Requirement: The proportion of retiree benefits payable under the OPEB plan, based on length of service and, sometimes, age. A shorter service requirement increases service costs and TOL. Total OPEB Liability (TOL): The amount of the actuarial present value of projected benefit payments attributable to participants’ past service based on the actuarial cost method used. Trend Rate: The rate at which the employer’s share of the cost of retiree benefits is expected to increase over time. The trend rate usually varies by type of benefit (e.g. medical, dental, vision, etc.) and may vary over time. A higher trend rate results in higher service costs and TOL. Turnover Rate: The rate at which employees cease employment due to reasons other than death, disability or retirement. Turnover rates usually vary based on length of service and may vary by other factors. Higher turnover rates reduce service costs and TOL. Valuation Date: The date as of which the OPEB obligation is determined by means of an actuarial valuation. Retiree Health Benefits June 30, 2021 Actuarial Valuation December 2021 Total Compensation Systems, Inc. Luis Murillo, ASA, MAAA, FCA Attachment C Presentation Outline - Retiree Health Benefits Purpose of Valuation Current Benefit Structure Current Valuation Results Contributions 2 TCS, Inc. Purpose of Valuation Comply with GASB 75 Accounting Requirements Separate report will be issued Develop Employer Contribution Target (ECT) No requirement to prefund District’s funding practice: Prefund to the CERBT Trust the difference between ECT and direct retiree payments 3 TCS, Inc. Current Benefits Coverage for Medical & Dental Lifetime benefits District pays 100% of retiree premium & 88% of spouse/dependent premium Requires retirement on or after Age 55 with 20 years of service (15 years of service for Unrepresented employees hired prior to 1/1/2013) District participates in SDRMA for medical coverage Community-rated program Implied subsidy applies because non-Medicare premiums based on pool of actives and non-Medicare retirees Current Counts •132 Employees •80 Retirees 4 TCS, Inc. Valuation Steps Inputs: Collect plan, census, & premium rate information from District Actuarial assumptions (e.g. rates of termination, retirement, and mortality, interest rate, etc.) Steps: 1.Estimate expected benefit payments (pay-go costs) for all future years 2.Calculate the present value of expected benefit payments in today’s dollars 3.Allocate present value between past service and future service 5 TCS, Inc. Estimated Benefit Payments Fiscal Year Beginning July 1st Estimated Pay-Go Implicit Subsidy Total Pay-Go 2021 $1,039,816 $133,787 $1,173,603 2022 $1,084,835 $129,513 $1,214,348 2023 $1,146,996 $131,947 $1,278,943 2024 $1,224,340 $150,927 $1,375,267 2025 $1,306,413 $169,768 $1,476,181 2026 $1,456,599 $184,877 $1,641,476 2027 $1,651,651 $231,967 $1,883,618 2028 $1,800,028 $231,122 $2,031,150 2029 $1,934,242 $257,584 $2,191,826 2030 $2,073,099 $282,647 $2,355,746 2050 $4,404,381 $125,828 $4,530,209 2060 $3,845,518 $0 $3,845,518 2070 $2,202,285 $0 $2,202,285 2080 $757,219 $0 $757,219 2090 $103,398 $0 $103,398 Estimates above reflect the 132 employees and 80 retirees as of the valuation date. The valuation does not include any future hires. 6 TCS, Inc. District Liability 1.Present value of future expected benefit payments = $40.7M 2.Attribute the present value of expected benefit payments to: a.Past service (Total OPEB Liability): $32.5M b.The following year of service (Service Cost): $1.0M c.Future years of service (Present Value of Future Service Costs): $7.2M 3.Compare Total OPEB Liability (TOL) to Fiduciary Net Position (FNP) a.Net OPEB Liability (NOL) = ($3.0M) $ in Millions $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 Fiduciary Net Position Present Value of Future Benefits Present Value of Future Service Costs Service Cost Fiduciary Net Position Total OPEB Liability 7 TCS, Inc. June 30, 2021 Valuation Results $ in millions TOL FNP NOL Balance at June 30, 2020 $29.9 $28.1 $1.8 Change $2.6 $7.4 ($4.8) Balance at June 30, 2021 $32.5 $35.5 ($3.0) •Four categories of why the Net OPEB Liability changed over last year: •Predictable changes +$0.9M •New benefits earned •Interest on liability •Expected investment income •Unpredictable changes -$3.4M •Experience loss (caused by changes in demographics and healthcare costs) •Investment earnings more than expected •District contributions -$0.8M •Contributions to the Trust •Assumption Changes -$1.5M 8 TCS, Inc. Projected Trust Transactions Fiscal Year Beginning July 1st Estimated Pay-go Implicit Subsidy Trust Reimbursement Employer Contribution Target Net $ to Trust Funded Status 2021 $1,039,816 $133,787 ($1,173,603) $1,078,527 ($95,076) 109% 2022 $1,084,835 $129,513 ($1,214,348) $1,108,186 ($106,162) 109% 2023 $1,146,996 $131,947 ($1,278,943) $1,138,661 ($140,282) 110% 2024 $1,224,340 $150,927 ($1,375,267) $1,169,974 ($205,293) 110% 2025 $1,306,413 $169,768 ($1,476,181) $1,202,148 ($274,033) 110% 2026 $1,456,599 $184,877 ($1,641,476) $1,235,207 ($406,269) 110% 2027 $1,651,651 $231,967 ($1,883,618) $1,269,175 ($614,443) 111% 2028 $1,800,028 $231,122 ($2,031,150) $1,304,077 ($727,073) 111% 2029 $1,934,242 $257,584 ($2,191,826) $1,339,939 ($851,887) 111% 2030 $2,073,099 $282,647 ($2,355,746) $1,376,787 ($978,959) 111% 9 TCS, Inc. Projections assume that employees terminating or retiring will be replaced with comparable employees with aggregate payroll increasing 2.75% Projected Trust Transactions Alternative Scenario Fiscal Year Beginning July 1st Estimated Pay-go Implicit Subsidy Trust Reimbursement Employer Contribution Target Net $ to Trust Funded Status 2021 $1,039,816 $133,787 ($1,173,603) $0 ($1,173,603) 109% 2022 $1,084,835 $129,513 ($1,214,348) $0 ($1,214,348) 107% 2023 $1,146,996 $131,947 ($1,278,943) $0 ($1,278,943) 104% 2024 $1,224,340 $150,927 ($1,375,267) $750,000 ($625,267) 101% 2025 $1,306,413 $169,768 ($1,476,181) $1,141,993 ($334,188) 100% 2026 $1,456,599 $184,877 ($1,641,476) $1,173,397 ($468,079) 100% 2027 $1,651,651 $231,967 ($1,883,618) $1,205,666 ($677,952) 100% 2028 $1,800,028 $231,122 ($2,031,150) $1,238,821 ($792,329) 100% 2029 $1,934,242 $257,584 ($2,191,826) $1,272,888 ($918,938) 100% 2030 $2,073,099 $282,647 ($2,355,746) $1,307,893 ($1,047,853) 100% 10 TCS, Inc. Projections assume that employees terminating or retiring will be replaced with comparable employees with aggregate payroll increasing 2.75% Thank you! Questions? 11 TCS, Inc. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: January 5, 2022 PROJECT: Various DIV. NO. ALL SUBMITTED BY: Michael Kerr, Information Technology Manager APPROVED BY: Adolfo Segura, Chief of Administrative Services Jose Martinez, General Manager SUBJECT: DISCUSSION AND DIRECTION REGARDING THE PROPOSED FY2023 - FY2026 STRATEGIC PLAN GENERAL MANAGER’S RECOMMENDATION: No recommendation. This is an informational item only. COMMITTEE ACTION: Please see “Attachment A”. PURPOSE: That the Board provide comments, input, and direction on the content of the District’s proposed FY2023 - FY2026 Strategic Plan, including strategies, objectives, and performance metrics that were discussed during the October 19, 2021, Board workshop. ANALYSIS: As a follow-up to the October 19, 2021, Board workshop, and for additional comments and input, staff is presenting the proposed FY2023 -FY2026 strategic plan strategies, objectives, and performance metric targets. The plan proposes 12 strategies, 44 objectives, and 32 key AGENDA ITEM 6 performance metrics for the District to accomplish throughout the 4- year plan. BACKGROUND: Alignment of shared vision and mission is considered essential for the success of the Agency. In preparation for the development of the new District strategic plan, staff from all departments participated in workshops spanning from September 13 through October 8. These workshops were held to brainstorm and prioritize new objectives and provide staff with a refresher of how the District incorporates its strategies, objectives, and key performance indicators using the four perspectives modeled by the Balanced Scorecard Performance Management System. The workshops also aimed to enhance understanding of the strategic planning process, identify current management practices, and recommendations for the next strategic plan. During these workshops, an internal SWOT (Strengths, Weaknesses, Opportunities, and Threats) exercise was conducted, in which over 140 data points were collected. This gave staff an opportunity to voice their industry insights and give essential feedback for the new strategic plan. The planning process enabled District staff to step back from daily activities and brainstorm on ways to further improve the District’s mission "To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner." Finally, at the October 19 Board of Directors retreat, senior staff introduced preliminary strategies based on some of the opportunities and challenges produced by the internal SWOT and brainstorming exercises. With the assistance of an outside facilitator, Mr. Brent Ives, the Board also conducted a SWOT exercise and explored strategies around areas to include infrastructure, government and state legislation monitoring, water diversification, operational cost, and drought. DISCUSSION: Staff has incorporated the information developed in the strategic planning workshops into the attached “FY2023 – FY2026 Draft Strategic Plan” (see “Attachment B”) provided for the Board’s review, discussion, and comment. RECOMMENDATION: That the Board provide comments and direction to staff in order to proceed with the formal development of the District’s new FY2023 - FY2026 Strategic Plan. Committee Reports – Slideshow The Strategic Plan results are presented to both the Finance & Administration, and the Engineering, Operations, & Water Resources Committee with a specific focus on the most relevant information for each Committee (see “Attachment C”). FISCAL IMPACT: Joe Beachem, Chief Financial Officer Informational item only; no fiscal impact. STRATEGIC GOAL: Strategic Plan and Performance Measure reporting is a critical element in providing performance reporting to the Board and staff. LEGAL IMPACT: None. ATTACHMENTS: Attachment A – Committee Action Report Attachment B – FY2023 – FY2026 Draft Strategic Plan Attachment C - PowerPoint Presentation ATTACHMENT A SUBJECT/PROJECT: DISCUSSION AND DIRECTION REGARDING THE PROPOSED FY2023 - FY2026 STRATEGIC PLAN COMMITTEE ACTION: The Engineering, Operations & Water Resources and Finance & Administration Committees reviewed this item at a meeting held on December 7, 2021. The Committees support 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. Customer: Increase engagement with customers and the community to provide superior customer service, increase public awareness of the water industry and the District Strategy: Build public awareness of the District’s priorities, initiatives, systems, and services Objectives: • Collect and analyze customer feedback on District operations, activities and service experience, and expectations • Advance the District’s web and social media presence • Enhance internal communication, tools and technology to disseminate information to District staff effectively • Provide customer service information and assistance on the understanding of water rates and changes [BOARD WORKSHOP] Strategy: Monitor emerging water quality and sewer issues and regulations [BOARD WORKSHOP] Objectives: • Meet with local representatives and regulators at all levels • Actively participate with existing water/sewer organizations (ACWA, AWWA, etc.) on regulatory and emerging issues KPI: ▪ Conduct Customer Opinion Survey >85% during next Strat Plan (3-4 years) (NEW) ▪ Conduct Media/Advertising Campaigns (3) (NEW) ▪ Answer Rate ▪ Technical Quality Complaint ▪ Potable Water Compliance Rate (AWWA) Financial: Operate the District in a financially sustainable and transparent manner while maintaining a Fair Rate Structure Strategy: Maintain a long-range financing plan that sets forth the long-term funding needs of the District Objectives: • Evaluate banking functions for lower cost and process efficiencies • Review and modify, as appropriate, the recycled water rate to improve cost recovery and optimize recycled water use • Evaluate grant funding opportunities [BOARD WORKSHOP] • Monitor and modify the Water Shortage Contingency Plan, as needed • Evaluate the District’s cash reserve policies to consider optimal uses and levels of reserves, including alternative strategies for funding drought-related costs to ensure financial resiliency • Mitigate increases in rates and charges by optimizing non-rate revenue use and pursuing cost control opportunities through efficiencies and new technologies Strategy: Invest in technology infrastructure to enhance customer engagement and satisfaction Objectives: • Further the advanced metering infrastructure (AMI) implementation to improve District metering operations and allow ratepayers to make efficient decisions of their water use • Evaluate IVR (Interactive Voice Response)/Online portal assistance • Evaluate low-income assistance programs • Continue local messaging and outreach in anticipation of water supply constraints KPI: ▪ CCIP Project Expenditures vs. Budget – 95% of Budget ▪ Construction Change Order Incidence < 5% Annually ▪ Billing Accuracy ▪ Sewer Rate Ranking ▪ Water Rate Ranking ▪ Reserve Level ▪ Distribution System Loss ▪ Planned Potable Water Maintenance Ratio in $ (Proposed new target from 66% to 70%)* ▪ Planned Recycled Water Maintenance Ratio in $ ▪ Planned Wastewater Maintenance Ratio in $ ▪ (Proposed new target from 77% to 80%) ▪ Direct Cost of Treatment Per MGD Internal Business Process: Practice ongoing infrastructure renewal and organizational improvement through planning and increased operational efficiency Strategy: Optimize and further leverage energy use efficiencies, including the use of renewable power Objectives: • Evaluate and implement energy-efficient systems • Evaluate and implement alternative energy opportunities • Assess and implement Zero-Emission Vehicle Fleet Programs • Evaluate of the reduction of hazardous chemicals Strategy: Implement technologies to improve response time, security, and operational effectiveness Objectives: • Integrate with new GIS (ESRI) to ensure accurate infrastructure information for customer service and infrastructure improvements • Conduct needs assessment/replacement of District’s financial management system • Maintain and regularly evaluate internal financial controls Strategy: Develop appropriate water resource mix to meet the water reliability needs of the community Objectives: • Use the Water Facilities Water Management Plan/Urban Water Management Plan to analyze future needs and prescribe approaches to meeting future requirements and demands • Renegotiate the City of San Diego’s recycled water purchase agreement • Integrate the District’s long-term water supply strategies and infrastructure planning efforts with regional partnerships Strategy: Respond to anticipated water shortages through rate structure modification, conservation assistance, and outreach Objectives: • Develop a water shortage contingency plan to implement drought response actions and diversification to meet short-term water use reduction goals [BOARD WORKSHOP] • Identify, evaluate, and implement new opportunities for recycled water, including potential for potable reuse Strategy: Long-term investment in District Infrastructure Objectives: • Evaluate and enhance Level-of-Service maintenance standards and SOP’s • Address the District’s future infrastructure needs • Collect and maintain accurate asset records, including criticality, maintenance history, asset condition, and performance for continuous improvement • Implement preventive, predictive, and corrective maintenance plans to ensure safety, service reliability, and efficiency Strategy: Cyber and Physical Security Objectives: • Advance the District’s supervisory control and data acquisition (SCADA) program to ensure a secure, reliable, and efficient distribution and control management system • Advance redundancy and disaster recovery framework of District enterprise technology systems and facilities • Advance the use of machine learning tools and data to monitor District infrastructure and develop workflows that enable rapid capture and use of the data • Conduct assessment and footprint rightsizing to reduce greenhouse gas emissions from District facilities KPI: ▪ Business Recovery Exercises - - - 2 Per Year [NEW] ▪ Vulnerability Assessment - - - 2 Per Year [NEW] ▪ Miles of pipe surveyed for leaks - - - ≥ 800 [NEW] ▪ % of water system valves exercised - - ≥ 10% [NEW] ▪ Number of water system pipe breaks per 100 miles of pipe - - - ≤ 20 [NEW] ▪ Annual Recycled Water Site Inspections (Consider Revising) ▪ Recycled Water Shutdown Testing (Consider revising from target 90% to 95%) ▪ System Valve Exercising Program (Consider revising) ▪ Potable Water Distribution System Integrity (Splitting Leaks & Breaks into 2 measures) ▪ Sewer Overflow Rate (AWWA) (Consider revising from 0 to 2) ▪ Potable Tank Inspection and Cleaning ▪ Main Flushing and Hydrant Maintenance* (Consider Removing ‘Main Flushing”) ▪ Critical Valve Exercising* (Consider Revising or Adding to Valve Exercise Program Measure) Learning and Growth: Foster a workforce culture of wellness, safety, and innovation Strategy: Coordinate workforce planning activities to determine future needs, identify gaps and implement actions to close the gaps Objectives: • Update department succession plans to prepare for both short- and long-term staffing needs and continue to retain institutional knowledge within the organization • Maximize opportunities to grow internal staff through cross-training, mentoring, special assignments, and rotation programs • Analyze and identify workforce trends to address critical gaps between the current workforce and future needs • Consider developing a hybrid workforce of full-time employees and management staff Strategy: Improve Organization Effectiveness Objectives: • Optimize processing time of new hires to ensure potential candidates are recruited and onboarded in a new and improved time frame • Seek opportunities to expand internships/apprenticeships and training programs to introduce career opportunities to our community. • Promote collaboration and creativity to achieve District’s goals and objectives through employee engagement and recognition of achievements [BOARD WORKSHOP] KPI: ▪ Employee Voluntary Turnover Rate (Consider Revising < 5% Annually) ▪ Safety Training Program OTAY WATER DISTRICT STRATEGIC PLAN WORKSHOP DEC-FEB 2021OCT 19 2021SEPT 2021 OCT 7 2021 MAR –APRIL 2022 Meet with staff to discuss ideas for the new Strategic Plan (SP) DETERMINE POSITION First draft of SP ideas and inputs DEVELOP STRATEGIES Board of Directors Workshop/Inputs & Direction Develop formal goals, strategies, objectives, and key performance indicators (KPI’s BUILD PLAN Present draft SP during March committees and April Board adoption ADOPTION Timeline 2 9/13 –9/17 –Supervisors & Leads ✓SWOT Analysis 9/20 –9/29 –District Managers ✓SWOT Analysis & Preliminary Objectives 10/12 –Department Chiefs ✓Strat Planning Draft / Draft / Think-Tank ✓Staff SWOT ✓Review of current Performance Measures (KPIs) 01 02 03 Strategic Planning Steps 10/19 -Board Retreat/Direction ✓Current Objectives/Status (Handout) ✓Proposed Objectives for New Plan (Handout) ✓Department Chiefs’ Input ✓Boards Input & Direction 04 3 Current Plan •The current plan,FY19-FY22, is the District’s sixth multi-year plan (first plan developed in 2002). •Currently in year 4, or last year of the plan. •Overall Goal of Current Plan (19 Strategies, 52 Objectives, & 42 KPI’s): Increase customer engagement and social media presence;execute financial activities that are essential to running District operations with the lowest financial impact to customers;improve District services via the adoption and alignment of new processes and technology;maintain a high-performing workforce via hands-on leadership,staff empowerment and accountability. 4 Themes in the Upcoming Plan AGING WORKFORCE/ KNOWLEDGE TRANSFER CULTURE (RETENTION & RECRUITMENT OF TOP TALENT) CUSTOMER SERVICE FINANCIAL (BUSINESS SYSTEMS & LONG-TERM BENEFIT COST ANALYSIS) CYBERSECURITY RIGHT SIZING STORAGE & DISTRIBUTION SYSTEM ASSET MANAGEMENT 5 Board of Directors Retreat OPPORTUNITIES O STRENGTHS S WEAKNESSES W THREATS T 6 7 8 9 10 DISTRICT MISSION AND VISION Strategic Planning Process STRATEGIC PLAN New Initiatives Board of Directors Input Employee Input Master Plans and Long-Range Plans Operating and Capital Budget Six-year Capital Improvement Program Employee Evaluations Performance Measure Results Assess and Evaluate 11 CUSTOMER Increase engagement with customers and the community to provide superior customer service, increase public awareness of the water industry and the District STRATEGIES DESIRED OUTCOMES PERFORMANCE MEASURES •Build public awareness of the District’s priorities, initiatives, systems, and services | 4 Objectives •Monitor emerging water quality and sewer issues and regulations [Board Workshop] | 3 Objectives •Conduct Customer Opinion Survey >85% during next Strat Plan (3-4 years) (NEW) •Conduct Media/Advertising Campaigns (3) (NEW) •Answer Rate* •Technical Quality Complaint* •Potable Water Compliance Rate (AWWA)* •Increase Brand Awareness,Customer Experience,Efficiency,Enhance social media presence, provide customers information on the understanding of water rates/changes,state regulations, etc. 12 FINANCIAL Operate the District in a financially, sustainable, and transparent manner, while maintaining a Fair Rate Structure STRATEGIES DESIRED OUTCOMES PERFORMANCE MEASURES •Maintain a long-range financing plan that sets forth the long-term funding needs of the District (Board Workshop) | 7 Objectives •Invest in technology infrastructure to enhance customer engagement and satisfaction |4 Objectives •Evaluate grant funding opportunities,water shortage contingency plan,evaluate cash reserves, AMI technology,real-time water usage/on-line poral assistance,low-income assistance,etc. •CIP Project Expenditures vs. Budget –95% of Budget •Construction Change Order Incidence < 5% Annually •Billing Accuracy •Sewer Rate Ranking •Water Rate Ranking •Reserve Level •Distribution System Loss •Planned Potable Water Maintenance Ratio in $ (Proposed new target from 66% to 70%)* •Planned Recycled Water Maintenance Ratio in $* •Planned Wastewater Maintenance Ratio in $ (Proposed new target from 77% to 80%)* •Direct Cost of Treatment Per MGD* 13 INTERNAL BUSINESS PROCESS Review, update, and streamline processes and services that deliver customer value and organizational improvement via increased operational efficiency STRATEGIES •Optimize energy efficiencies,including the economically appropriate use of renewable power |5 Objectives •Implement technologies to improve response time,security,and operational effectiveness |4 Objectives •Develop appropriate water resources mix to meet the water reliability needs of the community |3 Objectives •Respond to anticipated water shortages through rate structure modification,conservation assistance,and outreach (Board Workshop)|3 Objectives •Long-term investment in District Infrastructure |7 Objectives •Cyber and Physical Security |4 Objectives DESIRED OUTCOMES •Drought initiatives,contingency plan for water scarcity,vulnerabilities,long-term maintenance/operational savings,Pay- as-you-go,new deal?Trends,future sales analysis,budget,water supply/demand assessment,CIP portfolio reassessment,wastewater master plan update,etc. •Energy saving opportunities and energy storage projects extend the life of the district's infrastructure;Investigate/identify the possibility of changing pressure zone systems in the district to reduce pressure in service areas or use demand management zones to reduce water loss and leakage;Integration with SDG &E for energy trends,potential savings, main use,peak/non-peak,energy reduction,cost savings,duration reduction and space requirements of main breaks PERFORMANCE MEASURES •Annual Recycled Water Site Inspections (Consider Revising) •Recycled Water Shutdown Testing (Consider revising from target 90% to 95%) •System Valve Exercising Program (Consider revising) •Potable Water Distribution System Integrity (Splitting Leaks & Breaks into 2 measures) •Sewer Overflow Rate (AWWA) (Consider revising from 0 to 2) •Potable Tank Inspection and Cleaning •Main Flushing and Hydrant Maintenance* (Consider Removing “Main Flushing”) •Critical Valve Exercising* (Consider Revising or Adding to Valve Exercise Program Measure) 14 LEARNING AND GROWTH Foster a workforce culture of wellness, safety, and innovation STRATEGIES DESIRED OUTCOMES PERFORMANCE MEASURES •Coordinate workforce planning activities to determine future needs, identify gaps, and implement actions | 5 Objectives •Improve organizational effectiveness |4 Objectives •Organizational analysis,FTE/staff management,department leveling (supervisor -FTE ratio), new recruitment strategies,interdepartmental training for District staff,improvement of internal communication through systematic processes and teamwork,innovation committee/incentives, building competitive pay and performance retention and hiring structure •Employee Voluntary Turnover Rate (Consider revising from <2 to <5%Annually) •Safety Training Program (Hours Per Field Employee) 15