City of Santa Clara

SANTA CLARA VALLEY WATER DISTRICT Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM Upper Guadalupe River and Lower Silver Creek Watershed Flood Control Projects April 9, 2009, through March 2, 2012 BETTY T. YEE California State Controller January 2016 BETTY T. YEE California State Controller January 26, 2016 Mark Cowin, Director Department of Water Resources 1416 Ninth Street, Room 1115-1 Sacramento, CA 95814 Dear Mr. Cowin: The State Controller’s Office audited claims submitted by the Santa Clara Valley Water District under the Flood Control Subventions Program. The district claimed costs of $23,263,517 for the Upper Guadalupe River and Lower Silver Creek Watershed Flood Control projects for the period of April 9, 2009, through March 2, 2012. Our audit found that $21,132,101 is allowable and $2,131,416 is unallowable. The State share of allowable costs is $15,432,086. The State share represents the percentage of state funding stipulated in California Water Code sections 12585.5, 12670.8, and 12866.2. The unallowable costs of $2,131,416 occurred because the district claimed $1,975,274 in expenditures identified as ineligible by the California Department of Water Resources, and claimed costs of $156,142 for land purchases that exceeded the appraised value. If you have any questions, please contact Mike Spalj, Chief, Local Government Audits Bureau, at (916) 324-6984. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/as Mark Cowin, Director -2- January 26, 2016 cc: Nahideh Madankar, Chief Flood Control Subventions Program Division of Flood Management Department of Water Resources Patrick Luzuriaga, Program Manager Flood Control Subventions Program Division of Flood Management Department of Water Resources Gary Kremen, Board Chair Santa Clara Valley Water District Bean Goldie, Chief Executive Officer Santa Clara Valley Water District Joe Atmore, Revenue Unit Manager Santa Clara Valley Water District Santa Clara Valley Water District Flood Control Subventions Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 1 Conclusion .......................................................................................................................... 2 Follow-up on Prior Audit Findings .................................................................................. 2 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule 1—Summary of Project Costs .............................................................................. 4 Schedule 2—Summary of Audit Adjustments ..................................................................... 8 Findings and Recommendations ........................................................................................... 9 Santa Clara Valley Water District Flood Control Subventions Program Audit Report Summary The State Controller’s Office (SCO) audited the reimbursement claims of the Santa Clara Valley Water District under the Flood Control Subventions Program. Our audit included the Upper Guadalupe River and Lower Silver Creek Watershed Flood Control Projects, for the period of April 9, 2009, through March 2, 2012. The district claimed $23,263,517 during the audit period. Our audit found that $2,132,101 is allowable and $2,131,416 is unallowable. The State share of allowable costs is $15,432,086. The State share represents the percentage of state funding stipulated in California Water Code sections 12585.5, 12670.8 and 12866.2. The unallowable costs occurred because the district claimed $1,975,274 in expenditures identified as ineligible by the California Department of Water Resources, and claimed costs of $156,142 for land purchases that exceeded the appraised value. Background The State of California provides financial assistance to local agencies participating in the construction of federal flood control projects. Under the Flood Control Subventions Program (State Water Code, Division 6, Part 6, Chapters 1 through 4), the California Department of Water Resources pays a portion of the local agency’s share of flood control project costs, including the costs of rights of way, relocation, and recreation and fish and wildlife enhancements. State Water Code section 12832 requires the State Controller to audit the books and records of local agencies to determine whether the state funds received were expended for the purposes and under the conditions authorized. Objective, Scope, Our audit objectives are to determine whether the costs claimed as presented in the Summary of Project Costs (Schedule 1) are: and Methodology  Allowable and in compliance with the Department of Water Resources’ Guidelines for State Reimbursement on Flood Control Projects;  Adequately supported and documented; and  Abated for applicable credits. -1- Santa Clara Valley Water District Flood Control Subventions Program To achieve our audit objectives, we performed the following audit procedures:  Reviewed the auditee’s prior SCO audit and single audit.  Gained a basic understanding of the internal controls and claim process by interviewing key personnel, completing the internal control questionnaire, and reviewing the auditee’s organization chart.  Traced selected claimed cost items to supporting documentation: o acquisition of land or rights-of-way o relocation, reconstruction, and replacement o advances  Verified the abatement of applicable credits by examining land purchase records for excess land and salvageable materials; reviewed expenditure records for condemnation deposits on land acquisition and related interest earned; and scanned the revenue ledger for receipts related to the flood control project. We conducted this performance audit under the general authority of Government Code section 12410 and the specific authority under State Water Code section 12832. We conducted the audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We did not audit the district’s financial statements. Our scope was limited to planning and performing audit procedures necessary to obtain reasonable assurance concerning the allowability of expenditures claimed for reimbursement. Conclusion Our audit found instances of noncompliance with the requirements outlined above. These instances are shown on the Summary of Project Costs (Schedule 1) and described in the Findings and Recommendations section. The Santa Clara Valley Water District claimed $23,263,517 for the Upper Guadalupe River and Lower Silver Creek Watershed Flood Control projects under the Flood Control Subventions Program for the period of April 9, 2009, through March 2, 2012. Our audit found that the claimed amounts for the audit period included allowable costs of $21,132,101 and unallowable costs of $2,131,416. The State share of allowable costs is $15,432,086. The State share represents the percentage of state funding stipulated in California Water Code sections 12585.5, 12670.8, and 12866.2. -2- Santa Clara Valley Water District Flood Control Subventions Program Follow-up on Prior Our prior audit report, issued on September 4, 2012, disclosed no findings. Audit Findings Views of We discussed the audit results with Joe Atmore, Revenue Unit Manager; Ngoc Nguyen, Engineering Unit Manager; and Anne Cooper, Senior Responsible Management Analyst, during an exit conference conducted on Officials September 15, 2014. Additionally, on May 1, 2015, Mr. Atmore and Ms. Cooper declined a draft report and agreed that we could issue the audit report as a final. Restricted Use This report is solely for the information and use of the Santa Clara Valley Water District, the California Department of Water Resources, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits January 26, 2016 -3- Santa Clara Valley Water District Flood Control Subventions Program Schedule 1— Summary of Project Costs April 9, 2009, through March 2, 2012 State Share State Share Project/ Costs Allowable Audit of Eligibility of Allowable Claim Number Claimed Per Audit Adjustments Reference 1 Percentage 2 Costs 2 Upper Guadalupe River Flood Control Project UGR 2009-01 Land $1,000,000 $1,000,000 $0 70% $700,000 UGR 2009-02 Land $382,377 $382,377 $0 70% $267,664 UGR 2009-03 Land $640,000 $640,000 $0 70% $448,000 UGR 2009-04 Land $660,000 $660,000 $0 70% $462,000 UGR 2009-05 Land $623,655 $623,655 $0 70% $436,559 UGR 2009-06 Land $630,000 $630,000 $0 70% $441,000 UGR 2009-07 Land $680,000 $680,000 $0 70% $476,000 UGR 2009-08 Land $650,000 $650,000 $0 70% $455,000 UGR 2009-09 Land $660,000 $660,000 $0 70% $462,000 UGR 2010-1 Labor $408,187 $408,187 $0 70% $285,731 UGR 2010-2 Associated costs $32,435 $32,435 $0 70% $22,705 UGR 2010-3 Associated costs $110,902 $110,902 $0 70% $77,631 -4- Santa Clara Valley Water District Flood Control Subventions Program Schedule 1 (continued) State Share State Share Project/ Costs Allowable Audit of Eligibility of Allowable Claim Number Claimed Per Audit Adjustments Reference 1 Percentage 2 Costs 2 UGR 2010-4 Land $645,000 $645,000 $0 70% $451,500 UGR 2010-5 Associated costs $45,099 $44,973 ($126) Finding 1 70% $31,481 UGR 2010-6 Land - other $18,020 $18,020 $0 70% $12,614 UGR 2010-7 Labor $397,765 $396,810 ($955) Finding 1 70% $277,767 UGR 2010-8 Land $2,235,150 $2,235,150 $0 70% $1,564,605 UGR 2010-9 Construction $205,361 $205,361 $0 70% $143,753 UGR 2010-10 Construction $9,751 $9,751 $0 70% $6,826 UGR 2010-11 Associated costs $61,630 $58,258 ($3,372) Finding 1 70% $40,781 UGR 2010-12 Labor $228,628 $228,628 $0 70% $160,040 UGR 2010-13 Associated costs $222,932 $222,932 $0 70% $156,052 UGR 2011-1 Land $108,000 $0 ($108,000) Finding 1 70% $0 UGR 2011-2 Land $120,000 $0 ($120,000) Finding 1 70% $0 UGR 2011-3 Land $242,500 $0 ($242,500) Finding 1 70% $0 UGR 2011-4 Land $245,000 $0 ($245,000) Finding 1 70% $0 -5- Santa Clara Valley Water District Flood Control Subventions Program Schedule 1 (continued) State Share State Share Project/ Costs Allowable Audit of Eligibility of Allowable Claim Number Claimed Per Audit Adjustments Reference 1 Percentage 2 Costs 2 UGR 2011-5 Land $220,000 $0 ($220,000) Finding 1 70% $0 UGR 2011-6 Land $122,658 $0 ($122,658) Finding 1 70% $0 UGR 2011-7 Land $1,545,779 $1,064,872 ($480,907) Finding 1 and 2 70% $745,410 UGR 2011-8 Land $4,003,271 $3,419,786 ($583,485) Finding 1 and 2 70% $2,393,850 UGR 2012-1 Land - other $76,227 $76,227 $0 70% $53,359 UGR 2012-2 Associated costs $330,841 $330,841 $0 70% $231,589 UGR 2012-3 Labor $572,871 $572,871 $0 70% $401,010 UGR 2013-1 Land - other $315,341 $315,341 $0 70% $220,739 UGR 2012-5 Associated costs $71,775 $71,775 $0 70% $50,243 UGR 2012-6 Labor $547,986 $543,573 ($4,413) Finding 1 70% $380,501 UGR 2012-7 Land $230,000 $230,000 $0 70% $161,000 UGR 2012-8 Land $443,840 $443,840 $0 70% $310,688 UGR 2012-9 Land $260,500 $260,500 $0 70% $182,350 Totals $20,003,481 $17,872,065 ($2,131,416) $12,510,448 -6- Santa Clara Valley Water District Flood Control Subventions Program Schedule 1 (continued) State Share State Share Project/ Costs Allowable Audit of Eligibility of Allowable Claim Number Claimed Per Audit Adjustments Reference 1 Percentage 2 Costs 2 Lower Silver Creek Watershed Flood Control Project LSCW 2011-1 Relocation $301,041 $301,041 $0 90% $270,937 LSCW 2011-2 Utilities relocation $2,357,460 $2,357,460 $0 90% $2,121,714 LSCW 2011-4 Utilities relocation $106,681 $106,681 $0 90% $96,013 LSCW 2011-5 Land - other $82,630 $82,630 $0 75% $61,973 LSCW 2012-1 Utilities relocation $50,000 $50,000 $0 90% $45,000 LSCW 2012-2 Utilities relocation $362,224 $362,224 $0 90% $326,001 Totals $3,260,036 $3,260,036 $0 $2,921,638 Grand Totals $23,263,517 $21,132,101 ($2,131,416) $15,432,086 _____________________________ 1 See the Findings and Recommendations section. 2 The State share of allowable project costs represents the percentage of state funding, as stipulated in the California Water Code, for each project cost category. -7- Santa Clara Valley Water District Flood Control Subventions Program Schedule 2— Summary of Audit Adjustments April 9, 2009, through March 2, 2012 Audit Adjustments 1 Land Costs District DWR Claimed in Project/ Claim Adjustments Excess of Appraisal Claim Number Number (Finding 1) (Finding 2) Total Upper Guadalupe River Flood Control Project UGR 2010-5 14 ($126) ($126) UGR 2010-7 16 ($955) ($955) UGR 2010-11 20 ($3,372) ($3,372) UGR 2011-1 23 ($108,000) ($108,000) UGR 2011-2 24 ($120,000) ($120,000) UGR 2011-3 25 ($242,500) ($242,500) UGR 2011-4 26 ($245,000) ($245,000) UGR 2011-5 27 ($220,000) ($220,000) UGR 2011-6 28 ($122,658) ($122,658) UGR 2011-7 29 ($435,800) ($45,107) ($480,907) UGR 2011-8 30 ($472,450) ($111,035) ($583,485) UGR 2012-6 36 ($4,413) ($4,413) Totals ($1,975,274) ($156,142) ($2,131,416) _____________________________ 1 See the Findings and Recommendations section. -8- Santa Clara Valley Water District Flood Control Subventions Program Findings and Recommendations FINDING 1 – The district’s claims included $1,975,274 in costs for the Upper Department of Guadalupe River Flood Control Project that were specifically identified as Water Resources' ineligible and disallowed by the Department of Water Resources (DWR). adjustments We concur with the DWR’s determinations. DWR’s Guidelines for State Reimbursement on Flood Control Projects (February 1974), Section VI, Part D, specifies that the DWR will reduce an agency’s reimbursement claims for any item that is determined to be ineligible. As a result, costs totaling $1,975,274 are unallowable, as summarized below and detailed on Schedule 2 of this report: Audit Category Adjustments Ineligible public relations costs $ (1,081) Ineligible security costs (3,372) Land acquired prior to 8-17-94 (1,058,158) Claimed demolition costs deleted at district’s request (908,250) Labor claimed for ineligible activities (4,413) Audit adjustment $(1,975,274) Recommendation The district should reduce its claims for reimbursement by $1,975,274 for the Upper Guadalupe River Flood Control Project. In the future, the district should ensure that costs claimed are eligible for reimbursement under DWR guidelines. FINDING 2 – Land The district claimed land acquisition costs that exceeded the appraised costs claimed in value of the land by $156,142. The following schedule identifies the excess of appraisal parcel numbers and the excess cost claimed: -9- Santa Clara Valley Water District Flood Control Subventions Program Cost Claimed in Claim No. Parcel No. Costs Claimed Appraisal Excess of Appraisal UGR 2011-07 434-04-83,84 $ 1,109,979 $ 1,064,872 $ (45,107) 434-04-03,11, UGR 2011-08 3,051,661 2,944,111 (107,550) 12,13,14,66 UGR 2011-08 434-04-013 479,160 475,675 (3,485) Totals $ 4,640,800 $ 4,484,658 $ (156,142) DWR’s Guidelines for State Reimbursement on Flood Control Projects (February 1974), Section IV, Part D, specifies that a local agency may not claim land acquisition costs in excess of the high appraised value unless it obtains the advance approval of DWR. Recommendation The district should reduce its claims for reimbursement by $156,142. In the future, the district should seek DWR approval prior to acquiring land in excess of the appraised value. -10- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S14-FLC-001