Orange County Flood Control District

ORANGE COUNTY FLOOD CONTROL DISTRICT Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM Santa Ana River Mainstem Project July 18, 2006, through October 31, 2013 BETTY T. YEE California State Controller March 2016 BETTY T. YEE California State Controller March 14, 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 Orange County Flood Control District under the Flood Control Subventions Program. The district claimed costs of $121,347,904 for the Santa Ana River Mainstem project for the period of July 18, 2006, through October 31, 2013. Our audit found that $120,696,564 is allowable and $651,340 is unallowable. The State share of allowable costs is $84,487,596. The State share represents the percentage of state funding stipulated in California Water Code section 12585.5. The unallowable costs of $651,340 occurred because the district claimed costs classified as personal property or as ineligible according to Department of Water Resources guidelines for reimbursement. If you have any questions, please contact Christopher Lek, Interim Chief, Local Government Audits Bureau, at (916) 284-0120. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/as Attachment cc: Partick Luzuriaga, Chief Flood Control Subventions Program Division of Flood Management Depart of Water Resources Lance Natsuhara, P.E., Manager Orange County Flood Control District Howard Thomas, Accounting Manager Orange County Public Works Lisa A. Bartlett, Chairperson Orange County Board of Supervisors Orange County Flood Control 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 Finding and Recommendation .............................................................................................. 6 Orange County Flood Control District Flood Control Subventions Program Audit Report Summary The State Controller’s Office (SCO) audited the reimbursement claims of the Orange County Flood Control District under the Flood Control Subventions Program. Our audit included the Santa Ana River Mainstem Project, for the period of July 18, 2006, through October 31, 2013. The district claimed $121,347,904 during the audit period. Our audit found that $120,696,564 is allowable and $651,340 is unallowable. The State share of allowable costs is $84,487,596. The State share represents the percentage of state funding stipulated in California Water Code section 12585.5. The unallowable costs occurred because the district claimed costs classified as personal property or as ineligible according to Department of Water Resources guidelines for reimbursement. 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. 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. -1- Orange County Flood Control District Flood Control Subventions Program  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 an instance of noncompliance with the requirements outlined above. This instance is shown on the Summary of Project Costs (Schedule 1) and described in the Finding and Recommendation section. The Orange County Flood Control District claimed $121,347,904 for the Santa Ana River Mainstem project under the Flood Control Subventions Program for the period of July 18, 2006, through October 31, 2013. Our audit found that the claimed amounts for the audit period included allowable costs of $120,696,564 and unallowable costs of $651,340. The State share of allowable costs is $84,487,596. The State share represents the percentage of state funding stipulated in California Water Code section 12585.5. Follow-up on The finding noted in our prior audit report, issued on August 22, 2013, has Prior Audit been satisfactorily resolved by the district. Findings -2- Orange County Flood Control District Flood Control Subventions Program Views of We issued a draft report on January 27, 2016. We contacted Lance Natsuhara, P.E., Manager, by telephone on January 29, 2016. Responsible Mr. Natsuhara indicated that the district was in agreeement with the Officials findings of the report. Restricted Use This report is solely for the information and use of the Orange County Flood Control 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 March 14, 2016 -3- Orange County Flood Control District Flood Control Subventions Program Schedule 1— Summary of Project Costs July 18, 2006, through October 31, 2013 Project/ Claim Number State Santa Ana District Share of State Share River Mainstem Claim Costs Allowable Audit Eligiblility of Allowable Project Number Claimed Per Audit Adjustments Reference 3 Percentage 4 Costs 4 SAMO 2007-07 71A $ 2 1,970,145 $ 21,360,145 $ (610,000) Finding 0.7 $ 14,952,102 SAMO 2007-07(R) 71A(R)1 $ - $ - $ - 0.7 $ - SAMO 2011-05 75A&B $ 1,666,690 $ 1 ,666,690 $ - 0.7 $ 1,166,683 SAMO 2011-05(R) 75(R)1 $ - $ ( 12,825) $ (12,825) Finding 0.7 $ ( 8,978) SAMO 2011-06 76A&B $ 3,434,784 $ 3 ,434,784 $ - 0.7 $ 2,404,349 SAMO 2011-07 77A&B $ 624,582 $ 624,582 $ - 0.7 $ 4 37,207 SAMO 2012-01 78A&B $ 4,193,985 $ 4 ,193,985 $ - 0.7 $ 2,935,790 SAMO 2012-02 80A&B $ 1,113,214 $ 1 ,113,176 $ (38) Finding 0.7 $ 7 79,223 SAMO 2012-03 81A&B $ 748,871 $ 748,871 $ - 0.7 $ 5 24,210 SAMO 2012-04 82A&B2 $ 4,502,947 $ 4 ,502,947 $ - 0.7 $ 3,152,063 SAMO 2012-05 83B $ 1,994,290 $ 1 ,994,290 $ - 0.7 $ 1,396,003 SAMO 2012-06 84B $ 3,849,898 $ 3 ,849,898 $ - 0.7 $ 2,694,929 SAMO 2012-07 85A&B $ 1,522,488 $ 1 ,494,352 $ (28,136) Finding 0.7 $ 1,046,046 SAMO 2013-01 86A&B $ 6,040,565 $ 6 ,040,327 $ (238) Finding 0.7 $ 4,228,229 SAMO 2013-02 87A&B $ 3,105,694 $ 3 ,105,694 $ - 0.7 $ 2,173,986 SAMO 2013-03 96A&B2 $ 1 7,745,743 $ 17,745,743 $ - 0.7 $ 12,422,020 SAMO 2014-01 89A&B $ 1,464,584 $ 1 ,464,584 $ - 0.7 $ 1,025,209 SAMO 2014-03 92A&B2 $ 9,443,270 $ 9 ,443,270 $ - 0.7 $ 6,610,289 SAMO 2014-04 94A&B2 $ 1 6,140,598 $ 16,140,564 $ (34) Finding 0.7 $ 11,298,395 SAMO 2014-05 95A&B $ 1 0,183,259 $ 10,183,259 $ - 0.7 $ 7,128,281 SAMO 2014-07 91A&B2 $ 2,913,791 $ 2 ,913,791 $ - 0.7 $ 2,039,654 -4- Orange County Flood Control District Flood Control Subventions Program Schedule 1 (continued) Project/ Claim Number State Santa Ana District Share of State Share River Mainstem Claim Costs Allowable Audit Eligiblility of Allowable Project Number Claimed Per Audit Adjustments Reference 3 Percentage 4 Costs 4 SAMO 2014-08 93A&B $ 4,950,114 $ 4,950,045 $ (69) Finding 0.7 $ 3,465,032 -------- 88B & 90B2 $ 3,738,392 $ 3,738,392 $ - 0.7 $ 2,616,874 82B, 88B, 90B, 91B, 92B, 94B, 0.7 SAMO 2014-09 96B2 $ - $ - $ - $ - Totals $ 121,347,904 $ 1 20,696,564 $ (651,340) $ 84,487,596 _____________________________ 1 Reconsideration (R) claim amounts are included in the original claim figures. 2 Department of Water Resources (DWR) removed Cash Contribution claimed amounts from claims 82B, 88B, 90B, 91B, 92B, 94B, and 96B and paid them separately on Engineering Report SAMO 2014-09. The net effect on the district's claims is $0. DWR did not provide SCO with copies of an Engineering Report on claim 88B or 90B prior to commencement of our audit. Consequently, we included only the Cash Contribution amounts for those claims in our current audit. 3 See the Finding and Recommendation section. 4 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. -5- Orange County Flood Control District Flood Control Subventions Program Finding and Recommendation FINDING— The district’s claims included $651,340 in costs for the Santa Ana River Department of Mainstem Project that were specifically identified as ineligible and Water Resources’ 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 DWR will reduce an agency’s reimbursement claims for any item that is determined to be ineligible. As a result, costs totaling $651,340 are unallowable, as summarized below: Claim No. – DWR/District Cost category Reason Amount SAMO 2007-07/71A Land Personal property claimed. $ (610,000) SAMO 2011-05(R)/75A(R) The district claimed a land purchase of $202,825 on claim Land #75A. DWR disallowed $94,826 for costs claimed in excess of the $108,000 appraisal. DWR subsequently accepted the district’s second appraisal of $190,000 on claim #75A(R) and disallowed the difference of $12,825. (12,825) SAMO 2012-02/80(B) Associated project costs Ineligible supplies (38) SAMO 2012-07/85B Associated project costs Property tax previously reimbursed by DWR (28,136) SAMO 2013-01/86B Associated project costs Ineligible supplies (238) SAMO 2014-04/94B Cash contribution Ineligible associated project costs. (34) SAMO2014-08/93B Associated project costs Ineligible supplies (69) Total $ (651,340) Recommendation The district should reduce its claims for reimbursement by $651,340 for the Santa Ana Mainstem Project. In the future, the district should ensure that costs claimed are eligible for reimbursement under DWR guidelines. District’s Response The district agreed with the findings. SCO’s Comment In a telephone call on January 29, 2016, Lance Natsuhara, P.E., Manager, indicated that the district was in agreement with the findings of the report. -6- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S15-FLC-0001