Orange County Flood Control District

ORANGE COUNTY FLOOD CONTROL DISTRICT Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM Santa Ana River Mainstem Project October 1, 2014, through June 30, 2018 BETTY T. YEE California State Controller June 2020 BETTY T. YEE California State Controller June 16, 2020 Eric Nichol, Assistant Division Chief Division of Flood Management Department of Water Resources 3310 El Camino Avenue, Suite 120 Sacramento, CA 95821 Dear Mr. Nichol: 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 $51,229,356 for the Santa Ana River Mainstem Project for the period of October 1, 2014, through June 30, 2018. Our audit found that the entire amount is allowable. The state share of allowable costs is $35,860,549. The state share represents the percentage of state funding stipulated in California Water Code section 12585.5. If you have any questions, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226. Sincerely, Original signed by JIM L. SPANO, CPA Chief, Division of Audits JLS/as cc: Patrick Luzuriaga, Manager Flood Control Subventions Program Division of Flood Management Department of Water Resources Nardy Khan, Deputy Director, Orange County Infrastructure Programs Orange County Flood Control District Michelle Steel, 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 .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule—Summary of Project Costs ................................................................................. 4 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 October 1, 2014, through June 30, 2018. The district claimed $51,229,356 during the audit period. Our audit found that the entire amount is allowable. The state share of allowable costs is $35,860,549. The state share represents the percentage of state funding stipulated in California Water Code section 12585.5. 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 (California Water Code, Division 6, Part 6, Chapters 1 through 4), the California Department of Water Resources (DWR) 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. California 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 objective was to determine whether the costs claimed as presented in the Summary of Project Costs (Schedule) were: and Methodology  Allowable and in compliance with the DWR Guidelines for State Reimbursement on Flood Control Projects;  Adequately supported and documented; and  Reduced by applicable credits to program expenditures. Our audit included the Santa Ana River Mainstem Project, for the period of October 1, 2014, through June 30, 2018. To achieve our objective, we:  Gained a limited understanding of the internal controls over the claim preparation process and the related accounting records by interviewing key personnel, completing an internal control questionnaire, reviewing the district’s organization chart, and assessing the reliability of computer-processed data;  Conducted a risk assessment to determine the nature, timing, and extent of substantive testing;  Reviewed the district’s prior SCO audit and single audit;  Reviewed all of DWR’s engineering reports on the district’s claims; -1- Orange County Flood Control District Flood Control Subventions Program  Determined whether the district received revenues that should be offset against the flood program expenditures; the district reported offsets totaling $2,067,990;  Reviewed the district’s claim detail for any condemnation interest, and inquired of the district whether it had received interest on condemnation deposits;  Determined whether the district received from DWR advances on its flood control project expenditures; and  Verified that the costs claimed were supported by source documents by judgmentally selecting non-statistical samples for the following categories: o Land – We vouched claimed amounts to source documents for $11,105,623 of $20,420,883 in total land acquisition costs claimed. o Relocation – We vouched claimed amounts to source documents for $5,047,126 of $5,271,078 in total relocation costs claimed. o Cash Contribution – We tested all $10,066,000 in total cash contributions to the Army Corps of Engineers. o Labor – We tested $634,739 of $8,685,993 in total labor costs. o Services and Supplies – We vouched claimed amounts to invoices for $123,690 of $769,480 in total services and supplies costs claimed. o Equipment – We vouched claimed amounts to invoices for $12,714 of $162,380 in total equipment costs claimed. o Other Associated Project Costs – We vouched claimed amounts to supporting documentation for $118,177 of $1,886,039 in total other associated project costs claimed. For the selected sample, errors found, if any, were not projected to the intended (total) population. We did not audit the district’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that costs claimed are allowable for reimbursement. We considered the district’s internal controls only to the extent necessary to plan the audit. We conducted this performance audit under the general authority of Government Code section 12410 and the specific authority under California 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 objective. -2- Orange County Flood Control District Flood Control Subventions Program Costs claimed by the Orange County Flood Control District, totaling Conclusion $51,229,356, were eligible for reimbursement under state regulations. The State share of allowable costs is $35,860,549. The State share represents the percentage of state funding stipulated in California Water Code section 12858.5. Follow-up on Our prior audit report, issued on January 10, 2017, disclosed no findings. Prior Audit Findings Views of We discussed the audit results with the district’s representatives during an Responsible exit conference conducted on June 2, 2020. Nardy Khan, Deputy Director; Howard Thomas, Administrative Manager III; James Tyler, Officials Administrative Manager II; Jim Christiansen, Administrative Manager II; and Vu Le, Senior Accountant I, agreed with the audit results. Ms. Khan further agreed that a draft audit report was not necessary and that we could issue the audit report as final. Restricted Use This audit report is solely for the information and use of Orange County Flood Control District, the DWR, 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, and is available on the SCO website at www.sco.ca.gov. Original signed by JIM L. SPANO, CPA Chief, Division of Audits June 16, 2020 -3- Orange County Flood Control District Flood Control Subventions Program Schedule— Summary of Project Costs October 1, 2014, through June 30, 2018 State Share Santa Ana District of State Share of Reimbursement River Mainstem Claim Costs Allowable Audit Eligibility Allowable Received by the Reimbursement Project Number Claimed Per Audit Adjustments Percentage1 Costs District Due to District SAMO 2015-07 104 A&B $ 1,815,448 $ 1,815,448 $ - 70% $ 1,270,813 $ 1,143,732 $ 127,081 SAMO 2015-08 105 A&B 4,009,628 4,009,628 - 70% 2,806,740 2,526,066 280,674 SAMO 2016-01 106 A&B 3,426,597 3,426,597 - 70% 2,398,618 2,158,756 239,862 SAMO 2016-02 107 A&B 1,451,534 1,451,534 - 70% 1,016,074 914,466 101,608 SAMO 2017-01 108 A&B 2,707,328 2,707,328 - 70% 1,895,130 1,705,617 189,513 SAMO 2017-02 109 A&B 5,354,710 5,354,710 - 70% 3,748,297 3,373,467 374,830 SAMO 2017-03 110 A&B 8,224,724 8,224,724 - 70% 5,757,307 5,181,576 575,731 SAMO 2017-04 111 A&B 1,185,424 1,185,424 - 70% 829,797 746,817 82,980 SAMO 2017-05 112 A&B 1,313,632 1,313,632 - 70% 919,542 827,588 91,954 SAMO 2017-06 113 A&B 1,460,204 1,460,204 - 70% 1,022,143 919,928 102,215 SAMO 2017-07 114 A&B 2,507,804 2,507,804 - 70% 1,755,463 1,579,917 175,546 SAMO 2017-08 115 A&B 7,807,615 7,807,615 - 70% 5,465,331 4,918,798 546,533 SAMO 2018-03 116 A&B 6,651,355 6,651,355 - 70% 4,655,948 4,190,353 465,595 SAMO 2018-04 117 A&B 502,894 502,894 - 70% 352,025 316,823 35,202 SAMO 2018-05 118 A&B 2,810,459 2,810,459 - 70% 1,967,321 1,770,589 196,732 Totals $ 51,229,356 $ 51,229,356 $ - $ 35,860,549 $ 32,274,493 $ 3,586,056 _____________________________ 1The state share of allowable project costs represents the percentage of state funding, as stipulated in the California Water Code, for each project cost category. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S20-FLC-0002