San Bernardino Flood Control District

SAN BERNARDINO FLOOD CONTROL DISTRICT Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM Santa Ana Mainstream – Seven Oaks Dam and San Timoteo Creek Channel Projects July 1, 2005, through June 30, 2006 M M. C ALIA OHEN C ALIFORNIA S TATE C ONTROLLER September 2024 MALIA M. COHEN CALIFORNIA STATE CONTROLLER September 4, 2024 Eric Nichol, Assistant 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 Flood Control Subventions Program claims submitted by the San Bernardino County Flood Control District to the Department of Water Resources. Our audit pertained to Project Claim Numbers SAMSB 2017-01(28) and SAMSB 2017-02(29), for the period of July 1, 2005, through June 30, 2006. The district claimed $1,012,791 for the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects during the audit period. Our audit found that $986,824 is allowable and $25,967 is unallowable. The costs are unallowable because the district did not adhere to the local cooperation agreement cost-sharing requirements and failed to offset an escrow refund against land acquisition costs. The State’s share of allowable costs is $690,777. The Department of Water Resources reimbursed the district $623,532; therefore, the district is owed the remaining balance of $67,245. If you have any questions regarding this report, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226. Sincerely, Original signed by Kimberly A. Tarvin, CPA Chief, Division of Audits KAT/ac Attachment MAILING ADDRESS P.O. Box 942850, Sacramento, CA 94250 SACRAMENTO 3301 C Street, Suite 700, Sacramento, CA 95816 | 916.324.8907 LOS ANGELES 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754 | 323.981.6802 Mr. Eric Nichol September 4, 2024 Page 2 of 2 Copy: Marisela Pavlenko, Manager Flood Control Subventions Program Division of Flood Management Department of Water Resources The Honorable Ensen Mason, Auditor-Controller San Bernardino County The Honorable Dawn Rowe, Chair San Bernardino County Board of Supervisors Noel Castillo, Director San Bernardino County Department of Public Works MAILING ADDRESS P.O. Box 942850, Sacramento, CA 94250 SACRAMENTO 3301 C Street, Suite 700, Sacramento, CA 95816 | 916.324.8907 LOS ANGELES 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754 | 323.981.6802 San Bernardino County Flood Control District Flood Control Subventions Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority .................................................................................................................. 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 Findings and Recommendations ........................................................................................... 5 Attachment—San Bernardino County Flood Control District’s Response to Draft Audit Report San Bernardino County Flood Control District Flood Control Subventions Program Audit Report Summary The State Controller’s Office (SCO) audited Flood Control Subventions Program claims submitted by the San Bernardino County Flood Control District (the district) to the Department of Water Resources (DWR). Our audit pertained to Project Claim Numbers SAMSB 2017-01(28) and SAMSB 2017-02(29), for the period of July 1, 2005, through June 30, 2006. The district claimed $1,012,791 for the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects during the audit period. Our audit found that $986,824 is allowable and $25,967 is unallowable. The costs are unallowable because the district did not adhere to the local cooperation agreement cost-sharing requirements and failed to offset an escrow refund against land acquisition costs. Water Code stipulates the percentage of state funding by project cost category. Pursuant to Water Code section 12832, the DWR reimbursed the district 90% of eligible claimed costs, with the remaining 10% to be released subject to the completion of this audit. Based on our audit, the State’s share of allowable project costs is $690,777. DWR reimbursed the district $623,532 during the audit period; therefore, the district is owed the remaining balance of $67,245. 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 (Water Code, Division 6, Part 6, Chapters 1 through 4), the 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. In accordance with Water Code section 12585.5, the DWR reimburses the district for 70% of eligible costs associated with non-federal expenditures and land acquisitions and relocations. The DWR’s Guidelines for Reimbursement on Flood Control Projects (Flood Control Guidelines) describe the compliance requirement for local agencies seeking reimbursement for the state share of federal flood control projects. The district submitted to DWR claim numbers SAMSB 2017 01(28) and SAMSB 2017-02(29) on June 29, 2017. DWR completed its review and payment of the claims on March 26, 2021, and June 21, 2021, respectively. On July 26, 2021, SCO received the claims from DWR. Audit Authority We conducted this performance audit accordance with Water Code section 12832, which requires the SCO to perform audits of flood control projects. In addition, Government Code section 12410 provides the SCO with general authority to audit the disbursement of state money for correctness, legality, and sufficient provisions of law for payment. -1- San Bernardino County Flood Control District Flood Control Subventions Program Objective, Scope, Our audit objective was to determine whether the costs claimed by the district, as presented in the Schedule, were allowable and in compliance and Methodology with the DWR’s Flood Control Guidelines. Our audit included the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects, for the period of July 1, 2005, through June 30, 2006. To achieve our objective, we performed the following procedures: • We gained an understanding of the district’s internal controls that are significant to the audit objective by interviewing key personnel, by completing an internal control questionnaire, and by reviewing the district’s organization chart. • We evaluated and assessed control activities for the claim preparation process by inspecting documents and records, and by inquiring with key personnel. • We assessed the reliability of computer-processed data by reviewing existing information about the data and the system that produced it; by interviewing district officials knowledgeable about the data; and by tracing data to source documents, based on auditor judgment and non- statistical sampling. We determined that the data was sufficiently reliable for the purposes of achieving our audit objective. • We conducted a risk assessment to determine the nature, timing, and extent of substantive testing. • We reviewed the district’s prior SCO audit and single audit reports. • We reviewed the DWR’s engineering reports and/or claim evaluations pertaining to the district’s claims. • We determined whether the district received revenues that should be offset against the flood program expenditures. • We reviewed the district’s claim detail for any condemnation interest, and inquired of the district whether it had received interest on condemnation deposits. • We determined whether the district received from DWR advances on its flood control project expenditures; and • We verified through sampling that the claimed costs were supported by proper documentation and eligible in accordance with the applicable criteria. Based on our risk assessment, we tested all items that were equal to or greater than the significant item amount (calculated based on materiality threshold). We also tested additional items that were valued less than the individual significant item amount, based on auditor judgment and non-statistical sampling. Based on errors identified in the selected sample, we expanded our testing. We tested the following expenditures: o Land – We tested all $672,900 in land, easement, and right-of- way acquisition costs. o Equipment – We tested $547 of $3,378 in total equipment costs. -2- San Bernardino County Flood Control District Flood Control Subventions Program o Labor – We tested $35,591 of $255,329 in total labor costs. o Services and supplies – We tested $79,126 of $81,184 in total services and supplies costs. For the selected sample, errors found 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 claimed costs are allowable for reimbursement. 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 objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Conclusion The district claimed $1,012,791 in project costs for the period of July 1, 2005, through June 30, 2006. Our audit found instances of noncompliance with the requirements described in the Objective, Scope, and Methodology section. These instances are quantified in the Schedule and described in the Findings and Recommendations section. Based on our audit, the State’s share of allowable project costs is $690,777. The DWR reimbursed the district $623,532; therefore, the district is owed the remaining balance of $67,245. Follow-up on The district has satisfactorily resolved the findings noted in our prior audit Prior Audit report for the period of March 30, 2005, through June 2, 2006, issued on March 28, 2014. Findings Views of We issued a draft audit report on May 23, 2024. The district’s representative responded by letter dated May 29, 2024 (Attachment), Responsible agreeing with the audit results. Officials Restricted Use This audit report is solely for the information and use of the 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 Kimberly A. Tarvin, CPA Chief, Division of Audits September 4, 2024 -3- San Bernardino County Flood Control District Flood Control Subventions Program Schedule— Summary of Project Costs July 1, 2005, through June 30, 2006 -4- SS SSS PaA aAA r o je c n ta A M S B n ta A M S B M S B t / C la im N u m n a M a in s te m 2 0 1 7 -1 (2 8 ) n a M a in s te m 2 0 1 7 -2 (2 9 ) 2 0 1 7 -2 (2 9 ) b e - S - S re a v n C la im C a te g o r y e n O a k s D a m N o n -F e d e ra l E x p e n d itu T im o te o C r e e k C h a n n L a n d a n d E a s e m e n t N o n -F e d e ra l E x p e n d itu T re s e l re s o ta l C o s ts C la im e $ 1 4 8 ,1 6 7 2 ,9 1 9 1 ,7 $ 1 ,0 1 2 ,7 d 4 04 9 8 03 1 A u d it A d ju s tm e n t to C la im e d 1 C o s ts $ (2 5 ,0 6 1 ) (9 0 6 ) - $ (2 5 ,9 6 7 ) A llo w a b le p e r A u d it $ 1 2 3 ,0 8 7 6 7 1 ,9 9 4 1 9 1 ,7 4 3 $ 9 8 6 ,8 2 4 P E e S ta te S h a r e o f lig ib ility r c e n ta g e 7 0 % 7 0 % 7 0 % 2 S ta te S h a r e o f C la im e d C o s ts $ 1 0 3 ,7 0 4 4 7 1 ,0 3 0 1 3 4 ,2 2 0 $ 7 0 8 ,9 5 4 A d ju s tm e n ts to S ta te S h a r e $ (1 7 ,5 4 3 ) (6 3 4 ) - $ (1 8 ,1 7 7 ) S ta te S h a r e o f A llo w a b le C o s ts $ 8 6 ,1 6 1 4 7 0 ,3 9 6 1 3 4 ,2 2 0 $ 6 9 0 ,7 7 7 R e im b u r s e m e n t R e c e iv e d b y th e D is tr ic t $ 7 8 ,8 0 7 4 2 3 ,9 2 7 1 2 0 ,7 9 8 $ 6 2 3 ,5 3 2 R e im b u r s e m e n t D u e to D is tr ic t P e n d in g A u d it $ 7 ,3 5 4 4 6 ,4 6 9 1 3 ,4 2 2 $ 6 7 ,2 4 5 _____________________________ 1See the Findings and Recommendations section. The audit adjustment of $25,967 is comprised of $23,057 (Finding 1); $2,004 (Finding 2); and $906 (Finding 3). 2The state share of allowable project costs represent the percentage of state funding, as stipulated in the Water Code, for each project cost category. San Bernardino County Flood Control District Flood Control Subventions Program Findings and Recommendations FINDING 1— The district claimed $1,012,791 for costs related to the Santa Ana Department of Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects. Water Resources During its review of the claims, the DWR identified $23,057 as ineligible adjustments for reimbursement. The DWR disallowed these expenditures because the district claimed ineligible costs and did not adhere to the local cooperation agreement’s cost-sharing requirements. Specifically, the district claimed ineligible irrigation costs and did not apply the required cost-sharing percentages in calculating costs that are coded as “F02055.” The DWR adjusted the following amounts: • Services and supplies costs of $18,346, incurred in September, October, and November 2005, which represent ineligible irrigation costs; • Labor costs of $4,414, which represent the district’s share of the disallowed environmental studies labor costs; and • Equipment costs of $297, which represent the district’s share of the disallowed environmental studies equipment costs. The DWR reimburses the district for 70% of eligible costs for the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects. At the time of DWR review and approval, the State’s share of the reimbursable claimed costs was $692,813. The DWR reimbursed the district $623,532 (90% of the State’s share of eligible project costs) and withheld $69,281 (10% of eligible project costs) as a retention balance pending our audit. Because the district failed to assess and bill appropriate amounts, its allowable costs and the State’s share of allowable costs were both reduced. Section VI, Part D, “State Review,” of the DWR’s Flood Control Guidelines states, in part: . . . The Department [of Water Resources] will deduct “without prejudice” any item which cannot be verified. The local agency will have 90 days from the date of notification of the deductions to submit additional supporting information. If such information is not received within 90 days, the Department will presume that the local agency accepted the deduction. . . . Article II, section L of the Local Cooperation Agreement Among the Department of the Army, Orange County Flood Control District, San Bernardino County Flood Control District and Riverside County Flood Control and Water Conservation District for Construction of the Santa Ana River Mainstem, including Santiago Creek, California Flood Control Project (December 13, 1989), states, in part: The Sponsors shall be solely responsible for the costs for operating, maintaining, and rehabilitating mitigation lands. With regard to mitigation applicable to the Seven Oaks feature, costs shall be shared by the Sponsors in relation to benefits received by each Sponsor, -5- San Bernardino County Flood Control District Flood Control Subventions Program 87.70 percent by Orange, 5.27 percent by Riverside, and 7.03 percent by San Bernardino. . . . Recommendation We recommend that the district: • Reduce its claims for the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects by $23,057; and • Ensure that claimed costs are eligible for reimbursement under the DWR’s Flood Control Guidelines. District’s Response The district has reviewed the content and findings of the subject report, and this letter is to voice our concurrence with those findings. The district will work to update its administrative procedures to ensure [that] ineligible expenditures are excluded from future claims. The district claimed a total of $148,148 in labor, equipment, and services and supplies costs relating to the Santa Ana Mainstem – Seven Oaks Dam Project on Claim Number SAMSB 2017-01(28). During our review of the claims, we identified $2,004 in labor costs as ineligible for reimbursement. The labor costs are unallowable because the district did not adhere to the local cooperation agreement’s cost-sharing requirements. Specifically, the district did not apply the required cost-sharing percentages in calculating costs that are coded as “F02055.” We tested $91,388 of $148,148 as follows: -6- L E S a q e C b o r u ip m r v ic e C o s t a te g o r y e n t s a n d s u T o ta l p p lie s A m o u n t C la im e d $ 6 8 ,9 1 6 8 1 7 7 8 ,4 1 5 $ 1 4 8 ,1 4 8 A m o u n t T e s te d $ 1 3 ,2 8 9 3 9 2 7 7 ,7 0 7 $ 9 1 ,3 8 8 FINDING 2— Unallowable labor costs Based on the supporting documentation, we determined that the total claimed costs were adequately allocated between the three counties, except for $2,156 in labor costs that was coded as “F02055” but not included in the DWR adjustments. As a result, we allowed $152 (7.03%) and disallowed $2,004 (92.97%). San Bernardino County Flood Control District Flood Control Subventions Program We adjusted the claimed “F02055” labor costs on Claim Number SAMSB 2017-01(28) as follows: -7- J J J J J N N J F A S e r v i c e D a t e u n e 2 7 , 2 0 0 5 u n e 3 0 , 2 0 0 5 u n e 3 0 , 2 0 0 5 u ly 2 5 , 2 0 0 5 u ly 2 5 , 2 0 0 5 o v e m b e r 7 , 2 o v e m b e r 7 , 2 a n u a r y 5 , 2 0 0 e b r u a r y 1 , 2 0 p r il 5 , 2 0 0 6 T o t a l 0 0 6 0 0 0 6 5 5 C o s t s C l a i m e d $ 3 7 4 6 3 6 3 2 7 3 2 7 3 2 3 9 2 3 8 2 3 9 1 9 1 1 4 0 $ 2 ,1 5 6 S C O A d j u s t m e $ ( 3 ( 4 3 ( 5 ( 2 5 ( 2 5 ( 2 2 ( 2 2 ( 2 2 ( 1 7 ( 1 3 $ ( 2 ,0 0 n 4 1 9 4 4 2 1 2 7 0 4 t ) ) ) ) ) ) ) ) ) ) ) Article II, section L of the Local Cooperation Agreement Among the Department of the Army, Orange County Flood Control District, San Bernardino County Flood Control District and Riverside County Flood Control and Water Conservation District for Construction of the Santa Ana River Mainstem, including Santiago Creek, California Flood Control Project (December 13, 1989), states, in part: The Sponsors shall be solely responsible for the costs for operating, maintaining, and rehabilitating mitigation lands. With regard to mitigation applicable to the Seven Oaks feature, costs shall be shared by the Sponsors in relation to benefits received by each Sponsor, 87.70 percent by Orange, 5.27 percent by Riverside, and 7.03 percent by San Bernardino. . . . Recommendation We recommend that the district: • Reduce its claimed labor costs for the Santa Ana Mainstem – Seven Oaks Dam Project by $2,004; and • Ensure that costs claimed for reimbursement are accurate. District’s Response The district has reviewed the content and findings of the subject report, and this letter is to voice our concurrence with those findings. The district will work to update its administrative procedures to ensure ineligible expenditures are excluded from future claims. FINDING 3— The district claimed $864,643 for the Santa Ana River Mainstem – Unallowable land San Timoteo Creek Channel Project. During our review of the claims, we acquisition costs identified $906 in land and easement costs as ineligible for reimbursement. The costs are unallowable because the district did not comply with the DWR’s Flood Control Guidelines. San Bernardino County Flood Control District Flood Control Subventions Program We tested all $672,900 in land acquisition and easement costs and identified a $906 escrow refund. The $906 is ineligible because the district did not offset the escrow refund against its land acquisition costs. The DWR reimburses the district for 70% of eligible costs for the Santa Ana Mainstem – Seven Oaks Dam and San Timoteo Creek Channel Projects. The State’s share of the $906 is $634. Therefore, the district overstated its land and easement costs by $634 because it did not offset the escrow refund. The error occurred because district officials were unaware of the DWR’s Flood Control Guidelines. Furthermore, the district does not have internal policies and procedures to ensure that claimed costs are eligible for reimbursement. Section VI, Part D, “State Review,” of the DWR’s Flood Control Guidelines states, in part: . . . The Department [of Water Resources] will deduct “without prejudice” any item which cannot be verified. The local agency will have 90 days from the date of notification of the deductions to submit additional supporting information. If such information is not received within 90 days, the Department will presume that the local agency accepted the deduction. . . . Recommendation We recommend that the district: • Reduce its claims for the Santa Ana Mainstem – San Timoteo Creek Channel Project by $906; and • Ensure that costs are eligible for reimbursement under the DWR’s Flood Control Guidelines. District’s Response The district has reviewed the content and findings of the subject report, and this letter is to voice our concurrence with those findings. The district will work to update its administrative procedures to ensure ineligible expenditures are excluded from future claims. -8- San Bernardino County Flood Control District Flood Control Subventions Program Attachment— San Bernardino County Flood Control District’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 www.sco.ca.gov S23-FLC-0001