Santa Clara Flood Control District

SANTA CLARA VALLEY WATER DISTRICT Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM Coyote – Berryessa Creeks, Lower Silver Creek Watershed, South San Francisco Bay Shoreline Phase 1, Upper Guadalupe River, and Upper Llagas Creek Watershed Projects March 1, 2015, through June 30, 2023 M M. C ALIA OHEN C ALIFORNIA S TATE C ONTROLLER April 2025 MALIA M. COHEN CALIFORNIA STATE CONTROLLER April 14, 2025 Mr. Jeremy Arrich, P.E., Manager Division of Flood Planning and Improvements Department of Water Resources 3310 El Camino Avenue, Suite 124 Sacramento, CA 95821 Dear Mr. Arrich: The State Controller’s Office audited Flood Control Subventions Program claims submitted by the Santa Clara Valley Water District (the district) to the Department of Water Resources (DWR). Our audit pertained to DWR claim numbers CBC 48 through CBC 61; LSCW 92 through LSCW 97; SSFBS 1 through SSFBS 8; UGR 56 through UGR 61; and ULCW 287 through ULCW 323, for the period of March 1, 2015, through June 30, 2023. The district claimed costs of $23,822,100 for the Coyote – Berryessa Creeks Project, Lower Silver Creek Watershed Project, South San Francisco Bay Shoreline Phase 1 Project, Upper Guadalupe River Project, and Upper Llagas Creek Watershed Project for the period of March 1, 2015, through June 30, 2023. Our audit found that $23,709,297 is allowable and $112,803 is unallowable. The costs are unallowable because the district claimed costs in excess of maximum allowable reimbursable costs, and it claimed unallowable land costs. The State’s share of allowable costs is $19,453,704. The DWR reimbursed the district $17,514,634 during the audit period; therefore, the district is owed the remaining balance of $1,939,070. If you have any questions regarding this report, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at 916-324-7226, or email at eloste@sco.ca.gov. Thank you. Sincerely, Original signed by Kimberly A. Tarvin, CPA Chief, Division of Audits 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. Jeremy Arrich April 14, 2025 Page 2 of 2 KAT/am Copy: Marisela Pavlenko, P.E., Program Manager Division of Flood Planning and Improvements Department of Water Resources The Honorable Tony Estremera, Chair Board of Directors Santa Clara Valley Water District Rick Callender, Chief Executive Officer Santa Clara Valley Water District Darin Taylor, Chief Financial Officer Santa Clara Valley Water District 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 Santa Clara Valley Water 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 .................................................................................................................... 4 Schedule—Summary of Project Costs ................................................................................. 5 Finding and Recommendation .............................................................................................. 8 Attachment— Santa Clara Valley Water District’s Response to Draft Audit Report Santa Clara Valley Water District Flood Control Subventions Program Audit Report Summary The State Controller’s Office (SCO) audited Flood Control Subventions Program claims submitted by the Santa Clara Valley Water District (the district) to the Department of Water Resources (DWR). Our audit pertained to DWR claim numbers CBC 48 through CBC 61; LSCW 92 through LSCW 97; SSFBS 1 through SSFBS 8; UGR 56 through UGR 61; and ULCW 287 through ULCW 323, for the period of March 1, 2015, through June 30, 2023. The district claimed $23,822,100 during the audit period. Our audit found that $23,709,297 is allowable and $112,803 is unallowable. 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 $19,453,704. The DWR reimbursed the district $17,514,634 during the audit period; therefore, the district is owed the remaining balance of $1,939,070. 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 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, land acquisition, and relocations. The DWR’s Guidelines for Reimbursement on Flood Control Projects (DWR Guidelines) describe the compliance requirement for local agencies seeking reimbursement for the state share of federal flood control projects. Audit Authority We conducted this performance audit in accordance with Water Code section 12832, which requires the SCO to perform audits of flood control projects. In addition, Government Code section 12410 provides SCO with general authority to audit the disbursement of state money for correctness, legality, and sufficient provisions of law for payment. 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 Guidelines. Our audit pertained to DWR claim numbers CBC 48 through CBC 61; LSCW 92 through LSCW 97; SSFBS 1 through SSFBS 8; UGR 56 -1- Santa Clara Valley Water District Flood Control Subventions Program through UGR 61; and ULCW 287 through ULCW 323, for the period of March 1, 2015, through June 30, 2023. 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 claims 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. • 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. We tested the following expenditures: o Land – We tested $6,079,115 of $6,375,021 in total land, easement, and right-of-way acquisition costs claimed. o Relocation – We tested $3,825,485 of $4,327,223 in total relocation costs claimed. o Associated project costs – We tested $53,553 of $1,410,557 in total labor costs claimed. -2- Santa Clara Valley Water District Flood Control Subventions Program o Services and supplies – We tested $11,359,740 of $11,709,299 in total services and supplies costs claimed. 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 objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Conclusion The district claimed $23,822,100 in project costs for the Coyote – Berryessa Creeks Project, Lower Silver Creek Watershed Project, South San Francisco Bay Shoreline (SSFBS) Phase 1 Project, Upper Guadalupe River (UGR) Project, and Upper Llagas Creek Watershed Project for the period of March 1, 2015, through June 30, 2023. Our audit found that $23,709,297 is allowable and $112,803 is unallowable. The costs are unallowable because the district claimed costs in excess of maximum allowable reimbursable costs, and it claimed unallowable land costs. Based on our audit, the State’s share of allowable project costs is $19,453,704. The DWR reimbursed the district $17,514,634 during the audit period; therefore, the district is owed the remaining balance of $1,939,070. Follow-up on The findings noted in our prior audit report, issued on August 31, 2022, have been satisfactorily resolved by the district. Prior Audit Findings Views of We issued a draft audit report on January 28, 2025. The district’s representative responded by letter dated February 6, 2025, agreeing with Responsible the audit results. This final audit report includes the district’s response as Officials an attachment. -3- Santa Clara Valley Water District Flood Control Subventions Program 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 April 14, 2025 -4- Santa Clara Valley Water District Flood Control Subventions Program Schedule— Summary of Project Costs May 1, 2015, through June 30, 2023 Additional DWR State State Amount Amount Project Adjustment Share of Share of Received Due to the Claim to Claimed Audit Allowable State Claimed Allowable by the District Number Claimed Costs Costs Adjustment1 Costs Share Costs Costs District Pending Audit CBC 2021-01 (48) $ 1 ,555 $ - $ - $ 1 ,555 70% $ 1 ,088 $ 1 ,088 $ 9 79 $ 1 09 CBC 2021-01 (49) 7 50 - - 7 50 70% 5 25 5 25 4 73 5 3 CBC 2021-02 (50) 1 46,885 - - 1 46,885 70% 1 02,819 1 02,819 9 2,537 1 0,282 CBC 2021-02 (51) 1 11,727 - - 1 11,727 70% 7 8,209 7 8,209 7 0,388 7 ,821 CBC 2021-03 (52) 9 68,379 - - 9 68,379 70% 6 77,866 6 77,866 6 10,079 6 7,787 CBC 2021-03 (53) 2 7,895 - - 2 7,895 70% 1 9,527 1 9,527 1 7,574 1 ,953 CBC 2021-04 (54) 3 ,276 - - 3 ,276 70% 2 ,294 2 ,294 2 ,064 2 29 CBC 2021-04 (55) 2 ,307 - - 2 ,307 70% 1 ,615 1 ,615 1 ,453 1 61 CBC 2022-01 (56) 3 6,248 - - 3 6,248 70% 2 5,374 2 5,374 2 2,836 2 ,537 CBC 2022-01 (57) 5 0,777 - - 5 0,777 70% 3 5,544 3 5,544 3 1,989 3 ,554 CBC 2022-02 (58) 4 5,057 - - 4 5,057 70% 3 1,540 3 1,540 2 8,386 3 ,154 CBC 2022-02 (59) 1 ,600 - - 1 ,600 70% 1 ,120 1 ,120 1 ,008 1 12 CBC 2022-03 (60) 9 9,080 - - 9 9,080 70% 6 9,356 6 9,356 6 2,420 6 ,936 CBC 2022-03 (61) 1 16,205 - - 1 16,205 70% 8 1,344 8 1,344 7 3,209 8 ,134 Total 1 ,611,741 - - 1 ,611,741 1 ,128,219 1 ,128,219 1 ,015,397 1 12,822 UGR 2021-01 (56) 2 88,259 - - 2 88,259 70% 2 01,781 2 01,781 1 81,603 2 0,178 UGR 2021-01 (57) 7 1,129 - - 7 1,129 70% 4 9,790 4 9,790 4 4,811 4 ,979 UGR 2021-02 (58) 4 3,000 - - 4 3,000 70% 3 0,100 3 0,100 2 7,090 3 ,010 UGR 2021-03 (59) 1 43,000 - - 1 43,000 70% 1 00,100 1 00,100 9 0,090 1 0,010 UGR 2021-04 (60) 4 45,000 - ( 10,000) 4 35,000 70% 3 11,500 3 04,500 2 80,350 2 4,150 UGR 2021-04 (61) 4 ,198 - - 4 ,198 70% 2 ,939 2 ,939 2 ,645 2 94 Total 9 94,586 - ( 10,000) 9 84,586 6 96,210 6 89,210 6 26,589 6 2,621 -5- Santa Clara Valley Water District Flood Control Subventions Program Schedule (continued) Additional DWR State State Amount Amount Project Adjustment Share of Share of Received Due to the Claim to Claimed Audit Allowable State Claimed Allowable by the District Number Claimed Costs Costs Adjustment1 Costs Share Costs Costs District Pending Audit SSFBS 2022-01 (1) 2 19,814 ( 5,528) - 2 14,286 70% 1 53,870 1 50,000 1 35,000 1 5,000 SSFBS 2022-01 (2) 1 0,303,628 ( 97,275) 4 4,752 1 0,251,105 70% 7 ,212,540 7 ,175,774 6 ,430,003 7 45,771 SSFBS 2022-02 (3) 6 2,147 - - 6 2,147 70% 4 3,503 4 3,503 3 9,153 4 ,350 SSFBS 2022-02 (4) 6 ,296 - - 6 ,296 70% 4 ,407 4 ,407 3 ,966 4 41 SSFBS 2022-02 (5) 4 5,300 - - 4 5,300 70% 3 1,710 3 1,710 2 8,539 3 ,171 SSFBS 2023-03 (6) 5 1,750 - - 5 1,750 70% 3 6,225 3 6,225 3 2,603 3 ,622 SSFBS 2022-03 (7) 2 3,000 - - 2 3,000 70% 1 6,100 1 6,100 1 4,490 1 ,610 SSFBS 2022-04 (8) 8 19,439 - ( 44,752) 7 74,687 70% 5 73,607 5 42,281 5 16,247 2 6,034 Total 1 1,531,374 ( 102,803) - 1 1,428,571 8 ,071,962 8 ,000,000 7 ,200,001 7 99,999 LSCW 2021-01 (92) 1 45,994 - - 1 45,994 90% 1 31,395 1 31,395 1 18,255 1 3,139 LSCW 2021-01 (93) 2 47,737 - - 2 47,737 90% 2 22,963 2 22,963 2 00,667 2 2,296 LSCW 2021-02 (94) 1 6,758 - - 1 6,758 90% 1 5,082 1 5,082 1 3,574 1 ,508 LSCW 2021-02 (95) 4 7,617 - - 4 7,617 90% 4 2,855 4 2,855 3 8,570 4 ,286 LSCW 2022-01 (96) 7 ,883 - - 7 ,883 90% 7 ,095 7 ,095 6 ,385 7 10 LSCW 2022-01 (97) 1 5,244 - - 1 5,244 90% 1 3,720 1 3,720 1 2,348 1 ,372 Total 4 81,233 - - 4 81,233 4 33,109 4 33,109 3 89,798 4 3,311 ULCW 2022-01 (287) 1 ,575,051 - - 1 ,575,051 100% 1 ,575,051 1 ,575,051 1 ,417,546 1 57,504 ULCW 2022-01 (288) 1 8,790 - - 1 8,790 100% 1 8,790 1 8,790 1 6,911 1 ,879 ULCW 2022-01 (289) 1 34,505 - - 1 34,505 100% 1 34,505 1 34,505 1 21,055 1 3,451 ULCW 2022-01 (290) 8 59,151 - - 8 59,151 100% 8 59,151 8 59,151 7 73,236 8 5,915 ULCW 2022-01 (291) 3 34,797 - - 3 34,797 100% 3 34,797 3 34,797 3 01,317 3 3,480 ULCW 2022-01 (292) 1 58,077 - - 1 58,077 100% 1 58,077 1 58,077 1 42,269 1 5,808 ULCW 2022-01 (293) 1 1,000 - - 1 1,000 100% 1 1,000 1 1,000 9 ,900 1 ,100 ULCW 2022-01 (294) 4 2,200 - - 4 2,200 100% 4 2,200 4 2,200 3 7,980 4 ,220 ULCW 2022-02 (295) 8 06,198 - - 8 06,198 100% 8 06,198 8 06,198 7 25,579 8 0,620 ULCW 2022-02 (296) 2 0,326 - - 2 0,326 100% 2 0,326 2 0,326 1 8,293 2 ,033 ULCW 2022-02 (297) 4 0,570 - - 4 0,570 100% 4 0,570 4 0,570 3 6,513 4 ,057 ULCW 2022-02 (298) 1 ,087,829 - - 1 ,087,829 100% 1 ,087,829 1 ,087,829 9 79,047 1 08,783 ULCW 2022-02 (299) 9 ,895 - - 9 ,895 100% 9 ,895 9 ,895 8 ,905 9 89 ULCW 2022-02 (300) 6 7,638 - - 6 7,638 100% 6 7,638 6 7,638 6 0,874 6 ,764 -6- Santa Clara Valley Water District Flood Control Subventions Program Schedule (continued) -7- UUUUUUUUUUUUUUUUUUUUUUUT G LLLLLLLLLLLLLLLLLLLLLLLo r CCCCCCCCCCCCCCCCCCCCCCCt a a n WWWWWWWWWWWWWWWWWWWWWWWl d P r o je c C la im N u m b e 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 2 0 2 2 - 0 T o t a l t r22222222233333333333333 ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( 33333333333333333333333 00000000011111111112222 12345678901234567890123 ))))))))))))))))) ))))) C la im e d C 1 1 4 4 1 5 1 5 8 4 3 4 8 8 4 3 1 4 1 2 2 6 1 ,1 1 4 2 0 2 4 8 1 ,3 3 0 2 2 1 1 4 2 9 2 9 2 9 2 9 1 3 2 9 ,2 0 3 $ 2 3 ,8 2 2 o ,3,0,5,0,3,0,1,8,4,6,9,9,0,0,0,6,0,0,0,0,0,3,4,1 ,1 s020000000010000000000006 0 ts050000000050000000000006 0 D W R A d ju s tm e n t to C la im e d C o s ts - - - - - - - - - - - - - - - - - - - - - - - - $ ( 1 0 2 ,8 0 3 ) A u d it 1 A d ju s tm e n t - - - - - - - - - - - - - - - - - - - - - - - - $ ( 1 0 ,0 0 0 ) A llo w a b le C o s ts 1 1 4 ,3 0 4 1 ,0 2 5 ,5 0 1 ,0 0 5 8 ,3 0 4 3 4 ,0 0 8 8 ,1 0 4 3 ,8 0 1 4 1 ,4 0 2 2 6 ,6 0 1 ,1 1 4 ,9 1 2 0 ,9 0 2 4 8 ,0 0 1 ,3 3 0 ,0 0 2 ,0 0 2 1 ,6 0 1 4 ,0 0 2 9 ,0 0 2 9 ,0 0 2 9 ,0 0 2 9 ,0 0 1 3 ,3 0 2 ,4 0 9 ,2 0 3 ,1 6 $ 2 3 ,7 0 9 ,2 9 050000000050000000000006 7 S ta S h a 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 te r e 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % S ta te S h a r e o f C la im e d C o s ts 1 1 4 ,3 4 1 ,0 5 ,5 1 ,0 5 8 ,3 4 3 4 ,0 8 8 ,1 4 3 ,8 1 4 1 ,4 2 2 6 ,6 1 ,1 1 4 ,9 2 0 ,9 2 4 8 ,0 1 ,3 3 0 ,0 2 ,0 2 1 ,6 1 4 ,0 2 9 ,0 2 9 ,0 2 9 ,0 2 9 ,0 1 3 ,3 2 ,4 9 ,2 0 3 ,1 $ 1 9 ,5 3 2 ,6 020000000010000000000006 6 050000000050000000000006 6 S ta te S h a r e o f A llo w a b le C o s ts 1 1 4 ,3 0 4 1 ,0 2 5 ,5 0 1 ,0 0 5 8 ,3 0 4 3 4 ,0 0 8 8 ,1 0 4 3 ,8 0 1 4 1 ,4 0 2 2 6 ,6 0 1 ,1 1 4 ,9 1 2 0 ,9 0 2 4 8 ,0 0 1 ,3 3 0 ,0 0 2 ,0 0 2 1 ,6 0 1 4 ,0 0 2 9 ,0 0 2 9 ,0 0 2 9 ,0 0 2 9 ,0 0 1 3 ,3 0 2 ,4 0 9 ,2 0 3 ,1 6 $ 1 9 ,4 5 3 ,7 0 050000000050000000000006 4 A m o u n t R e c e iv e d b y th e D is tr ic t 1 0 2 ,8 3 6 ,9 4 ,9 9 5 2 ,4 3 9 0 ,6 7 9 ,2 3 9 ,4 1 2 7 ,2 2 0 3 ,9 1 ,0 0 3 ,4 1 8 ,8 2 2 3 ,2 1 ,1 9 7 ,0 1 ,8 1 9 ,4 1 2 ,6 2 6 ,1 2 6 ,1 2 6 ,1 2 6 ,1 1 1 ,9 2 ,1 8 ,2 8 2 ,8 $ 1 7 ,5 1 4 ,6 725070926421000400000764 3 030000000030000000000009 4 A d d itio n a l A m o u n t D u e to th e D is tr ic t P e n d in g A u d it 1 1 ,4 3 0 4 ,1 0 3 5 5 0 1 0 0 5 ,8 3 0 4 3 ,4 0 0 8 ,8 1 0 4 ,3 8 0 1 4 ,1 4 0 2 2 ,6 6 0 1 1 1 ,4 9 1 2 ,0 9 0 2 4 ,8 0 0 1 3 3 ,0 0 0 2 0 0 2 ,1 6 0 1 ,4 0 0 2 ,9 0 0 2 ,9 0 0 2 ,9 0 0 2 ,9 0 0 1 ,3 3 0 2 4 0 9 2 0 ,3 1 7 $ 1 ,9 3 9 ,0 7 0 _____________________________ 1See the Finding and Recommendation section. 2The State’s share of allowable project costs represent the percentage of state funding, as stipulated in the California Water Code, for each project cost category. Santa Clara Valley Water District Flood Control Subventions Program Finding and Recommendation FINDING— The district claimed $994,586 in costs for the UGR Project and Unallowable land $11,531,374 in costs for the SSFBS Phase 1 Project. During the audit, we acquisition costs identified unallowable costs totaling $54,752, which included $10,000 in and partial unallowable land costs from the UGR Project and $44,752 in unallowable reversal of land costs from the SSFBS Phase 1 Project. Department of The $10,000 in unallowable costs for the UGR Project resulted from an Water Resources overstated appraisal value. We found that the certified appraisal value of adjustments $445,000, which the district claimed for reimbursement, did not agree with the supporting appraisal report calculation of $435,000. The $44,752 in unallowable costs for the SSFBS Phase 1 Project resulted from the district’s negotiated settlement of $469,752, which exceeded the appraised fair market value of $425,000. The district did not request the necessary preapproval from DWR for the excess amount. The district did not follow the DWR Guidelines, which require claimants to obtain advance approval from the DWR for negotiated settlements and stipulated court judgments that exceed the high appraised value. In addition, the district did not sufficiently review the certified appraisal value to ensure that the amounts calculated in the report agree with the supporting appraisal report calculation. Section IV, Part D.1 of the DWR Guidelines states, in part: Negotiated settlements and stipulated judgments may not exceed the local agency’s high appraised value unless the advance approval of the Department [of Water Resources] has been obtained. Department of Water Resources Adjustments In its initial processing of the claims, DWR made two adjustments to SSFBS Phase 1 Project claims totaling $102,803 as excess claims, to reduce the State’s share of allowable costs to the maximum allowable amount of $8 million. When we identified the unallowable land acquisition costs during the audit, the district contacted the DWR to discuss the audit adjustments. The district subsequently advised us that the DWR had agreed to shift and replace our $44,752 adjustment with the excess project costs previously adjusted by the DWR. After confirming with the DWR its agreement with the district to shift costs, we performed an additional review of the previously adjusted costs to determine eligibility. We found the costs to be eligible and agreed with the cost shift, and partially reversed the DWR adjustments by $44,752. -8- Santa Clara Valley Water District Flood Control Subventions Program As a result, allowable costs are reduced by $10,000, as shown in the following table: SCO Claim Number Category Adjustment UGR 2021-04 (60) Land (10,000) SSFBS 2022-04(8) Land (44,752) SSFBS 2022-01(2) Services and supplies 4 4,752 Total $ ( 10,000) Recommendation We recommend that the district: • Reduce its claim for the UGR Project by $10,000; and • Ensure that future claimed costs are eligible for reimbursement under DWR guidelines. We also recommend that DWR adjust its records accordingly to reflect the partial reversal of its adjustments to SSFBS Phase 1 Project claims. District’s Response . . . There was a $10,000 adjustment resulting from an overstated appraisal value related to the [UGR] project, which was caused by a typographical error on the documentation from the appraiser. The resulting financial impact to Valley Water will be a reduction in anticipated cost reimbursements by $7,000, due to the overstated appraisal value related to the UGR project ($10,000 adjustment × 70% reimbursement = $7,000), with which Valley Water staff agrees. Valley Water will continue to seek advance approval from DWR whenever seeking reimbursement that exceeds the appraisal value. Additionally, Valley Water will maintain close collaboration with the Real Estate Services Unit to ensure that the most up-to-date reports are available for review. -9- Santa Clara Valley Water District Flood Control Subventions Program Attachment— Santa Clara Valley Water 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 S24-FLC-0002