HomeMy WebLinkAboutAgenda Packet - Finance & Human Resources Committee - 02/02/2012t*pEast Val ley
Water District
FINANCE COMMITTEE
Date: February 2, 2012
Time: 1 :30 p.m.
Place: 3694 E. Highland Ave, Suite 30
Highland, CA 92346
AGENDA
CALL TO ORDER
PLEDGE OF ALLEGIANCE
1. Public Comments
2. Review the District's 2010-11 audited financial statements
3. Committee comments
ADJOURN
Pursuant to Government Code Section 54954.2(a), any request for a disability-related
modification or accommodation, including auxiliary aids or services, that is sought in order to
participate in the above-agendized public meeting should be directed to the District's
Administrative Manager at (909) 885-4900 at least 72 hours prior to said meeting.
COMMITTEE AGENDA STAFF REPORT
Meeting Date: February 2,2012
East Valley
Water District
January 30, 2012
TO: FINANCE COMMITTEE MEMBERS
FROM: GENERAL MANAGER/CEO
SUBJECT'.': AUDITED FINANCIAL STATEMENTS FOR YEAR ENDED JUNE 30, 2011
RECOMMENDATION:
Review and forward to Governing Board for adoption.
BACKGROUND/ANALYSIS:
Attached are the East Valley Water District audited financial statements for the fiscal year ended
June 30, 2011. The audit was performed by the CPA firm of Teaman Ramirez, and Smith in
accordance with Generally Accepted Auditing Standards and guidelines established by the
California State Controller. This year the District was also subject to Governmental Auditing
Standards, due to receipt of federal funding, and the auditors were, therefore, required to issue
additional reports. These reports are included with the audit packet.
The audit is being presented later than usual this year due to a number of challenges,
The initial challenge was the switch to a new audit firm. The first year of engagement for any
new firm will always require extra work as the firm gains an understanding of the client and
builds their files. This challenge was compounded by the fact that the firm was not hired until
June 26`h. 4 days prior to our year end.
Next was the number of new federal/state financial awards received by the District during the
year, which required special audit procedures. The financial awards included SRF funding for
Plant 134, Eastwood Farms, and the Plant 150 design project, as well as reimbursement funding
from FE:AA for ten separate claims for damages to District plants caused by flooding in
December 2010.
Another challenge this year was revamping the presentation of the financial statements in
anticipation of submitting the District's CAFR (Comprehensive Annual Financial Report) for
CR#0001
AGENDA DATE: FEBRUARY 2, 2012
SUBJECT: AUDITED FINANCIAL STATEMENTS FOR YEAR ENDED JUNE 30, 2011
PAGE TWO
consideration of award for excellence in financial reporting. This involved new schedules for
side-by-side fund reporting, updating all notes and disclosures, and creating a statistical
infonnation section. This work was done almost entirely by District staff as new emphasis is
being placed on the technical ability of in-house finance departments, and a shift of financial
statement preparation away from auditors.
Staff believes that the extra time and work invested in this year's audit will be justified by the ability to
submit the District's June 30, 2012 CAER for consideration to receive the award for excellence in
financial reporting.
REVIEW BY OTHERS:
Not applicable
FISCAL IMPACT:
None
Respectfully submitted Recormnended by:
Ll,,o y
John Mur,a, Gener9 Manager, CEO Brian Tompkins, Q O
ATTACHMENTS:
Fiscal 2010-11 audited financial statements
CR#0001
EAST VALLEY WATER DISTRICT
FINANCIAL STATEMENTS
Year Ended June 30,201 l
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East Valley Water District
Financial Statements
Year Ended June 30, 2011
TABLE OF CONTENTS
PAGE
FINANCIAL SECTION
Independent Auditors'Report 1 -2
Management's Discussion and Analysis 3 - 11
Basic Financial Statements
Statement of Net Assets 12- 13
Statement of Revenues,Expenses and Changes in Net Assets 14- 15
Statement of Cash Flows 16- 17
Notes to Financial Statements 18-37
Required Supplementary Information
Schedule of Funding Progress for Retirees Health Coverage 38
Supplementary Information
History and Organization 39
Combining Schedule of Net Assets 40-41
Combining Schedule of Revenues,Expenses and Changes in Net Assets 42-44
Combining Schedule of Cash Flows 45-46
Principal and Interest Repayment Schedule
Refunding Revenue Bonds-Series 2010 47-48
Department of Water Resources Construction Loan 49
STATISTICAL SECTION
Operating Revenue by Source 50
Revenue Rates 51
Water Operating Expenses 52
Sewer Operating Expenses 53
Active Services by Type 54
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INDEPENDENT AUDITORS'REPORT
Board of Directors
East Valley Water District
San Bemardino,California
We have audited the accompanying financial statements of the business-type activities of East Valley Water District (the
District"), as of and for the year ended June 30, 2011, which comprise the District's basicc financial statements as listed in the
table contents. These financial statements are the responsibility of the District's management. Our responsibility is to express
opinions on these financial statements based on our audit. The prior year summarized comparative information has been
derived from the District's June 30, 2010 financial statements, which were audited by other auditors whose report dated
December 22,2010,expressed an unqualified opinion on those financial statements.
We conductec our audit in accordance with auditing standards generally accepted in the United States of America,the standards
applicable to !financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United
States and the State Controller(v Minimum Audit Requirements for California Special Districts. Those standards require that we
plan and pec'orm the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by the management,
as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
business-type activities of the East Valley Water District as of June 30, 2011, and respective changes in financial position and
cash flows, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards, we have also issued our report dated 2012, on our
consideration of the District's internal control over financial reporting and on our tests of its compliance with certain
provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe
the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Accounting principles generally accepted in the United States of America require that the management's discussion and analysis
on pages 3 through 11, and the Schedule of Funding Progress for Retirees Health Coverage on page 39 be presented to
supplement the basic financial statements. Such information,although not a part of the basic financial statements,is required by
the Goverrmerntal Accounting Standard Board, who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited
procedures to the required suppiementary information in accordance with auditing standards generally accepted United States of
America, which consisted of inquires of management about the methods of preparing the information and comparing the
information of consistency with management's responses to our inquires,the basic financial statements,and other knowledge we
obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance.
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our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the East
Valley Water District's financial statements as a whole. The Supplementary Information and Statistical Sections are
presented for purposes of additional analysis and are not a required part of the financial statements. The Supplementary
Information Section is the responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the financial statements. The information has been subjected to the auditing
procedures applied in the audit of the financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to prepare the financial statements
or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America. In our opinion,the information is fairly stated in all material respects in relation to
the financial statements as a whole. The Statistical Section has not been subjected to the auditing procedures applied in the
audit of the basic financial statements and, accordingly,we do not express an opinion or provide any assurance on it.
2011
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The District or net, between what is owned and what is owed
as of the last day of the District's fiscal year.
The East Valley Water District (EVWD) is a The Statement of Revenues, Expenses, and
California Special District established under Changes in Net Assets describe the financial
section 30000 et seq. of the California Water results of the District's operations for the years
Code. The District is engaged in pumping, reported. These results, or changes in net
treating and distributing water to its customers, assets, are the increases or decreases in the
as well as maintaining a collection system for bottom line of the Statement of Net Assets.
residential and commercial wastewater that is
delivered for treatment at a plant owned by the The Statement of Cash Flows (direct method)
City of San Bernardino Water Department. conveys to financial statement users how the
District managed cash resources during the
The District serves the City of Highland and year. This statement converts the Change in
portions of the City of San Bernardino and the Net Assets presented on the Statement of
County of San Bernardino in California. Revenues, Expenses, and Changes in Net
Assets into actual cash provided by or used for
The Basic Financial Statements operations. The Statement of Cash Flows also
details how the District obtains cash through
East Valley Water District is a special-purpose financing and investing activities, and
government engaged in activities that are conversely, how cash is spent for these
supported exclusively by user charges. As purposes.
such, the District's financial statements are
presented in the format prescribed for Summary Financial Information and Analysis
proprietary funds by the Governmental
Accounti,ig Standards Board. Financial Condition
The following financial statements for the year During the year ended June 30, 2011, the
ended June 30, 2011 (2010 for comparative District's total assets increased by $19.37
purposes. only) consist of three interrelated million. The increase was primarily in two asset
statements designed to provide the reader with categories: restricted cash and capital assets.
relevant. understandable data about the
District's financial condition and operating Restricted cash balances grew with the infusion
results. They are the Statement of Net Assets, 16 million in funds for capital projects from the
the Statement of Revenue, Expenses, and issue of bonds. The receipt of bond proceeds,
Changes in Net Assets, and the Statement of along with the finalization of a funding
Cash Flows. agreement with the State of California
Department of Water Resources (DWR),
The Statement of Net Assets presents the allowed the District to begin some large pipeline
District's assets and liabilities and the difference, and treatment plant projects. As a result,
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construction in progress (and Capital Assets) Interest payable increased by 56% as well, due
increased by$1.5 million during 2010-11. to the large bond issue in October 2010 and
resulting increase in debt service.
Current assets also increased by $1.8 million,
although the dispensation of current assets is At June 30, 2011, the current ratio is 1.54:1,
less liquid than at the end of the previous year. compared to a ratio of 1.43:1 at the end of the
Unrestricted cash and investments decreased previous fiscal year.
by$1.6 million as a result of heavy constructions
spending, , but this was offset by a $3.1 million The District's Net Assets totaled $99.4 million at
receivable from the state at June 30, 2011. This the end of fiscal year 2011, a $400 thousand
receivable represents reimbursements 3%) increase from net assets at the end of the
receivable under the DWR funding agreement previous fiscal year. The increase in Net Assets
for progress on the Plant 134 upgrade project. consisted of operating income of$837 thousand,
net non-operating expenses of$1,176 thousand,
Condensed Statement of Net Assets and net contributions of cash from developers of
in millions) 100 thousand.
6130/11 6/30/10 93.2 million of the $99.4 million (93.8%) in Net
Assets at June 30, 2011 was invested in capital
Current Assets 10.5 8,8 assets, $103 thousand was classified as
Restricted Assets 17.7 2.3 Restricted, with the remaining $6.1 million
Capital Assets-Net 114.4 112.6 classified as unrestricted. $2.1 of the $6.1
Other Assets 7 2 million in Unrestricted Net Assets has been
Total Assets 143.3 123.9 designated for emergency and rate stabilization
and can only be spent with authorization from
Current liabilities 6.8 6.1
the Board.
Noncurrent liabilities 37.0 18.8
Total Liabilities 43.8 24,9
The increase in net assets thousand
was offset by a greater increasee inn liabilities, due
to new debt issues, causing the District's debt to
net
Ass is
in capital
equity ratio to weaken from 25.1%to 44.1%.
assets 93.2 93.4
Restricted 1
Activities and Chances In Net Assets
Unrestricted 6.1 5.6 Water Operations
Total Net Assets 99.4 99.0
East Valley Water District produced and sold
18,712 acre-feet of water during the 2010-2011
fiscal year, 1,091 acre feet (5.5%) fewer than in
the prior year. This significant decrease in
Current liabilities increased by $757 thousand volume of water sold, offset by the effect of a 9%
12%) due to construction activity, and to a rate increase that became effective in October
significant number of District staff being eligible 2010, resulted in substantially no change in
to retire. Construction activity resulted in large sales (.13% decrease) which remained at $11.6
contractor invoices being included in year-end million. Total water operating revenues were
accounts payable, and the current portion of 15.8 million, up (3.5%)from $15.3 million in the
compensated absences increased significantly previous fiscal year.
compared to the prior year as between six and
eight employees, including members of senior Factors affecting the drop in water sold include
management, plan on retiring during 2011-12 the stagnant economy, which caused some
and will be eligible to cash out a majority of their customers to implement self-imposed
accrued leave. conservation, and above-average rainfall during
the 12 months ended June 30, 2011. Between
July 2010 and June 2011, rainfall for the area
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was 22.47 inches, compared to the period July payments calculated at $160 per acre-foot. In
2009 to June 2010, during which rainfall was January 2011, the District was required to pay
17.71 inches, a 27% increase between years. 59,041 for production deficits in 2010.
Average rainfall for the District's service area is
approximately 15"per year. The third site contains two treatment units that
the District purchased; one treats for uranium
Monthly meter charges, which were also and the other for nitrates, These owned units are
affected by the 2010 rate increase, rose 14.9% subject to much lower maintenance costs which
to $3.7 million, helping to stabilize water are also charged at a per acre-foot rate. During
operating revenue and achieve the 3.5% 2010-11 the District treated 562.0 acre-feet of
increase in total water operating revenue. water with the Uranium unit at a cost of $125
and 480.6 acre-feet of water for nitrates at a cost
Water department operating costs, before of$292 per AF.
general and administrative expenses, fell 6.12%
to $6.8 million. After Administrative and General
costs of $4.4 million, and depreciation of $3.3
Water Dept.Operatingmillion, water department operating income was Revenue versus Expenses
1.3 mill on.
17 000,000
1s,000,ao0Onewatercostcenterincreasingin2011was15,000,000
Source of Supply, p 14,008,000ppy, in articular maintenance, due 13,00 ,000 /
12000,000toDecemberstorms. Heavy rains resulted in 11 000.000
flooding, inundated multiple District well 10000,000
9. P 9.000,000
sites and pump houses with mud and debris. 7:000,
00
0
Approximately $145 thousand was charged to 6.000,000
1008 2049 2010 2011
maintenance for emergency clean up, though Revenue —Evyenses
these costs are eligible for reimbursement by
FEMA under emergency declaration 1952.
All other water operating cost centers Sewer Operations
experienced decreases due to the drop in water
produced and sold. Sewer operating revenues consist of System
Charges and Treatment Charges.
Pumping and treatment costs both fell due to the
lower demand for water. With lower demand the System Charge rates are set by the District to
District was able to reduce reliance on cover the cost of maintaining the District's
production facilities that require contracted wastewater collection system and to cover a
treatment, and therefore decrease the related portion of administrative and general expenses.
power costs, and rely more on facilities that do
not require expensive treatment. Contracted Treatment Charge rates are established by the
water treatment costs utilizing mobile treatment City of San Bernardino Water Department,
units fell 20.5% to $787 thousand in fiscal year which treats the wastewater produced by the
2010-11, despite a .90% upward adjustment in District's customers -- the District has no sewer
treatmew rates to $490.73 per acre foot. treatment facilities. When treatment charge
rates are increased by the City, the District must
Contracted treatment afl'ects production at three schedule its own rate hearing in order to adopt
of the District wells. Two sites have leased the increased rates and pass them on to District
treatmen, units that treat for Nitrates and customers. All sewer treatment revenues
Perchlorate, and these units are subject to the collected by the District are directly offset by
490.73 per acre foot rate. During 2010-11, payments to the City of San Bernardino Water
these units treated 763.30 acre feet of water, far Department; therefore, except when there is a
below the annual minimum treatment volume of lag between the effective date of City rate
2,000 acre-feet per treatment agreements. As a increases and the date on which the District can
result. the District is subject to take-or-pay adopt an ordinance to match those rates, sewer
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treatment has no net effect on the District's sower DeW.op„„,"g
operating results.
a""""""'""'°'"°'
Sewer operating revenues increased 3.6% to
9.5 million during fiscal year 2010-11. This 1 0°°°r°
increase is the combined result of System
charge and Treatment charge increases that
became effective in October 2010.
Sewer system rates were increased 9% leading
to an 5.6% increase in system revenue to $3.7
RBe"Oe E'°5B6
million. The rate increase was partially offset by
a decrease in water usage by commercial
customers, who are billed sewer charges based
on water consumption. Administrative and general costs for the District
overall remained substantially the same,
Sewer treatment rates were increased 5% decreasing .85% to $6.78 million. Significant
leading to a 1.7% increase in treatment revenue changes in general and administrative costs
to $5.8 million. As with system revenue, included:
treatment revenue was adversely impacted by a
decrease in water consumption by commercial 1) Salaries and wages decrease
customers approximately 10% as vacant positions 3
vacant positions remained unfilled,
Sewer department operating costs consist of
wastewater collection line maintenance, 2) Engineering labor capitalized to CIP (CIP
treatment charges paid to the City, and a portion labor credit) doubled compared to the prior
of costs paid to bill and maintain customer year due to commencement of large
accounts. During 2010-11 these costs construction projects
increased 5.0% to $6.9 million. After
administrative and general costs of $2.4 million, 3) Pension contributions rates increased due
and depreciation of $0.6 million, the sewer to poor performance of plan assets,
department operating loss was$0.4 million.
4) Peaking fuel costs and higher demand for
The most significant cost increase was in the District vehicle usage on District projects,
treatment charges paid to the City as previously combined with deferral of purchase of new
discussed. Further, a lag between the effective vehicles resulted in higher vehicle fuel /
dates of two sewer treatment rate increases maintenance costs
adopted by the City, and the implementation of
those increases by the District, resulted in six The District hired a consultant in April 2011 to
months of rate disparity where the District was perform an organizational assessment. Some of
paying higher rates to the City than it was the items tasked to the consultant included
charging District customers. This timing ensuring efficient use of staff versus contracted
difference led net sewer treatment costs to the labor, and negotiating a shift of a higher
District of$234 thousand. percentage of benefit costs to the employees.
Collection line maintenance decreased by 6%as
the District slowed its program of performing Non-Operating Activities
spot repairs on broken sewer mains based on
ongoing video inspections of the sewer system. The District's net non-operating expense of
As of June 30, 2011, 100% of district sewer 1.18 million reflects a 28.1% increase in the
mains had been inspected and 53 repairs excess of non-operating expense over non-
performed, 20 during 2010-11.operating revenue. This increase was the result
of a significant increase in interest expense due
to the increase in long-term debt.
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Condensed Statement of Revenue, Expenses future will be recognized as expense in the year
and Changes in Net Assets in which they are incurred.
in millions)
Categories of Net Assets
6/30/11 6/30/10
The District is required to present its net assets
Water Revenues 15.8 15.2 in three categories: Invested in Capital Assets,
Water Oper. Exp. 14.5) (14.6) Restricted, and Unrestricted.
Sewer Services 9.5 9.2
Sewer Oper.Exp. 10.0)9.4) Invested in Capital Assets
Non Oper.Rev. 3 2 The components of Nets Assest invested in
Non Oper.Exp. 1.4)1.1) capital assets are presented in Note 7 to the
accompanying financial statements. The
Developer,Coetrib.1 A balance at June 30, 2011 is $93,195,917, a
Grant Funds 8 decrease of $184 thousand compared to June
Abandoned investig. 2) 30, 2010. The decrease resulted from asset
Change in Net Assets 4
depreciation being greater that cash expenditure
44 on plant and equipment. A significant amount of
plant acquired during 2010-11 was financed by
debt and therefore had no effect on the balance
Investment earnings increased despite the fact in this category of Net Assets.
that yields continued to fall, due to the temporary
investment of unspent bond proceeds. The Restricted
Apportionment rate paid by the California Local
Agency Investment Fund fell by eight basis The District had restricted net assets totaling
points to 0.48% during the fiscal year. 103,029 at June 30, 2011. This amount
represents capacity fees which were collected
Also, the District received commitments for from developers during the fiscal year. By law
128,82'. from FEMA as reimbursement for Capacity fees are restricted for use on plant
cleanup costs at District plant sites that were expansion capital projects, or debt service on
flooded by heavy rains in December 2010. such projects. However, under the District's
Designated Funds Policy, use of restricted funds
Capital Contributions and Transfers for a certain capital project must be approved by
the Board of Directors.
Developer fees grew 6% to $103 thousand in
fiscal year 2010-11, and the District recognized Unrestricted
receipt o'$881 thousand in federal grants during
the year. The grant revenue is a portion of $3 EVWD had unrestricted Net Assets of $6.1
million it grants received as part of a funding million at June 30, 2011. Of that amount, the
agreement with the Department of Water board of directors has designated $2.1 million as
Resources for an upgrade to the District's Plant an emergency reserve.
134.
Also in 2010-11, the District expensed
Capital Assets
accumulated costs related to possible litigation The District spent approximately $6.1 million for
over a federal dam on the Santa Ana River expansion or replacement of property, plant, and
seven oaks dam) that can trap, and render equipment during 2010-2011. These amounts
unusable, mountain runoff that supplies the are reflected in Utility Plant, or as additions to
District's surface water treatment plant. Bypass Construction In Progress, in the accompanying
canals around the dam have kept the District's financial statements.
plant operating, but a long term solution to keep
the dam from contaminating River water is still Following is a discussion of the facilities and
pending. District costs related to the dam in the equipment constructed and purchased.
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Placed In Service Land acquisition, planning and design
of Plant 150, a perchlorate treatment
During the 2010-2011 fiscal year, District crews plant in the District's lower pressure
and contractors completed work on the zone.
following:
Implementation of GIS — conversion of
Rehabilitation of four wells District facility maps to digital format
Replacement of 3,987 feet of 8" water Construction for expansion and
mains and 2,639 feet of 10" sewer technology upgrade of the District's
mains serving residential areas surface water treatment plant (Plant
134)
Remodel of District administrative
facilities
Design work for Plant 150 is 90% complete and
a list of qualified bidders being accumulated.
The costs through June 30, 2011 were $4.2
Utility Plant in Service—June 30`" million. An application for federal/state financing
in millions)for the project will be submitted to the California
Department of Water Resources in early 2012.
Once financing is secured, the project will move
Water to the construction phase.
Source of Supply 12.2 12.4
Pumping 8.5 8.5 Digital conversion (GIS phase 1) of the District's
Transmission& maps was substantially complete at June 30,
Distribution 76.7 76.5 2011. Costs at the end of phase 1 were $599
Treatment 12.0 12.0 thousand. After completion of a quality control
Wastewater review, the project will move into phase 2, where
Collection Lines 24.6 23.7 the GIS database is integrated with other District
General applications.
Bldgs&Improv 1.6 1.3
Equipment 6.8 6.8 Construction on Plant 134 began in December
Total 142.4 141.2 2010 and is scheduled for completion in August
2012. This project was made necessary by
passage of new water regulations known as
Construction In Progress (CIP)Stage 2 of the Disinfectant By-Product (DBP)
Rule, which placed stricter limits on the DBPs
Construction in progress increased $2.6 million discharged from Plant 134, the Districts only
to $8.5 million between June 30, 2010 and June surface water treatment plant. Studies
30, 2011. With approximately 50 jobs in performed by an independent engineering firm
progress, additions to CIP totaled $4.1 million, revealed that retrofitting the plant's treatment
while $1.5 was removed by either capitalizing or technology would be required, with a membrane
expensing completed projects. million was
filtration system recommended. The deadline
transferred out. Approximately half of the costs for compliance with new DBP Rule is October
removed from CIP were related to land 2012, and the District has received a
purchased for future headquarters facilities, with combination of grant and zero interest loan
the balance consisting of completed jobs that funding from the State of California Department
were either capitalized or expensed. of Water Resources for the project.
The plans for Plant 134 also include an increase
More than 82% of costs in CIP at June 30, 2011 in the plant's capacity from 4mgd to 8mgd
were incurred on 3 projects. These are: million gallons per day). The additional plant
capacity will improve supply to three of the
District's higher pressure zones. This portion of
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the project will utilize proceeds from the District's one mile of wastewater collection pipeline.
2010 bonds. Completion of this project is projected during
December 2011.
Estimated cost of the project is $13 million —
new debt financing is discussed further on the Pipes identified as damaged, and at risk of
following pages. sewer spills or seepage that can contaminate
surface or ground waters, are being repaired in
one of two ways: damage to a small section of
Future Capital Improvements-Water pipe is repaired by replacing that section, while
longer sections of damaged pipe are repaired
The District's ability to meet regulatory with a liner.
requirements and to meet increased demand on Pipelines that are assessed as undersized are
systern capacity continue to be the driving forces further monitored for flows. If flow monitoring
by which District management develops long confirms a pipeline is nearing capacity, it is
term capital plans. placed on a schedule for replacement. Very
preliminary estimates of the costs for pipeline
Future water capacity challenges were replacements over the next five to ten years
addressed in the district's Water Master Plan range from $7 to$17 million.
WMP) update issued in January 2008.
Long Term Debt/Credit
The primary challenge identified in the WIMP is
to transport water from wells in the District's The District's long-term debt consists of an
lower zone, where water is plentiful, to higher- Installment Purchase Agreement (IPA) with the
pressure zones where large parcels of land will East Valley Water District Financing Authority
likely be developed, creating a demand for water Authority), two construction loans from the
that will exceed supply for those zones. California Department of Water Resources, and
a capital lease for phone equipment.
However, lower zone wells have persistent Outstanding balances as of June 30, 2011 were
water quality issues and water produced in the as follows:
lower zone requires treatment for various
element=_ including nitrates, perchlorate, and
PCE.2010IPA 33,545,000
DWR loan-Arroyo Verde 131,860
Facilities, currently in planning, that will be DWR loan-Plant 134 2,055,846
phased into construction over the next five years Capital lease-Phone eq 37,730
include: 35,770,436
Plant 150 — lower zone treatment plant
construction
Pipelines connecting lower zone wells to The 2010 IPA between the District and the
Plant 150 Authority provides funds sufficient to make semi-
Pipelines to complete a connection annual payments on series 2010 East Valley
between Plant 150 and Plant 40 in the Water District Financing Authority Refunding
Intermediate pressure zone Revenue Bonds. As explained in Note 5 to the
Plant 40 boosters accompanying financial statements, proceeds
from those bonds were used to retire debt
previously issued by the District and its
Future Capital Improvements- Wastewater component units, and to provide $16 million for
capital improvements.
The District is nearing completion of a 4year
long project to video and assess all 250 miles of The Arroyo Verde DWR loan is ultimately the
its wastewater collections lines in accordance obligation of property owners within the Arroyo
with California State Water Resources Control Verde Assessment District, previously a small
Board order no. 2006-0003. This order applies mutual water company operating within the
to all California agencies maintaining more than District's service area. Semi- annual loan
g
DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS
payments are paid by assessment on property replacement of the water distribution systems for
within the assessment district. mutual water companies that will form
assessment districts and be annexed by the
The DWR loan agreement for Plant 134 was District. Repayment of loans for these projects
finalized on December 21, 2010. Under the would be secured by property assessments
agreement, the District can borrow up to within the assessment districts.
7,001,964 at 0% interest. The loan obligation
increases as construction on the project
progresses and the District requests New Regulation
reimbursement from the State Revolving Fund
SRF). The project is scheduled for completion Water
in September 2012, at which time the total
amount of the loan will be obligated. Semi- The District continues to monitor proposed
annual principal payments will begin in January regulations related to Radon, issued by the EPA
2013. in May 2000. Many water agencies have
challenged some of the findings in the proposal,
All scheduled debt payments for fiscal year and the District is sponsoring proposed changes
2010-11 were paid timely. that would ease treatment requirements.
Rate Increases
Outstanding Long-Term Debt
June 30th
In June 2010, an independent financial
ooa aao
OOOa,000
consulting firm completed updates to the
as oao.000
District's water and sewer rate studies. The
10 OM study projected revenue requirements for fiscal
2500p.0
years 2009-10 through 2019-20, and
OooOOOa
incorporated the District's Capital Improvement
saoo,000 Program, future operating costs adjusted for
O000,000 inflation, debt service expenses, and the funding
s,000,o.of three reserves: the Operating Reserve, a
Rate Stabilization Reserve, and a Replacement
Reserve.
WSanes4 0Sarres3 ESanes, 0Senes4 •Series5 •SenesB
On July 15 in 2010, the District Board of Directors
approved rate increases for both water services,
and sewer collection system services, which will
Standard & Poor's and Fitch rated the EVWDFA
be phased in over a three year period. Each
phase will become effective on October 15i
2010 Refunding Revenue Bonds at the time of
issuance. Both agencies gave the bonds a beginning in 2010.
rating of AA-. Dun & Bradstreet, based on
audited financial statements and creditor input,
On November 22, 2010, the District Board of
also rates the District. The rating given by D&B Directors approved an increase in Sewer
is currently 5A1 accompanied by a financial
Treatment rates in order to offset increases in
condition assessment of 'strong', which is no rates charged by the City of San Bernardino for
change from previous years.
sewer treatment services provided to District
customers. The Sewer Treatment rate increase
The District intends to apply for up to three becomes effective January 1, 2012.
additional Department of Water Resources
funding agreements, consisting of grants and
low-interest loans, during 2012. The first will
finance the District's Plant 150 treatment facility
mentioned on a previous page, which is
estimated to cost $16 million. The remaining
two, like the Arroyo Verde loan, would finance
10
DRAFT COPY— 112512012
PRFLIMINARY&TFNTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS
Contacting the District's Financial
Management
This financial report is designed to give our
customers / ratepayers and creditors and
investors a general overview of the District's
finances, and to demonstrate the District's
accountability for money it receives, and
stewardship over facilities it maintains.
If you have questions about this report, or need
additional information, contact the District's
Finance Department at 3654 E. Highland Ave,
Suite 18, Highland, California 92346, or call
909) 381-6463.
11-
DRAFT COPY—112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
BASIC FINANCIAL STATEMENTS
DRAFT COPY- 1/25/2012
PRELIMINARY&TENTA'IIVF.
for DISCUSSION PURPOSES ONLY
East Valley Water District
Statement of Net Assets
June 30, 2011
For Comparative
Purposes Only
2011 2010
ASSETS
Current Assers:
Cash and Cash Equivalents 761,485 $ 2,980,902
Investments 3,673,049 3,058,255
Accounts Receivable,Net 1,657,687 1,365,802
Interest Receivable 29,045 14,312
Due from Other Governments 1,009,898
Other Receivables 155,415 191,575
Inventory 937,131 975,477
Prepaid Expenses 299,575 130,386
Total Current Assets 8,523,285 8,716,709
Non-Current Assets:
Restricted Cash and Cash Equivalents 17,661,578 2,333,626
Assessments Receivable 89,268 113,201
Deferred Charges 572,384 140,557
Capital Assets not being Depreciated 22,428,944 19,844,177
Capital Assets,net of Accumulated Depreciation 91,962,397 92,775,734
Total Non-Current Assets 132,714,571 115,207,295
Dotal Assets 141,237,856 123,924,004
The accompanying notes are an integral part of this statement.
12
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PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Statement of Net Assets- Continued
June 30, 2011
For Comparative
Purposes Only
2011 2010
LIABILITIES
Current Liabilities:
Accounts Payable and Accrued Expenses 2,644,045 $ 2,186,183
Accrued Payroll and Benefits 210,044 195,392
Customer Service Deposits 1,679,974 1,629,933
Construction Advances and Retentions 259,845 192,535
Accrued Interest Payable 368,965 236,486
Current Portion of Compensated Absences 374,467 13,007
Current Portion of Long-Term Debt 1.058,928 1,385,737
Total Current Liabilities 6,596,268 5,839,273
Non-Current Liabilities:
Compensated Absences,less current portion 607,866 933,910
Other Post Employment Benefits 260,637 260,637
Long-term Debt, less current portion 34,297,949 17,853,764
Total Non-Current Liabilities 35,166,452 19,048,311
Total Liabilities 41,762,720 24,887,584
NET ASSETS
Invested in Capital Assets,Net of Related Debt 95,251,762 93,380,410
Restricted Expendable 103,029
Unrestricted 4,120,345 5,656,010
Total Net Assets 99,475,136 $ 99,036,420
The accompanying notes are an integral part of this statement.
13
DRAFT COPY— 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Statement of Revenues, Expenses and Changes in Net Assets
Year Ended June 30, 2011
For Comparative
Purposes Only
2011 2010
OPERATING REVENUES
WaterSalei 11,544,185 $ 11,638,234
Sewer Treatment Charges 5,761,956 5,665,046
System Charges 7,399,016 6,724,443
Other Charges 500,833 399,336
Total Operating Revenues 25,205,990 24,427,059
OPERATING EXPENSES
Water Department:
Source ofSupply 853,162 815,349
Pumping 2,853,462 2,971,681
Treatment 1,080,954 1,453,365
Transmission and Distribution 1,515,559 1,586,237
Customer Accounts 457,254 459,596
Total Water Department 6,760,391 7,286,228
Sewer Department:
Wastewater Collection 446,262 474,244
Customer Accounts 457,252 437,395
Sewer Treatment 5,995,720 5,665,046
Total Sewer Department 6,899,234 6,576,685
Administrative and General 6,779,585 6,837,914
Operating Expenses Before Depreciation 20,439,210 20,700,827
Depreciation 3,929,268 3,314,277
Total Operating Expenses 24,368,478 24,015,104
Operating Income(Loss) 837,512 411,955
The accompanying notes are an integral part of this statement.
14
DRAFT COPY— 712512012
PRELIMINARY &TENTATIVE
fnr DISCUSSION PURPOSES ONLY
East Valley Water District
Statement of Revenues, Expenses and Changes in Net Assets - Continued
Year Ended June 30, 2011
For Comparative
Purposes Only
2011 2010
NON-OPERATING REVENUES(EXPENSES)
Investment Income 87,589 $ 61,192
Cooperative Agreements 41,157 61,631
Grants 128,821
Claims and Settlements 791 33,962
Other Income 24,301 82,922
Interest Expense 1,286,352)989,019)
Amortization 32,851) 36,061)
Loss on Disposal of Capital Assets 140.301) 133,412)
Total Non-Operating Revenues(Expenses) 1,176,845) 918,785)
Income(Loss)Before Contributions,
Transfers and Special Item 339,333) 506,830)
CONTRIBUTIONS AND TRANSFERS
Capacity Charges 103,029 97,503
Capital Grants 881,077 3,730
Total Contributions and Transfers 984,106 101,233
SPECIAL ITEM
Abandoned Investigations 206,057)
Change in Net Assets 438,716 405,597)
Total Net Assets,Beginning 99,036,420 99,442,017
Total Net Assets,Ending 99,475,136 $ 99,036,420
The accompanying notes are an integral part of this statement.
15
DRAFT COPY—I12511012
PRELIMINARY 8.-1'ENTATIVI_
for DISCUSSION PURPOSES ONLY'
East Valley Water District
Statements of Cash Flows
Year Ended June 30, 2011
For Comparative
Purposes Only
2011 2010
CASII FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers 25,031,455 $ 24,579,976
Cash Payments to Employees 6,708,881) 6,485,299)
Cash Payinents to Suppliers 13,353,241) 14,484,833)
Other Income Received 102,409 1,123,034
Net Cash Provided(Used)by Operating Activities 5,071,742 4,732,878
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Grant Funds Received 3,730
Capital Contributions 103,029 97,503
Proceeds from Issuance of Capital Debt 34,899,669
Principal Paid on Capital Debt 19,237,788) 1,977,292)
Interest P tid on Capital Debt 1,163,056)949,519)
Acquisition and Construction of Capital Assets 6,047,056) 2,406,595)
Net Expenses Paid to Retire Assets 30,975)
Net Cash Provided(Used)by Capital and Related Financing 8,554,798 5,263,148)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest Received from Investments 72,856 85,922
Acquisition of Investments in Debt Securities 3,673,049) 9,005,935)
Proceeds from Sales of Investments in Debt Securities 3,058,255 9,365,313
Loan Collections from Arroyo Verde Assessment
District Property Owners 23,933 46,158
Net Cash Provided(Used)by Investing Activities 518,005)491,458
Net Increase(Decrease)in Cash and Cash Equivalents 13,108,535 38,812)
Cash and Cash Equivalents-Beginning of Year 5,314,528 5,353,340
Cash and Cash Equivalents-End of Year 18,423,063 $ 5,314,528
RECONCILIATION TO STATEMENT OF ACTIVITIES
Cash and Cash Equivalents 761,485 $ 2,980,902
Restricted Cash and Cash Equivalents 17,661,578 2,333,626
18,423,063 $ 5,314,528
The accompanymg notes are an integral part of this statement.
16
DRAFT COPY-1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY'
East Valley Water District
Statements of Cash Flows - Continued
Year Ended June 30, 2011
For Comparative
Purposes Only
2011 2010
Reconciliation of operating income(loss)to net cash
provided(used)by operating activities:
Net Operating Income(Loss) 837,512 $ 411,955
Adjustments to Reconcile Operating Income to
Net Cash Provided(Used)by Operating Activities:
Depreciation 3,929,268 3,314,277
Miscellaneous Income 102,409 178,515
Change in Assets and Liabilities:
Increase)Decrease in Accounts Receivable 291,885) 127,774
Increase)Decrease in Other Receivables 944,519
Increase)Decrease in Inventory 38,346 24,007
Increase)Decrease in Prepaids 169,189) 10,303)
Increase(Decrease)in Accounts Payable and Accrued Expenses 457,863 553,217)
Increase(Decrease)in Accrued Payroll and Benefits 14,652 148,131
Increase(Decrease)in Compensated Absences 35,416 122,077
Increase(Decrease)in Customer and Other Deposits 20,040 12,943
Increase(Decrease)in Developers'Deposits 97,310 12,200
Total Cash Provided(Used)by Operating Activities 5,071,742 $ 4,732,878
NON-CASH INVESTING,CAPITAL AND NONCAPITAL
FINANCING ACTIVITIES:
Capital Assets Obtained Through Financing Activities 55,556
Transfer of Inventory to Vendor for Replacement 112,332
The accompanying notes are an integral part of this statement.
17
DRAFT COPY—112512012
PRELIMINARY&TENTATIVE
for D1SCtJSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Reporting Entity
The East Valley Water District (the District) is a special district formed in 1954, as a result of an election by local
residents who desired water service by a public water agency. Later, as the population increased, a modern sewer
system was needed to replace the septic tanks used at the time. Citizens voted to give the District responsibility for that
service. The District encompasses an area of approximately 25 square miles and provides water and sewer service to
the City of Highland, parts of the City of San Bernardino,and unincorporated parts of the County o1'San Bernardino,
California.
The East Valley Public Facilities Corporation (Corporation), the East Valley Water District Financing Authority
Authority),and the North Fork Water Company(Company)are component units of the East Valley Water District. A
component unit is an entity which is financially accountable to the primary government, either because the primary
government appoints a voting majority of the component unit's board, or because the component unit will provide a
financial benefit or impose a financial burden on the primary government. The Corporation and Authority are blended
component units and do not prepare separate financial statements. Condensed(unaudited)financial information for the
North Fork Water Company is presented below.
The Corporation was incorporated in October 1986 pursuant to the nonprofit public benefit corporation law of the State
of California to assist the District in acquiring and constructing public improvement facilities. It is governed by a
Board of Directors comprised of the District's Board of Directors. The Corporation has issued debt, secured solely by
installment payments payable under an installment purchase agreement between the District and the Corporation. All
of the debt issued by the Corporation was retired in October 2010.
The Authority was created in August 2010 by a joint exercise of powers agreement for the purpose of financing public
capital improvements. It is governed by a Board of Directors comprised of the District's Board of Directors. The
Authority issued debt in October 2010 which is secured solely from installment payments under an installment
purchase agreement entered into by the District and the Authority.
The Company was established in February 1885 to deliver water,taken from the Santa Ana River,to its property owner
shareholders. The Company is governed by a Board of Directors comprised of, and elected by, Company
shareholders. The District has purchased shares of Company stock as they become available in order to secure rights to
the Santa Ana River water and have it delivered to the District's surface water treatment plant. At June 30, 2011,the
District owned 5,049 of 7,156 outstanding Company shares.
Due fo the number of Company shares owned, the District is able to appoint a majority of the Company's governing
board and is therefore financially accountable for the Company. Following is condensed financial information, as of,
and for the year ended January 31, 2011,the Company's fiscal year end. The financial information was reviewed, not
audited, by an independent accounting firm, and is not included in the accompanying financial statements of the
District.
18
DRAFT COPY-1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
A) Reporting Entity-Continued
Assets:
Current Assets: 145,644
Property,Plant and Equipment 2,546,810
Notes Receivable-Shareholders 6,239
Water Rights 655,611
Total Assets 3,354,304
Current Liabilities 7,074
Equity:
Capital Stock and Paid in Capital 1,320,395
Contributed Capital 1,892,307
Retained Earnings 134,528
Total Liabilities and Equity 3,354,304
Revenue:
Shareholder Assessments-EVWD 102,366
Shareholder Assessments-Other 22,864
Other Income 606
Operating and Other Expenses 128,119
Excess Revenue Over Expenses 2,283)
Beginning Equity 3,349,513
Ending Equity 3,347,230
Copies of the Company's reviewed financial statement may be obtained from the District's Finance Department at
3654 E.Highland Ave,Suite 18,Highland,California 92346.
B) Measurement Focus,Basis of Accounting and Financial Statement Presentation
The District uses the economic resources measurement focus and the accrual basis of accounting. Accordingly,
revenues are recognized when they are earned and expenses are recorded when the liability is incurred, with the
following exception; a portion of June water usage is not accrued, and is therefore not recognized as revenue until
the following year; this is due to the large number of District services which require an almost continuous billing
cycle. This exception is consistent with prior years.
The District follows all GASH pronouncements, and all Financial Accounting Standards Board (FASB) Statements
and Interpretations,Accounting Principles Board(APB)Opinions and Accounting Research Bulletins(ARB)issued
on or before November 30, 1989 unless they conflict with or contradict GASB pronouncements. The District
applies only GASH pronouncements issued after November 30, 1989.
19 DRAFT COPY— 112512012
PRELIMINARY& IENTAIIVE.
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
B) Measurement Focus,Basis of Accounting and Financial Statement Presentation-Continued
On July 1,2000,the District adopted the provisions of GASB Statement No. 34. "Basic Financial Statements-and
Management's Discussion and Analysis-for State and Local Governments." Statement 34 established standards for
external financial reporting for all state and local governmental entities, which includes a statement of net assets,a
statement of revenues, expenses,and changes in net assets,and a statement of cash flows. It requires classification
of nrt assets into three components-invested in capital assets,net of related debt,restricted; and unrestricted.
These classifications are defined as follows:
Inveted in Capital Assets, Net of Related Debt- This component of net assets consists of capital assets, including
restricted capital assets, net of accumulated depreciation reduced by the outstanding balances of any bonds,
mortgages,notes,or other borrowings that are attributable to the acquisition,construction,or improvement of those
assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the
unspent proceeds are not included in the calculation of invested in capital assets, net of related debt. Rather, that
portion of the debt is included in the same net assets component as the unspent proceeds.
Restricted- This component of net assets consists of constraints placed on net assets through external constraints
imposed by creditors (such as through debt covenants), grantors, contributions, or laws and regulations of other
governments,or constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Assets - This component of net assets consists of net assets that do not meet the definition of
resit icted"or"invested in capital assets,net of related debt."
C) Comparative Data
Prior year data has been included where practical for comparison purposes only. The prior year data does not represent
a complete presentation in accordance with generally accepted accounting principles.
D) Inventory Valuation
Inventories are valued at cost using the average-cost method.
E) Capitalization and Depreciation
Assets purchased or constructed by the District are recorded at cost. Assets contributed to the District are recorded at
estimated cost. The estimated cost,determined by the District's engineer, is the amount the District would have to pay
for construction of comparable facilities.
Depreciation is computed using the straight-line method over the estimated useful lives of the various assets. Water
canal.,water and sewer lines are depreciated over 25 to 50 years;office equipment and vehicles are depreciated over 5
years
20
DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
E) Capitalization and Depreciation-Continued
Water stock and rights contributed to the District are recorded at the same value the District is currently paying for the
purchase of similar stock.
F) Reclassifications
Certain reclassifications have been made to the prior year information to conform to the current year presentation. See
Note 14 for additional details.
G) Restricted Assets
Certain assets of the District are restricted in use by ordinance or debt covenant and accordingly are shown as restricted
assets on the accompanying Statements of Net Assets. Unexpended Bond proceeds are set aside for capital
improvements, District deposits into Bond trustee accounts are to be used for debt service,and utility deposits must be
returned to the customers at their request after their account has been paid timely for 12 consecutive months, or when
their account is closed.
H) Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash and cash equivalents have been defined as demand deposits and
highly liquid investments purchased with an original maturity of 3 months or less. The District invests funds with the
Local Agency Investment Fund (LAIF) and Money Market Mutual Funds. Due to the high liquidity of these
investments,these funds are classified as cash equivalents.
I) Investments
The District has adopted the provisions of GASB Statement No. 31,Accounting and Financial Reportingfor Certain
Investments and External Pools (GASB 31), which require governmental entities to report certain investments at fair
value in the statement of net assets and recognize the corresponding change in the fair value of investments in the year
in which the change occurred.
n Compensated Absences
The District has a policy whereby an employee can accumulate unused sick leave and vacation. Sick leave is to be used
for extended periods of sickness; however,upon termination or retirement, a portion will be paid as additional benefits
to the employee. At retirement or termination,employees who have accumulated over ten years of service will be paid
between 40 to 70% of their unused sick leave(based upon their balance of unused sick leave)at their regular payroll
rates in effect at the date of termination. Also,employees that obtain 196 unused sick hours can cash out 40 hours at
their discretion. The District has provided for these future costs by accruing a range of the earned and unused sick
leave and 100%of the earned and unused vacation.
21
DRAFT COPY— 112512012
PRELIMINARY&TE.NTA'l IVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 20 H
1) REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
K) Classification of Revenue
As an enterprise(proprietary)fund,the District classifies its revenues into three classifications: operating revenue,non-
operating revenue,and contributions.
Operating revenues are defined as revenues realized by the District in exchange for providing its primary services of
water distribution and wastewater collection to its customers. Non-operating revenues are those derived from the
investment of cash reserves and from the disposal of excess property, and also include those resources received from
entities other than customers, such as governmental agencies and developers, for purposes not related to capital
improvement. Donated plant and cash received for capital improvement without the requirement that the District give
resources in exchange are recorded as contributions.
L) Use of Restricted Resources
The District uses restricted resources, prior to using unrestricted resources, to pay expenses meeting the criteria
imposed on the use of restricted resources by a third party.
M) Postemployment Healthcare Benefits
On July 1, 2008, the Agency adopted the provisions of Governmental Accounting Standards Board Statement No.45,
Accounting and Financial Reporting by Employers for Postemployntent Benefits Other Than Pensions (GASB 45).
This statement requires the annual cost of other postemployment benefits other than pensions(OPEB)and the unfunded
actuarial liabilities for post service to be reported in the government financial statements. Previously,the costs of such
benefits were generally recognized as expenses when incurred by retirees. Under GASB 45, the cost of these benefits
will be estimated over the years employees are providing service. GASB 45 also requires comprehensive disclosure
regarding OPEB activities,see Note 11,Postemployment Benefits Other Than Pension.
N) Use of Estimates
The p:-eparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly,actual results could differ from those estimates.
2) CASH AND INVESTMENTS
Cash and Investments as of June 30,2011 are classified in the accompanying financial statements as follows:
Cash and Cash Equivalents 761,485
Restricted Cash and Cash Equivalents 17,661,578
Investments 3,673,049
Total 22,096,112
22
DRAFT COPY-1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
2) CASH AND INVESTMENTS-Continued
Cash and investments as of June 30,2011 consist of the following:
Cash on Hand 1,750
Deposits with Financial Institutions 249,636
Money Market Accounts with Financial Institutions 2,193,769
Investment in Local Agency Investment Fund 15,977,908
Investment in Debt Securities 3,673,049
Total Cash and Investments 22,096,112
Investments Authorized by the California Government Code and the District's Investment Policy
The table below identifies the investment types that are authorized by the District's investment policy and in accordance
with Section 52601 of the California Government Code The table also identifies certain provisions of the District's
investment policy that address interest rate risk and concentration of credit risk.
Authorized Maximum Authorized Required
Investment Type Maturity Limit Rating
Bonds and Certificates of Participation by EVWD 5 years None None
U.S.Treasury Bills,Notes or Bonds 5 years None None
State Registered Warrants,Notes or Bonds 5 years None None
Notes and Bonds of Other Local California Agencies 5 years None None
U.S.Agencies 5 years None None
Negotiable Certificates of Deposits 5 years 30% None
Money Market Mutual Funds and Mutual Funds 5 years 15%2-AAA
Collateralized Bank Deposits 5 years None None
Local Agency Investment Fund(LAIF) N/A None None
At June 30,2011,the District had no investments in repurchase agreements and did not utilize this investment media during
the reporting year. As a matter of investment policy, the District does not borrow funds through the use of reverse
repurchase agreements.
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.
Generally,the longer the maturity of an investment,the greater the sensitivity of its fair value to changes in market interest
rates. One of the ways that the District minimizes its exposure to this type of risk is by investing in investments with
laddered maturity dates.
23 DRAFT COPY— 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
2) CASH AND INVESTMENTS-Continued
As of June 30,2011,the District had the following investments and maturities:
Average
Investment Type Fair Value Maturity
Farrier Mac 197,950 14 years
GNMA 191,563 2.65 years
Federal Home Loan Bank 1,308,379 1.77 years
Fannie Mae 525,866 2.52 years
U.S.Treasury Bonds 1,449,291 81 years
LAIF 15,977,908 N/A
Money Market Mutual Funds 2,193,769 N/A
Disclosures Relating to Credit Risk
Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.
This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is
the minimum rating required by(where applicable)the California Government Code or the District's investment policy,and
the actual rating as of year end for each investment type.
Rating at
Minimum Exempt From Year End Not
Investment Type Fair Value Legal Rating Disclosure AAA Rated
Farmer Mac 197,950 N/A 197,950 $
GNMA 191,563 N/A 191,563
Federal Home Loan Bank 1,308,379 N/A 1,308,379
Fannie Mae 525,866 N/A 525,866
U.S.77eaeury Bonds 1,449,291 N/A 1,449,291
LAIF 15,977,908 N/A 15,977,908
Money Market Mutual Funds 2,193,769 AAA 2,193,769
Total 21,844,726 1,640,854 $ 4,225,964 $ 15,977,908
Disclosure Related to Concentration of Credit Risk
The Distrct's policy places no limits on amounts invested in any given issuer beyond that stipulated by the California
Government Code. At June 30,2011,the following investment(other than external pools,U.S. Government Securities and
Money Market Mutual Funds)exceeded 5%of the District's total investments.
Percentage of
Investment Type Fair Value Total
Federal Home Loan Bank 1,308,379 5.98%
24
DRAFT COPY- 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
2) CASH AND INVESTMENTS-Continued
Custodial Credit Risk
Custodial credit risk for deposits is the risk that,in the event of the failure of a depository financial institution,a government
will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an
outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty(e.g.,
broker-dealer)to a transaction, a government will not be able to recover the value of its investment or collateral securities
that are in the possession of another party. The California Government Code requires California banks and savings and loan
associations to secure deposits by pledging government securities as collateral. Such collateralization of public funds is
accomplished by pooling. As such,collateralized securities are held by the pledging financial institution's agent on behalf of
the District. The market value of the pledged securities must equal at least 110% of Districts deposits. California law also
allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the
secured public deposits. The District may waive collateral requirements for deposits which are fully insured by Federal
depository insurance.
As of June 30, 2011, the District's deposits with financial institutions that were in excess of federal depository insurance
limits amounted to $520,047. On October 3,2008,the Emergency Economic Stabilization Act of 2008 became effective,
which temporarily covers non-interest bearing deposit accounts without limit and increases the federal deposit insurance
limit from $100,000 to $250,000 for interest bearing deposit accounts. The limits will return to $100,000 for all deposit
accounts held with a single financial institution after December 31,2013.
Investment in State Investment Pool
The management of the State of California Pooled Money Investment Account(generally referred to as LAIF)has reported
to its participating agencies that, as of June 30, 2011, the carrying amount (at amortized cost) of the pool was
66,384,617,119 and the estimated fair value of the pool was $66,489,270,508. The District's proportionate share of the
market value(as determined by LAIF)as of June 30, 2011,was$16,023,128. Included in LAIF's investment portfolio are
collateralized mortgage obligations, mortgage-backed securities, other asset-backed securities, loans to certain State funds,
and floating rate securities issued by federal agencies,government-sponsored enterprises,and corporations.
3) RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at June 30,2011 are restricted as follows:
2010 Revenue Bonds Construction projects 14,317,496
Capacity Fees from Developers 103,029
Customer Deposits 1,679,973
Construction Advances 166,891
2010 Revenue Bonds Debt Service 1,327,418
AVAD Construction Loan Debt Service 66,771
Total 17,661,578
25
DRAFT COPY-1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30,2011
4) CAPITALASSETS
A summary of changes in capital assets for the year ended June 30,2011 is as follows:
Beginning of End of
Year Additions _ Deletions Year
Water Fund
Non-Depreciable Assets
Land and Easements 8,505,017 $ 8,505,018
Water Rights 1,553,481 3,500 1,556,981
Construction in Progress 5,624,772 3,076,722 419,866) 8,281,628
Total Non-Depreciable Assets 15,683,271 3,080,222 419,866) 18,343,627
Depreciable Assets
Source of Supply 12,399,056 139,164 321,690) 12,216,530
Pumping Plant 8,456,271 322,973 225,947) 8,553,297
Treatment Plant 12,026,847 12,026,847
Transmission and Distribution Plant 76,476,135 1,079,848 893,570) 76,662,413
General Plant 4,932,820 511,808 358,478) 5,086,150
total Depreciable Assets 114,291,129 2,053,793 1,799,685)114,545,237
Accumulated Depreciation
Source of Supply 2,659,528) 397,664) 230,450 2,826,742)
Pumping Plant 3,076,032) 314,466) 225,947 3,164,551)
Treatment Plant 3,071,271) 480,538) 3,551,809)
Tran;mission and Distribution Plant (22,975,539) 1,823,060) 844,509 23,954,090)
General Plant 3,334,144) 273,534) 358,478 3,249,200)
Total Accumulated Depreciation 35,116,514) 3,289,262) 1,659,384 36,746,392)
Water Fund Capital Assets,Net 94,857,886 1,844,753 560,167) 96,142,472
Sewer Fund
Non-Depreciable Assets
Land and Easements 3,921,962 3,921,962
ConsFruction in Progress 238,944 1,042,065 1,117,654) 163,355
PotalNon-Depreciable Assets 4,160,906 1,042,065 1,117,654) 4,085,317
Depreciable Assets
Wastewater Collection Plant 23,678,968 933,497 24,612,465
General Plant 3,187,067 268,940 170,610) 3,285,397
Total Depreciable Assets 26,866,035 1,202,437 170,610) 27,897,862
26
DRAFT COPY-1/25/2072
PRELIMINARY&'I EN
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
4) CAPITAL ASSETS-Continued
Beginning of End of
Year Additions Deletions Year
Accumulated Depreciation
Wastewater Collection Plant 10,794,586) $ (427,815) $ 11,222,401)
General Plant 2,470,330) 212,190) 170,611 2,511,909)
Total Accumulated Depreciation 13,264,916) 640,005) 170,611 13,734,310)
Sewer Fund Capital Assets,Net 17,762,025 1,604,497 1,117,653) 18,248,869
Total Capital Assets,Net 112,619,911 $ 3,449,250 $ (1,677,820) $ 114,391,341
5) LONG-TERM DEBT
The schedule below summarizes changes in long-term debt during the year ended June 30,2011:
Beginning Retirements Ending Current Long-term
Balance Additions Payments Balance Portion Portion
AVAD Construction Loan 138,624 $ S (6,763) $ 131,861 $ 6,762 $ 125,099
2001 Refunding COPS 5,935,000 5,935,000)
Unamortized Premium 30,260 30,260)
2001 COPS Deferred Amount
on Refunding 198,138) 44,031 154,107) 44,031)110,076)
2004 Installment Sale Note 8,067,777 8,067,777)
2006 Installment Sale Note 5,218,703 5,218,703)
2010 Refunding Bonds 33,545,000 33,545,000 1,055,000 32,490,000
Unamortized Premium 2,152,508 2,152,508 80,741 2,071,767
2010 Bonds Deferred Amount
on Refunding 393,717) 37,602 (356,115),777 50,136)305,979)
Net Other Post Employment
Benefit Obligation 260,637 260,637 260,637
Capital Lease 47,275 9,545) 37.730 10,592 27,138
Total 19,500,138 $ 35,303,791 $ (19,186,415) S 35,617,514 $ 1,058,928 $ 34,558,586
27 DRAFT COPY— 112512072
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
5) LONG-TERM DEBT-Continued
Department of Water Resources Contract 0OC412-Arroyo Verde
On June 30, 2004,the District entered into a Funding Agreement for replacement of distribution pipelines in the section
of the District's service area formerly served by the Arroyo Verde Water Company. The original loan amount was
169,052 with an annual interest rate of 0%. Semi-annual payments of$3,381 are due through January 2031 and are
secured by annual assessments to property owners within the Arroyo Verde Assessment District.
Department of Water Resources Contract IOCXIIO-Plant 134
On December 21, 2010, the District entered into a Funding Agreement to upgrade treatment methods utilized by the
District's surface water treatment plant (Plant 134). The amount of the loan funding available under the agreement is
57,001,964 with an annual interest rate of 0%. If all of the available loan funding is borrowed,semi-annual payments of
116,699 will commence in January 2013, and will continue over a repayment term of 30 years. Repayment of the loan
is secured by a pledge of net revenues of the District's water operating fund. As of June 30,2011,no amounts have been
drawn down by the District on this loan agreement.
2010 Refunding Revenue Bonds
On October 29, 2010, the District issued $33,545,000 of East Valley Water District Financing Authority Refunding
Revenue Bonds, Series 2010 (2010 Bonds), with interest rates ranging from 2.00% to 5.00%. The purpose for issuing
the 2010 Bonds was to provide $16,000,000 for future capital improvements, and for refunding virtually all of the
Districts outstanding long-term debt. The refunded debt included 1) $5,935,000 in 2001 Certificates of Participation
bearing interest rates ranging from 4.25% to 5.00%, 2) a $7,867,528 balance on a 2004 Installment Sale Note bearing
interest at 4.50%,and 3)a$5,109,854 balance on a 2006 Installment Sale Note bearing interest at 4.95%.
The refunding portion of the 2010 Bonds ($17,170,000) were issued at a premium of$1,630,726, and after paying
issuance costs of$318,849, net proceeds were$18,481,877. The net proceeds, combined with a$920,318 sinking fund
for 2001 COP debt service, were sufficient to accomplish the refunding of the existing debt and pay a 2% prepayment
fee($259.548)and the 2004 and 2006 Installment Sale Notes.
Capital Lease-Phone Equipment
In August 2009, the District entered into a capital lease commitment for telecommunications equipment. The amount
Financed was $55,556 to be repaid over a sixty month period with interest at 11.09%. The agreement requires monthly
installmert payments of principal, interest and taxes of$1,223 beginning in August 2009 and continuing through July
2014. As of June 30, 2011, accumulated depreciation on the telecommunications equipment was $8,333 resulting in a
net book value of$47,223.
28
DRAFT COPY- 1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
5) LONG-TERM DEBT-Continued
The aggregate debt service requirements to maturity for long-tern debt as of June 30,2011 are as follows:
Year Ending
June 30, Principal Interest Total
2012 1,072,588 $ 1,088,921 $ 2,161,509
2013 1,193,838 1,419,715 2,613,553
2014 1,225,379 1,382,324 2,607,703
2015 1,272,973 1,331,875 2,604,848
2016 1,321,762 1,273,688 2,595,450
2017-2021 7,578,810 5,365,538 12,944,348
2022-2026 5,113,810 3,929,450 9,043,260
2027-2031 3,985,431 3,041,338 7,026,769
2032-2036 4,835,000 2,122,306 6,957,306
2037-2041 6,115,000 794,125 6,909,125
Total 33,714,591 $ 21,749,280 $ 55,463,871
Security for debt is as follows:
Debt Security
2010 Refunding Revenue Bonds and Department of The District is required to maintain and encumber net revenues,
Water Resources Construction Loans. as defined by the revenue bond trust agreement and State of
California Department of Public Health Funding agreements of at
least 120%of District's annual debt service(principal and
interest). At June 30,2011,net water revenues represented 267%
of the annual water debt service and net sewer revenues
represented 1,576%of the annual sewer debt service.
6) COMPENSATED ABSENCES
Compensated absences are comprised of unused vacation leave and a limited amount of sick leave which is accrued as
earned in accordance with District policy. The District's liability for compensated absences is determined annually.
Current portions are determined based on estimates of usage, amounts in excess of 196 hours that will be voluntarily
cashed out and amounts that will be cashed out upon termination of employment.
Beginning Usage/ End of Current Long-term
of Year Additions Payments Year Portion Portion
Accrued Vacation Leave S 337,737 S 423,388 $ (416,946) S 344,179 S 93,790 $ 250,389
Accrued Sick Leave 609,180 245,000 216.026) 638,154 280,677 357,477
Total 946,917 S 668,388 S (632,972) S 982,333 $ 374,467 $ 607,866
29 DRAFT COPY— 712512012
PRELIMINARY&TENTATI V E
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
7) INVESTMENT IN CAPITAL ASSETS NET OF RELATED DEBT
Investment in capital assets net of related debt at June 30,2011 consisted of the following:
Non-depreciable Capital Assets 22,428,944
Depreciable Capital Assets,Net 91,962,397
Deferred Bond Costs 572,384
Unspent Debt Proceeds 15,644,915
Loans Payable 131,861)
Bonds Payable 35,187,286)
Capital Lease Payable 37.730)
Total 95,251,763
8) DEFINED BENEFIT PENSION PLAN(PERS)
Plan Description
The East Valley Water District contributes to the California Public Employees Retirement System (PERS), a cost-
sharing multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability
benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a
common =nvestment and administrative agent for participating public entities within the State of California. Copies of
the PERS annual financial report may be obtained from their executive office: 400 P Street, Sacramento, California
95814.
All full-time District employees are eligible to participate in PERS with benefits vesting after five years of service.
District employees who retire at age 55 are entitled to an annual retirement benefit, payable monthly for life, in
increasing percentage increments up to 2.7% of their average full-time monthly pay rate for the highest 36 consecutive
months for each year of credited service.
Funding Policy
participants are required to contribute 8% of their annual covered salary. The District makes the contributions required
of District's employees on their behalf and for their account. The District is also required to make an additional
contribution at an actuarially determined rate. The rate for the fiscal year ended June 30, 2011 was 16.656% of annual
covered payroll. The contribution requirements of plan members and the District are established and may be amended
by PERS. The District's contributions to PERS for the years ending June 30, 2011, 2010 and 2009 were$1,125,611,
51,129.523 and $940,107, respectively,and were equal to 100%of the required contributions for each year.
30
DRAFT COPY— 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
9) COMMITMENTS AND CONTINGENCIES
Grant Awards
Grant funds received by the District are subject to audit by the grantor agencies. Such audit could lead to requests for
reimbursements to the grantor agencies for expenditures disallowed under terms of the grant. Management of the
District believes that such disallowances,if any,would not be significant.
Envirogen,Inc.(Formally Basin Water,Inc.)
The District entered into a 10-year agreement for wellhead treatment with Envirogen, Inc. The agreement required
Envirogen to install and maintain treatment facilities at a District well that is contaminated by nitrates (Cull Well 2, also
known as Cull Well 132). The District and Envirogen,Inc.entered into a subsequent agreement to demobilize the treatment
facilities at the Cull Well 132 and install them at Well 107. The agreement for the operation of the wellhead treatment was
then amended to be appropriate for the needs at Well 107.
The term of the amended agreement is for 10 years. The District will pay$453 per acre foot(Per Acre Foot Treatment Fee)
of treated/blended water. The Acre Foot Treatment Fee is based upon the District's representation that it will pump, and
deliver for processing and treatment, 1500 acre-feet of water per year(Base Quantity). If the District pumps less than the
Base Quantity, the District is obligated to pay Envirogen $158 per acre-foot(Minimum Treatment Fee) for the difference
between the Base Quantity and the amount of water actually delivered for treatment.
The District entered into another agreement with Envirogen, Inc. for nitrate removal from Well 27 (Agreement #2).
Agreement #2 was signed February 2005 but the term did not begin until all required permits were obtained. The term
began in June 2007 and continued for one year with an option to extend for an additional year. Agreement#2 expired on
June 19, 2008 and the District agreed to month-to-month terms until a new agreement was signed. The original contract
price of$195 per acre foot as indexed by the consumer price index was $210 as of June 30, 2007. The month-to-month
agreement set the fee at$520 per acre foot.
In October 2008, the District and Envirogen, Inc. signed the Second Amendment to the East Valley Water District Water
Services Agreement (WSA) #107. This amendment consolidated the agreements for Wells 107 and 27 into a single
agreement,with an effective date retroactive to June 17,2008 and continuing through June 16,2018.
The consolidated agreement established a Base Quantity to be produced by Wells 27 and 107 combined,and set the cost per
acre foot to be charged for water produced up to the Base Quantity(Base Fee). The consolidated agreement also established
an Additional Treatment Fee for quantities of water produced in excess of the Base Quantity, and a Minimum Treatment
Fee,to be charged for any deficit between actual number of acre feet produced and the Base Quantity. Each January,all of
these volumetric fees are subject to adjustment by the previous year's increase in CPI. At June 30,2011,the following terms
were in effect:
Base Quantity(Wells 107 and 27 combined)-2,000 acre feet
Base Fee-$490.73 per acre foot
Additional Treatment Fee-$368.04 per acre foot
Minimum Treatment Fee-$161.54 per acre foot
31 DRAFT COPY-112512012
PRELIMINARY&I ENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
9) COMMITMENTS AND CONTINGENCIES-Continued
Envirogen,Inc.(FormaOy Basin Water,Inc.)-Continued
For the year ended June 30, 2011, contracted water treatment costs included Base Fees of $518,884 and Minimum
Treatment Fees of$59,041.
Department of Water Resources Contract IOPX102-Plant 150
On March 11,2011,the District entered into a Funding Agreement to assist in financing the cost of studies and planning of
treatment facilities to address water quality issues threatening the District's lower zone wells(Plant 150). The amount of the
loan funding available under the agreement is $100,000 with an annual interest rate of 0%. If all of the available loan
funding is borrowed,semi-annual payments of$10,000 will commence in 2012,and will continue over a repayment term of
5 years. Repayment of the loan is secured by pledge of net revenues of the District's water operating fund. As of June 30,
2011,the District had not borrowed any of the loan funding available for Plant 150 design.
Department of Water Resources Contract 11CXI01-Eastwood Farms
On June 15,2011, the District entered into a Funding Agreement for replacement of distribution pipelines in the section of
the District's service area formerly served by the Eastwood Farms Water Users Association. The amount of loan funding
available under the agreement is $390,483 with an annual interest rate of 0%. Semi-annual payments of$6,508 will
commence upon completion of the construction project,and will continue over a repayment term of 30 years. Repayment of
the loan is secured by annual assessments to property owners within the Eastwood Farms Assessment District(EFAD). As
of June 30,2011,the District had not borrowed any of the loan funding available for the EFAD construction.
Operating Lease
The District entered into a lease agreement for office space commencing February 1,2004. On March 9,2010,the parties to
the lease executed the fifth amendment to the agreement effective June 16, 2010. The amendment added and removed
office space, increased rent to $14,102 per month, and extended the lease term through April 30, 2014. A portion of the
office space removed from the lease was rented on a monthly basis at $2,712 per month until tenant improvements were
completed. The amendment includes three future lease options,each to extend the agreement for an additional three years.
Total rent expense under this operating lease for the year ended June 30, 2011 was $196,349. Future minimum rental
payments required for the operating lease are as follows:
Year Ending June 30, Payments
2012 169,224
2013 169,224
2014 141,020
Total Future Minimum Rental Payments $ 479,468
32
DRAFT COPY— 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
10) RISK MANAGEMENT
The District participates in a joint powers agreement (JPA) with the Special District Risk Management Authority
Authority). The Authority is a risk-pooling self-insurance authority created under the provisions of California Government
Code Section 6500 et. sec. The Authority is governed by a Board consisting of a representative from each member agency.
The Board controls the operations of the Authority including selection of management and approval of operation budgets.
The relationship between the District and the Authority is such that the Authority is not a component unit of the District for
financial reporting purposes.
The purpose of the Authority is to arrange and administer programs of insurance for the pooling of self-insured losses and to
purchase excess insurance coverage.
At June 30,2011,the District's participation in the self-insurance programs of the Authority was as follows:
Limits Deductible
Personal Injury and Property Damage 10,000,000 per occurrence/aggregate where 500(property damage
Liability Coverage-General applicable only)
Personal Injury and Property Damage 10,000,000 per accident 1,000
Liability Coverage-Auto
Public Officials and Employees Errors 10,000,000 per wrongful act/annual member none
and Omissions Liability aggregate
Employment Practices Liability 10,000,000 per wrongful employment practice/ none up to$10,000,50%
aggregate limits per member included co-insurance from
with Public Officials and Employee 10,000 to$50,000,none
Errors and Omissions Coverage for amounts greater than
550,000
Employee Benefits Liability 10,000,000 per wrongful act / annual member none
aggregate
Employee Dishonesty Coverage 400,000 per Toss 25,000
Public Officials Personal Liability 500,000 per occurrence/annual aggregate per 500
Board Member
Automobile Physical Damage ACV Limits Replacement cost(stated value adjusted 2505500 or
for depreciation on selected vehicles) 500/S1,000
comprehensive/collision
as elected per vehicle)
Uninsured Motorist Bodily Injury 5750,000 per accident none
Coverage
Property Coverage S 1,000,000,000 replacement cost for scheduled property $2,000 in general,varies
if replaced(if not replaced within two for other certain events
years,actual cash value basis)
Boiler and Machinery 5100,000,000 replacement cost 1,000
33 DRAFT COPY-112512012
PRELIMINARY&TENTA"I'IVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
11) POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
Plan Description
The District contributes to the retiree health coverage of eligible retirees and eligible surviving spouses. As of June 7,2011,
the District is part of the Public Agency portion of the California Employers'Retiree Benefit Trust Fund(CERBT),an agent
multiple-employer plan administered by California Public Employees' Retirement System (CalPERS), which acts as a
common investment and administrative agent for participating public employers within the State of California. A menu of
benefit provisions as well as other requirements is established by State statute within the Public Employees' Retirement
Law. The District selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those
benefits through District resolution. CalPERS issues a Comprehensive Annual Financial Report (CAFR). The CAFR is
issued in aggregate and includes the sum of all CalPERS plans. Copies of the CalPERS CAFR may be obtained from the
CalPFRS Executive Office.400 P Street,Sacramento,California 95814.
Funding Policy
The contribution requirements of plan members and the District are established and may be amended by the Board of
Directors. At retirement,the District provides the minimum employer contribution under the CalPERS Health Program for
eligible retirees and surviving spouses in receipt of a pension benefit from CalPERS. An employee is eligible for this
employer contribution provided they are vested in their CalPERS pension benefit and commence payment of their pension
benefit within 120 days of retirement with the District. Vesting requires at least five years of service. The surviving spouse
of an eligible retiree who elected spouse coverage under CalPERS is eligible for the employer contribution upon death of
the retiree.
Employeev retiring with at least 20 years of District service will receive an additional District contribution through
attainment of Medicare eligibility age. The additional contribution is based on the negotiated dollar amount at retirement
currently $550 per month). The surviving spouse of an eligible retiree is eligible for the District's contribution upon the
death of the retiree through the spouse's attainment of Medicare eligibility age.
Directors who were first elected to office on or after July 1, 1994 shall be eligible to continue to receive health benefits upon
termination on a self-pay basis. There are two Directors(in office prior to July 1, 1994) who are eligible for District-paid
health care benefits and any covered spouse or dependents. The benefits are payable for the lifetime and the lifetime of any
covered surviving spouse.
Prior to June 7, 2011, the District contributed 100% of the cost of current year premiums for eligible retired plan
members and their dependents. The District, as part of the CERBT, is required to contribute the annual required
contribution of the emplgver (ARC), an amount actuarially determined in accordance with the parameters of GASH
Statement 45. The ARC represents a level of funding that,if paid on an ongoing basis, is projected to cover normal cost
each year .and amortize any unfunded actuarial liabilities (or funding excess)over a closed 28 year period. The current
ARC rate 1 s 2.25%of the annual covered payroll.
34
DRAFT COPY-1125120]2
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
11) POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS-Continued
Annual OPEB Cost
The District's annual OPEB cost for the current year and the related information for the plan are as follows:
Annual Required Contribution 101,313
Interest on Net OPEB Obligation 20,199
Adjustments to Annual Required Contribution 20,199)
Annual OPEB Cost(Expense) 101,313
Contributions Made 101,313)
Increase(Decrease)in Net OPEB Obligation
Net OPEB Obligation-Beginning of Year 260,637
Net OPEB Obligation-End of Year 260,637
For 2011, 2010 and 2009, the District's annual OPEB costs (expenses) were $101,313, $167,792 and $163,799,
respectively, and were equal to the ARC. The District's annual OPEB cost has been recognized as a part of the
administrative and general expenses in the accompanying Statement of Revenue, Expenses and Changes in Net Assets.
The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for the 2011 and the two preceding years were as follows:
Percentage
Fiscal Annual Actual of OPEB Net OPEB
Year Ended OPEB Cost Contribution Contributed Obligation
6/30/11 101,313 $ 101,313 100% 260,637
6/30/10 167,792 $ 25,068 9% 260,637
6/30/09 163,799 $45,886 28% 117,913
Funded Status and Funding Progress
The funded status of the plan as of July 1,2010,was as follows:
Actuarial Accrued Liability(AAL) 727,256
Actuarial Value of Plan Assets 0
Unfunded Actuarial Accrued Liability(UAAL) 727,256
Funded Ratio(Actuarial Value of Plan Assets/AAL) 0%
Covered Payroll(Active Plan Members) 4,507,000
UAAL as a Percentage of Covered Payroll 16.14%
35 DRAFT COPY— 712512012
PRELIMINARY&TENTA H VF
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
11) POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS-Continued
Funded Status and Funding Progress-Continued
Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of
occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the
healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions
of the employer are subject to continual revision as actual results are compared with past expectations and new estimates
are made about the future. The schedule of funding progress, presented as required supplementary information
following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial
value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
Actuarial Methods and Assumptions
Projectiors of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the
employer and plan members) and include the types of benefits provided at the time of each valuation and the historical
pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and
assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and
the actuarial value of assets,consistent with the long-term perspective of the calculations.
The following is a summary of the actuarial assumptions and methods:
Valuation Date July 1,2010
Actuarial Cost Method Entry Age Normal
Amortization Method Level Percent of Payroll
Remaining Amortization Period 28 Years Closed Period
Actuarial Assumptions:
Investment Rate of Return 7.75%
Projected Salary Increase 3.25%
20 11 -2015 Health Care Trend Rate 7.00%
2016-2018 Health Care Trend Rate 5.16%
2019-Thereafter Health Care Trend Rate 5.00%
12) INTERNAL BALANCES
In previous years, Water System capital improvement costs have exceeded water revenue and other financing sources
resulting in borrowing from the Sewer Fund in the approximate amount of$7 million. Pursuant to Resolution 2010.20
adopted b-., the Board of Dd.rectors on September 14, 2010, Sewer System revenues borrowed from the Sewer Department
will be repaid by the Water Department in scheduled annual installments, with installments of$200,000 beginning in fiscal
year 2014.increasing to$250,000 in fiscal year 2020 and$300,000 in fiscal year 2030.
36
DRAFT COPY- 1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Notes to Financial Statements
Year Ended June 30, 2011
13) SPECIAL ITEM
In 2010-11, the District expensed accumulated costs related to possible litigation over a federal dam on the Santa Ana
River(Seven Oaks Dam) that can trap, and render unusable, Santa Ana River water that supplies the District's surface
water treatment plant.Bypass canals around the dam have kept the District's plant operating, but a long term solution to
keep the dam from contaminating river water is still pending. District costs related to the dam in the future will be
recognized as an expense in the year in which they are incurred.
14) FINANCIAL STATEMENT PRESENTATION
Certain amounts in the financial statements for the year ended June 30, 2010 have been reclassified to conform to the
presentation of the financial statements for the year ended June 30, 2011. These reclassifications, resulted in the following
change in balances as of and for the year ended June 30,2010:
Prior Year
Prior Year Reclassification
Balance Reclassification Balance
Other Receivables 221,588 30,013) $ 191,575
Assessments Receivable 83,188 30,013 113,201
Capital Assets not being Depreciated 19,094,492 749,685 19,844,177
Capital Assets,net of Accumulated
Depreciation 93,525,419 749,685) 92,775,734
Accrued Salaries 456,029 260,637) 195,392
Other Post Employment Benefits 260,637 260,637
37 DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
REQUIRED SUPPLEMENTARY INFORMATION
DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
thr DISCUSSION PURPOSES ONLY
East Valley Water District
Schedule of Funding Progress for Retirees Health Coverage
June 30, 2011
Actuarial
Accrued UAAL as a
Actuarial Actuarial Liability Unfunded Percentage of
Valuation Value of (AAL)Entry AAL Funded Covered Covered
Date Assets Age UAAL) Ratio Payroll Payroll
A) B) B-A) A/B) C) B-A)/C]
07/01/10 R S 727.256 R 727256 0%S 4.507.000 16°%
07/01/08 S 7290,086 R 1.290,086 0%4.330.000 30%
GASB 45 was implemented in fiscal year ended June 30,2009. There were no previous actuarial valuations.
38 DRAFT COPY— 712512012
PRELIMINARY&TENTATIVE
for DISCUSSION KWOS6S ONLY
SUPPLEMENTARY INFORMATION
DRAFT COPY-1125/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSHS ONLY
East Valley Water District
History and Organization
Year Ended June 30, 2011
Formation of the District
The Board of Supervisors of San Bernardino County approved a petition in writing for the formation of the East Valley Water
District (formerly East San Bernardino County Water District)under Division 12 of the Water Code of the State of California
and ordered an election held January 12, 1954. The formation of the District was voted by the electors. The Board of
Supervisors of San Bernardino County,by action on January 18, 1954,approved the formation of the District. Incorporation of
the"East Valley Water District"was approved by the State of California on February 1, 1954.
Formation of the Public Facilities Corporation
The East Valley Public Facilities Corporation was incorporated October 1986, pursuant to the nonprofit public benefit
corporation law of the State of California to provide financial assistance to the District by acquiring and constructing various
public improvements,and by acquiring land and related facilities for the use,benefit and enjoyment of the public.
Nature of Business
The District has been engaged in the furnishing of water service and sewage transmission services to its customers since
inception.
Location
The District has temporarily relocated its office to 3654 Fast Highland Avenue. The office is situated within the District's
boundaries which encompass an area of approximately 25 square miles within the County of San Bernardino,California.
Directors
Water District Public Facilities Corporation
George E."Skip"Wilson President George E. "Skip"Wilson President
Matt Le Vesque Vice President Matt Le Vesque 1"Vice President
Kip E.Sturgeon Director James Morales,Jr.2nd Vice President
James Morales,Jr.Director Robert E.Martin Secretary
Larry Malmberg Director Brian W Tompkins Treasurer
East Valley Water District Financing Authority
George E. "Skip"Wilson President
Matt Le Vesque Vice President
Brian W.Tompkins Finance Director
Robert E.Martin Secretary
Management
Robert E.Martin General Manager/Secretary
Brian W.Tompkins Chief Financial Officer/Treasurer
Professional Consultants
General Counsel for the District is the firm of Brunick,McElhaney&Beckett.
39 DRAFT COPY- 1/25/2012
PRELIMINARY&"TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Net Assets
June 30, 2011
Water Sewer Eliminations Totals
ASSETS
Current Assess:
Cash and Cash Equivalents 714,304 $ 47,181 $ 761,485
Investment, 900,001 2,773,048 3,673,049
Accounts Receivable,Net 1,657,687 1,657,687
Interest Receivable 20,657 8,388 29,045
Due from Other Governments 1,009,898 1,009,898
Other Receivables 155,415 155,415
Inventory 937,131 937,131
Prepaid Expenses 299,575 299,575
Dotal Current Assets 5,694,668 2,828,617 8,523,285
Non-Current Assets:
Restricted Cash and Cash Equivalents 17,108,747 552,831 17,661,578
Assessments Receivable 89,268 89,268
Deferred Charges 554,269 18,115 572,384
Due from Water Department 7,000,000 7,000,000
Capital Assets not being Depreciated 18,343,627 4,085,317 22,428,944
Capital Assets,net of Accumulated Depreciation 77,798,846 14,163,551 91,962,397
I ota I Non-Current Assets 113,894,757 25,819,814 7,000,000 132,714,571
rotaI Assets 119,589,425 28,648,431 7,000,000 141,237,856
40
DRAFT COPY-1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY'
East Valley Water District
Combining Schedule of Net Assets- Continued
June 30, 2011
Water Sewer Eliminations Totals
LIABILITIES
Current Liabilities:
Accounts Payable and Accrued Expenses 2,644,045 $ 2,644,045
Accrued Payroll and Benefits 167,392 42,652 210,044
Customer Service Deposits 1,679,974 1,679,974
Construction Advances and Retentions 161,354 98,491 259,845
Accrued Interest Payable 359,615 9,350 368,965
Current Portion of Compensated Absences 290,315 84,152 374,467
Current Portion of Long-Term Debt 973,470 85,458 1,058,928
Total Current Liabilities 6,276,165 320,103 6,596,268
Non-Current Liabilities:
Due to Sewer Fund 7,000,000 7,000,000
Compensated Absences,less current portion 463,125 144,741 607,866
Other Post Employment Benefits 260,637 260,637
Long-term Debt,less current portion 33,371,667 926,282 34,297,949
Total Non-Current Liabilities 41,095,429 1,071,023 7,000,000 35,166,452
Total Liabilities 47,371,594 1,391,126 7,000,000 41,762,720
NET ASSETS
Invested in Capital Assets,Net of Related Debt 77,554,544 17,697,218 95,251,762
Total Transmission and Distribution 90,664 12,365 103,029
Unrestricted 5,427,377) 9,547,722 4,120,345
Total Net Assets 72,217,831 $ 27,257,305 $ 99,475,136
41
DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Revenues,Expenses and Changes in Net Assets
Year Ended June 30, 2011
Water Sewer Eliminations Totals
OPERATING REVENUES
Water Sales 11,544,185 $ 11,544,185
Sewer Treatment Charges 5,761,956 5,761,956
System Charges 3,695,345 3,703,671 7,399,016
Other Charges 454,013 46,820 500,833
T'oral Operating Revenues 15,693,543 9,512,447 25,205,990
OPERATING EXPENSES
Source of Supply:
Supervision and Labor 151,135 151,135
Maintenance 146,941 146,941
Materials and Supplies 121 121
Purchased Water 170,000 170,000
Groundwater Replenishment 143,475 143,475
North Fork Assessments 75,913 75,913
Water Testing 1 19,577 119,577
Water Supply Studies 46,000 46,000
Total Source of Supply 853,162 853,162
Pumping:
Supervision and Labor 567,574 567,574
Materials and Supplies 29,291 29,291
Facilities Maintenance 120,255 120,255
Fuel and Power 1,987,973 1,987,973
Treatment Chemicals 148,369 148,369
Total Pumping 2,853,462 2,853,462
Water'Treatment:
Supervision and Labor 107,044 107,044
Materials and Supplies 9,839 9,839
Facilities Maintenance 28,831 28,831
Fuel and Power 114,539 114,539
Contact Treatment 787,193 787,193
Treatment Chemicals 33,508 33,508
Total Water Treatment 1,080,954 1,080,954
Wastewater Treatment:
Contact Treatment 5,995,720 5,995,720
42
DRAFT COPY-112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Revenues,Expenses and Changes in Net Assets-Continued
Year Ended June 30, 2011
Water Sewer Eliminations Totals
OPERATING EXPENSES-Continued
Transmission and Distribution:
Supervision and Labor 1,041,789 $ 1,041,789
Materials and Supplies 280,286 280,286
Facilities Maintenance 193,484 193,484
Total Transmission and Distribution 1,515,559 1,515,559
Wastewater Collection:
Supervision and Labor 255,049 255,049
Materials and Supplies 51,561 51,561
Facilities Maintenance 139,652 139,652
Total Customer Accounts 446,262 446,262
Customer Accounts:
Supervision and Labor 314,656 314,655 629,311
Postage 56,811 56,810 113,621
Contract Services-Billing 21,304 21,304 42,608
Contract Services-Payment Processing 53,796 53,796 107,592
Credit Checks 9,428 9,428 18,856
Cash Shortages 9 9 18
Materials and Supplies 1,250 1,250 2,500
Total Customer Accounts 457,254 457,252 914,506
Administrative and General:
Supervision and Labor 1,173,466 703,181 1,876,647
Taxes and Benefits 1,410,558 719,842 2,130,400
Director's Fees and Expenses 79,617 51,180 130,797
Telephone and Utilities 79,498 41,100 120,598
Dues and Subscriptions 88,390 40,808 129,198
Office Supplies and Expenses 71,173 38,546 109,719
Postage 10,869 7,127 17,996
Equipment Maintenance and Supplies 101,602 54,043 155,645
General Plant Maintenance 155,298 61,893 217,191
Vehicle Maintenance and Fuel 220,144 176,571 396,715
Facilities Lease 138,526 71,982 210,508
Contractual Services 524,321 274,966 799,287
General Insurance 167,514 93,431 260,945
Education,Seminars and Conferences 17,530 8,301 25,831
Meals,Lodging and Travel 26,356 13324 39,680
Employee Programs 16,276 8,837 25,113
43
DRAFT COPY- 112512012
PRELIMINARY&TENI ATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Revenues,Expenses and Changes in Net Assets- Continued
Year Ended June 30, 2011
Water Sewer Eliminations Totals
OPERATING EXPENSES-Continued
Administrative and Generate -Continued
Regulatory Fees and Compliance 30,038 $ 15,387 $ 45,425
Public Education and Outreach 14,967 7,992 22,959
Safety Equipment and Emergency Planning 42,853 22,078 64,931
Totat Administrative and General 4,368,996 2,410,589 6,779,585
OPERATING EXPENSES BEFORE
DEPRECIATION 11,129,387 9,309,823 20,439,210
Depreciation 3,289,263 640,005 3,929,268
Total operating Expenses 14,418,650 9,949,828 24,368,478
Operating Income(Loss) 1,274,893 437,381) 837,512
NON-OPERATING REVENUES
Investment Income 50,956 70,933 34,300 87,589
Cooperative Agreements 41,157 41,157
Grants 128,821 128,821
Claims and Settlements 791 791
Other Income 24,301 24,301
Total Non-Operating Revenues 246,026 70,933 34,300 282,659
NON-OPERATING EXPENSES
Interest Expense 1,301,454 19,198 34,300 1,286,352
Amortization 31,382 1,469 32,851
Loss on Disposal of Assets 140,301 140,301
Total Non-Operating Expenses 1,473,137 20,667 34,300 1,459,504
Income.Before Contributions,
Transfers and Special Items 47,782 387,115) 339,333)
CONTRIBUTIONS AND TRANSFERS
Capacity Charges 90,664 12,365 103,029
Capital Grants 881,077 881,077
Total Contributions and Transfers 971,741 12,365 984,106
SPECIAL ITEM
Abandoned Investigations 206,057) 206,057)
Change in Net Assets 813,466 374,750) 438,716
Total Net Assets,Beginning 71,404,365 27,032,055 99,036,420
Total Net Assets,Ending 72,217,831 $ 27,257,305 $ 99,475,136
44
DRAFT COPY- 112512012
PRELIMINARY R TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Cash Flows
Year Ended June 30, 2011
Water Sewer Eliminations Totals
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash Received from Customers S 15,420,517 $9,610,938 $ S 25,031,455
Cash Payments to Employees 4,987,699) (1,721,182) 6,708,881)
Cash Payments to Suppliers 6,036,145) (7,317,096) 13,353,241)
Other Income Received 102,409 102,409
Net Cash Provided(Used)by
Operating Activities 4,499,082 572,660 5,071,742
CASH FLOWS FROM CAPITAL AND
RELATED FINANCING ACTIVITIES
Capital Contributions 90,664 12,365 103,029
Proceeds from Issuance of Capital Debt 33,899,669 1,000,000 34,899,669
Principal Paid on Capital Debt 19,237,788) 19,237,788)
Interest Paid on Capital Debt 1,179,664) 17,692) 34,300 1,163,056)
Acquisition and Construction of
Capital Assets 4,920,208) (1,126,848) 6,047,056)
Net Cash Provided(Used)by Capital
and Related Financing 8,652,673 132,175) 34,300 8,554,798
CASH FLOWS FROM INVESTING ACTIVITIES
Interest Received from Investments 44,611 62,545 34,300) 72,856
Acquisition of Investments in Debt Securities 900,001) (2,773,048) 3,673,049)
Proceeds from Sales of Investments
in Debt Securities 188,225 2,870,030 3,058,255
Loan Collections from Arroyo Verde
Assessment District Property Owners 23,933 23,933
Net Cash Provided(Used)by
Investing Activities 643,232) 159,527 34,300) 518,005)
Net Increase(Decrease)in Cash and
Cash Equivalents 12,508,523 600,012 13,108,535
Cash and Cash Equivalents-Beginning of Year 5,314,528 5,314,528
Cash and Cash Equivalents-End of Year 17,823,051 $ 600,012 $ 18,423,063
45
DRAFT COPY— 112512012
PRELIMINARY&TENTATI V E
for DISCUSSION PURPOSES ONLY
East Valley Water District
Combining Schedule of Cash Flows - Continued
Year Ended June 30,2011
Water Sewer Eliminations Totals
RECONCILIATION TO STATEMENT
OF NET ASSETS
Cash and Cash Equivalents 714,304 $ 47,181 $ 761,485
Restricted Cash and Cash Equivalents 17,108,747 552,831 17,661,578
17,823,051 $ 600,012 $ 18,423,063
Total Transmission and Distribution
cash provided(used)by operating activities:
Net Operating Income(Loss)1,274,893 $ (437,381) $ 837,512
Adjustments to Reconcile Operating Income to
Net Cash Provided(Used)by Operating Activities:
Total Customer Accounts
Depreciation 3,289,263 640,005 3,929,268
Miscellaneous Income 102,409 102,409
Change in Assets and Liabilities:
Increase)Decrease in Accounts Receivable 291,885) 291,885)
Increase t Decrease in Inventory 38,346 38,346
Increase) Decrease in Prepaids 169,189) 169,189)
Increase(Decrease)in Accounts Payable
And Accrued Expenses 457,863 457,863
Increase(Decrease)in Accrued Payroll
and Benefits 28,000) 42,652 14,652
Increase(Decrease)in Compensated
Absences 193,477) 228,893 35,416
Increase(Decrease)in Customer and
Other Deposits 20,040 20,040
Increase(Decrease)in Developers'Deposits 1,181) 98,491 97,310
Total Cash Provided(Used)by
Operating Activities 4,499,082 $ 572,660 $ 5,071,742
46
DRAFT COPY— 711512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Principal and Interest Repayment Schedule
Refunding Revenue Bonds - Series 2010
Year Ended June 30, 2011
Interest Total
Due Date Principal Rate% Interest Payments
10/01/11 1,055,000 2.00 $370,538 $ 1,425,538
04/01/12 2.00 714,431 714,431
10/01/12 1,175,000 2.00 714,431 1,889,431
04/01/13 4.00 702,681 702,681
10/01/13 1,205,000 4.00 702,681 1,907,681
04/01/14 4.00 678,581 678,581
10/01/14 1,265,000 5.00 678,581 1,943,581
04/01/15 5.00 653,281 653,281
10101115 1,315,000 5.00 653,281 1,968,281
04/01/16 4.00 620,406 620,406
10/01/16 1,380,000 4.00 620,406 2,000,406
04/01/17 4.00 592.806 592,806
10/01/17 1,435,000 4.00 591806 2,027,806
04/01/18 4.00 556,931 556,931
10/01/18 1,500,000 5.00 556,931 2,056,931
04/01/19 5.00 519,431 519,431
10/01/19 1,580,000 5.00 519,431 2,099,431
04/01/20 5.00 479,931 479,931
10/01/20 1,650,000 4.00 479,931 2,129,931
04/01/21 4.00 446,931 446,931
10/01/21 1,030,000 4.00 446,931 1,476,931
04/01/22 4.00 426,331 426,331
10/01/22 1,075,000 4.00 426,331 1,501,331
04/01/23 4.00 404,831 404,831
10/01/23 1,120,000 4.00 404,831 1,524,831
04/01/24 4.50 382,431 382,431
10/01/24 1,155,000 4.50 382,431 1,537,431
04/01/25 4.00 356,444 356,444
10/01/25 700,000 4.00 356,444 1,056,444
04/01/26 4.00 342,444 342,444
10/01/26 730,000 4.00 342,444 1,072,444
04/01/27 4.00 327,844 327,844
10/01/27 760,000 4.00 327,844 1,087,844
04/01/28 4.00 312,644 312,644
10/01/28 790,000 4.00 312,644 1,102,644
04/01/29 4.00 296,844 296,844
10/01/29 820,000 4.00 296,844 1,116,844
04/01/30 4.00 280,444 280,444
10/01/30 855,000 4.00 280,444 1,135,444
04/01/31 4.25 263,344 263,344
10/01/31 885,000 4.25 263,344 1,148,344
04/01/32 4.25 244,538 244,538
10/01/32 925,000 4.25 244,538 1,169,538
47
DRAFT COPY- 1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
East Valley Water District
Principal and Interest Repayment Schedule
Refunding Revenue Bonds- Series 2010 - Continued
Year Ended June 30, 2011
Interest Total
Due Date Principal Rate% Interest Payments
Tot 04/01/33 4.25 $224,881 224,881
10/01/33 965,000 4.25 224,881 1,189,881
04/01/34 5.00 204,375 204,375
10/01/34 1,005,000 5.00 204,375 1,209,375
04/01/35 5.00 179,250 179,250
10101135 1,055,000 5.00 179,250 1,234,250
04/01/36 5.00 152,875 152,875
Total Custon,er Accounts 1,105,000 5.00 152,875 1,257,875
04/01/37 5.00 125,250 125,250
10/01/37 1,165,000 5.00 125,250 1,290,250
04/61/38 5.00 96,125 96,125
10/01/38 1,220,000 5.00 96,125 1,316,125
04/01/39 5.00 65,625 65,625
10/C1/39 1,280,000 5.00 65,625 1,345,625
04/01/40 5.00 33,626 33,626
10/C.1/40 1,345,000 5.00 33,626 1,378,626
Totals 33,545,000 21,741,650 $ 55,286,650
48
DRAFT COPY—1/25/2012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONIN
East Valley Water District
Principal and Interest Repayment Schedule
Department of Water Resources Construction Loan
Year Ended June 30, 2011
Interest Total
Due Date Principal Rate% Interest Payments
01/01/12 3,381 0.000 $3,381
07/01/12 3,381 0.000 3,381
01/01/13 3,381 0.000 3,381
07/01/13 3,381 0.000 3,381
01/01/14 3,381 0.000 3,381
07/01/14 3,381 0.000 3,381
01101115 3,381 0.000 3,381
07/01/15 3,381 0.000 3,381
01/01/16 3,381 0.000 3,381
07/01/16 3,381 0.000 3,381
01/01/17 3,381 0.000 3,381
07/01/17 3,381 0.000 3,381
01/01/18 3,381 0.000 3,381
07/01/18 3,381 0.000 3,381
01/01/19 3,381 0.000 3,381
07/01/19 3,381 0.000 3,381
01/01/20 3,381 0.000 3,381
07/01/20 3,381 0.000 3,381
01/01/21 3,381 0.000 3,381
07/01/21 3,381 0.000 3,381
01/01/22 3,381 0.000 3,381
07/01/22 3,381 0.000 3,381
01/01/23 3,381 0.000 3,381
07/01/23 3,381 0.000 3,381
01/01/24 3,381 0.000 3,381
07/01/24 3,381 0.000 3,381
01/01/25 3,381 0.000 3,381
07/01/25 3,381 0.000 3,381
01/01/26 3,381 0.000 3,381
07/01/26 3,381 0.000 3,381
01/01/27 3,381 0.000 3,381
07/01/27 3,381 0.000 3,381
01/01/28 3,381 0.000 3,381
07/01/28 3,381 0.000 3,381
01/01/29 3,381 0.000 3,381
07/01/29 3,381 0.000 3,381
01/01/30 3,381 0.000 3,381
07/01/30 3,382 0.000 3,382
01/01/31 3,382 0.000 3,382
Totals 131,861 131,861
49
DRAFT COPY-1/25/1011
PRELIMINARY&TEN TATI VE
for DISCUSSION PURPOSES ONLY
STATISTICAL SECTION
DRAFT COPY-1/25/2011
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
OPERATING REVENUE BY SOURCE
Last 10 Fiscal Years
m _
Total
Year Ended Operating
June 30 Revenue
2002 7,607,688 2,309,642 1,506,670 4,495,040 286,119 16,205,159
2003 7,535,751 2,310,455 1,527,697 4,557,819 291,252 16,222,974
2004 8,261,919 2,328,660 1,851,275 4,771,313 295,950 17,509,117
2005 8,514,952 2,339,965 2,145,335 5,278,198 259,702 18,538,152
2006 9,303,974 2,377,376 2,262,028 5,471,880 314,319 19,729,577
2007 10,660,279 2,451,060 2,532,458 5,607,142 301,065 21,552,004
2008 10,680,971 2,763,508 2,943,230 5,561,830 638,446 22,587,985
2009 11,767,683 3,096,902 3,407,900 5,631,258 763,245 24,666,988
2010 11,638,234 3,215,189 3,509,254 5,665,046 399,336 24,427,059
2011 11,625,249 3,695,345 3,708,815 5,761,956 500,833 25,292,198
30,000,000
25,000,000
20,000,000
t
15,000,000.,
r _
y "
10,000,000
5,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
50
DRAFT COPY-1/25/20]2
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
REVENUE RATES
Year ended June 30,
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Water Consumption Rates
Charge per HCF 0.88 0.88 0.88 0.96 1.01 1.08 1.20 1.35 1.35 1.49
Monthly Meter Charges
Meter Size
5/8" 7.00 7.00 7.00 7.50 7.50 7.50 8.40 10.45 10.45 11.54
3/4" 7.00 7.00 7.00 7.50 7.50 7.50 8.40 10.45 10.45 11.54
1" 13.00 13.00 13.00 14.00 14.00 14.00 15.70 14.63 14.63 17.56
11/2" 27.50 27.50 27.50 29.50 29.50 29.50 33.00 18.81 18.81 32.49
2" 39.50 39.50 39.50 42.50 42.50 42.50 47.60 30.39 30.39 74.47
3" 69.50 69.50 69.50 74.50 74.50 74.50 83.50 114.94 114.94 137.40
4" 115.50 115.50 115.50 124.00 124.00 124.00 1.39.00 146.29 146.29 227.30
6" 225.00 225.00 225.00 241.00 241.00 241.00 270.00 219.44 219.44 452.06
8" 338.00 338.00 338.00 362.00 362.00 362.00 405.00 303.04 303.04 721.76
Sewer Maintenance Charges
Residential(1 to 3 units)
Flat monthly charge 4.85 4.85 5.85 6.40 7.00 7.75 9.75 10.84 10.84 12.93
Commercial
Flat monthly charge 3.28
plus,
Charge per HCF 0.24 0.24 0.29 0.31 0.34 0.37 0.49 0.55 0.55 0.46
Sewer Treatment Charges
Residential(1 to 3 units)
Flat monthly charge 13.25 13.25 13.25 14.50 14.50 14.50 14.50 15.25 15.25 16.00
Commercial
Flat monthly charge 2.00 2.00 2.00 2.00 2.00 2.00 2.00
plus,
Charge per HCF:
Multi-family(4 plus units) 0.75 0.75 0.75 0.83 0.83 0.83 0.83 0.87 0.87 0.95
Reta it 1.10 1.10 1.10 1.70 1.70 1.70 1.70 1.79 1.79 1.90
Restaurants/Lounges 1.70 1.70 1.70 1.84 1.84 1.84 1.84 1.93 1.93 2.00
Laundromats 0.90 0.90 0.90 1.15 1.15 1.15 1.15 1.21 1.21 1.30
Dry Cleaner, 1.10 1.10 1.10 1.70 1..70 1.70 1.70 1.79 1.79 1.90
Schools/Churches 0.50 0.50 0.50 0.62 0.62 0.62 0.62 0.65 0.65 0.70
Convalescert Homes 0.80 0.80 0.80 0.84 0.84 0.84 0.84 0.88 0.88 0.95
Hotels 1.70 1.70 1.70 1.84 1.84 1.84 1.84 1.93 1.93 2.00
Office Bldgs. Motels,Municipal 0.95 0.95 0.95 1.32 1.32 1.32 1.32 1.39 1.39 1.50
Auto Repair. Service stations 1.20 1.20 1.20 1.17 1.17 1.17 1.17 1.23 1.23 1.30
Car Wash 1.20 1.20 1.20 1.17 1.17 1.17 1.17 1.23 1.23 1.30
HCF=hundred cubice feet=748 gallons
51
DRAFT COPY- 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
WATER OPERATING EXPENSES
Last 10 Fiscal Years
Year Ended Source of Water Total Water
June 30 Supply Ownpift Treatment ® m Oper Exp
2002 360,827 2,748,623 273,029 587,833 2,822,503 6,792,815
2003 734,001 3,003,996 279,918 574,447 3,259,383 7,851,745
2004 616,986 2,824,273 344,407 571,027 3,780,111 8,136,804
2005 568,306 2,839,783 405,668 682,225 4,315,842 8,811,824
2006 639,948 2,987,709 381,846 695,088 4,361,458 9,066,049
2007 390,124 3,451,376 626,770 766,082 4,215,687 9,450,039
2008 438,134 3,005,392 709,406 1,255,931 4,662,582 10,071,445
2009 608,742 2,961,727 1,420,962 1,403,076 5,320,152 11,714,659
2010 815,349 2,971,681 1,453,365 1,586,237 5,112,974 11,939,606
2011 853,162 2,853,462 1,080,954 1,515,559 4,907,313 11,210,450
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
c,p
4,000,000
2,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
52
DRAFT COPY- 112512012
PRELIMINARY&TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
SEWER OPERATING EXPENSES
Last 10 Fiscal Years
Year Ended CiaAmM Total Sewer
June 30 0; Oper Exp
2002 276,213 4,495,040 1,017,281 5,788,534
2003 262,900 4,557,909 1,033,230 5,854,039
2004 248,242 4,771,339 1,222,195 6,241,776
2005 312,507 5,288,212 1,436,322 7,037,041
2006 336,171 5,473,390 1,512,221 7,321,782
2007 377,919 5,607,172 1,498,844 7,483,935
2008 333,588 5,561,830 1,707,574 7,602,992
2009 449,296 5,631,258 1,932,193 8,012,747
2010 474,244 5,665,046 2,621,931 8,761,221
2011 446,262 5,995,720 2,872,985 9,314,967
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
MA
3,000,000
2,000,030
r
1,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
53
DRAFT COPY-1/25/2012
PRELIMINARY R.TENTATIVE
for DISCUSSION PURPOSES ONLY
EAST VALLEY WATER DISTRICT
ACTIVE SERVICES BY TYPE
Last 10 Fiscal Years
Year Ended
Total
June
d
30 Y Service
2002(est) 17,100 534 1,325 235 1,275 20,469
2003 17,353 538 1,323 235 1,275 20,724
2004 17,753 534 1,327 252 1,289 21,155
2005 18,203 537 1,322 260 1,289 21,611
2006 18,243 534 1,315 267 1,295 21,654
2007 18,454 532 1,316 272 1,295 21,869
2008 18,367 516 1,309 289 1,301 21,782
2009 18,403 508 1,293 306 1,306 21,816
2010 18,562 496 1,277 310 1,324 21,969
2011 18,564 502 1,273 310 1,318 21,967
25,000
20,000
4
x
15,000 '
r
10,000
MF
sk'Y`,'4.0
5,000
c n
T
X
2002(est) 2003 2004 2005 2006 2007 2008 2009 2010 2011
54
DRAFT COPY- 112512011
PRELIMINARY&TFN'fATIV F.
for DISCUSSION PURPOSES ONLY
2012
Board o'"Directors
East Valley Water District
Highland, California
We have audited the financial statements of the business-type activities of the East Valley Water District
the "District") for the year ended June 30, 2011. Professional standards require that we provide you with
information about our responsibilities under generally accepted auditing standards and Government
Auditing Standards, as well as certain information related to the planned scope and timing of our audit.
We have communicated such information in our letter to you dated August 8, 2011. Professional
standards also require that we communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the District are described in Note 1 to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during the year
ended June 30, 2011. We noted no transactions entered into by the District during the year for which there is
a lack of authoritative guidance or consensus. All significant transactions have been recognized in the
financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based
on management's knowledge and experience about past and current events and assumptions about future
events. Certain accounting estimates are particularly sensitive because of their significance to the financial
statements and because of the possibility that future events affecting them may differ significantly from those
expected_ The most sensitive estimate(s)affecting the financial statements was(were):
Management's estimate of the fair value of investments is based on information provided by
financial institutions. We evaluated the key factors and assumptions used to develop the fair value
of investments in determining that it is reasonable in relation to the financial statements taken as a
whole.
Management's estimate of capital assets depreciation is based on historical estimates of each
capitalized item's useful life. We evaluated the key factors and assumptions used to develop the
estimated useful lives in determining that they are reasonable in relation to the financial statements
taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statemen users. The most sensitive disclosure(s)affecting the financial statements was(were):
The disclosure of the fair value of investments in Note 2 to the financial statements represents
amounts susceptible to market fluctuations.
The disclosure of accumulated depreciation in Note 4 to the financial statements is based on
estimated useful lives which could differ from actual useful lives of each capitalized item.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit. The audit process may have been delayed somewhat due to significant revisions to the District's
financial statements to conform to the requirements of GFOA's financial statement award program. The
District plans on submitting a Comprehensive Annual Financial Report to GFOA in future years.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are trivial, and communicate them to the appropriate level of management.
Management has corrected all such misstatements. In addition, none of the misstatements detected as a result
of audit procedures and corrected by management were material, either individually or in the aggregate, to
each opinion unit's financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant
to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose
during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated 2012.
Managetent Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a "second opinion" in certain situations. If a consultation involves the
application of an accounting principle to the District's financial statements or a determination of the type of
auditor's opinion that may be expressed on those statements, our professional standards require the consulting
accounta it to check with us to determine that the consultant has all the relevant facts. To our knowledge,
there weie no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the District's auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
Other Information in Documents Containing Audited Financial Statements
With respect to supplementary information accompanying the financial statements, we made certain
inquiries of management and evaluated the form, content, and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United
States of America, the method of preparing it has not changed from the prior period, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the
financial statements or to the financial statements themselves.
This information is intended solely for the use of the Board of Directors and management of the District and
is not intended to be and should not be used by anyone other than these specified parties.
Very truly yours,
Brian W. Tompkins,Chief Financial Officer
East Valley Water District
3654 E. Highland Avenue, Ste 30
Highland, CA 92346
We have completed our portion of the accompanying Data Collection Form and are submitting it for your
completion. The Office of Management and Budget Circular A-133 requires that the District submit one
copy of the single audit reporting package to any pass-through entities through which the East Valley Water
District received federal grants.
The single audit reporting package consists of the following:
The District's financial statements
Report on Internal Control Over Financial Reporting and on Compliance and Other Matters
Based on an Audit of Financial Statements Performed in Accordance With Government
Auditing Standards
Independent Auditor's Report on Compliance with Requirements that Could Have a Direct
and Material Effect on Each Major Program, Internal Control Over Compliance and on the
Schedule of Expenditures of Federal Awards in Accordance With OMB Circular A-133
Schedule of Expenditures of Federal Awards
Notes to Schedule of Expenditures of Federal Awards
Schedule of Findings and Questioned Costs
Summary Schedule of Prior Audit Findings
Therefore, we suggest one copy of the reporting package (do not include the Data Collection Form) be
submitted to the State of California Department of Public Health and the State of California Emergency
Management Agency.
As part of the requirements for the electronic submission to the Clearinghouse, you will be receiving an
email with a signature code from the Clearinghouse once all reports have been uploaded. You are required
to enter the signature code online to certify the submission. Attached is the log-in information.
If you have any questions regarding this matter please contact our office.
Very truly yours,
TEAMAN, RAMIREZ& SMITH,INC.
Greg Fankhanel
Certified Public Accountant
EAST VALLEY WATER DISTRICT
Highland,California
SINGLE AUDIT REPORT ON
FEDERAL AWARD PROGRAMS
Year Ended June 30,2011
EAST VALLEY WATER DISTRICT
SINGLE AUDIT REPORT ON FEDERAL AWARD PROGRAMS
Year Ended June 30,2011
TABLE OF CONTENTS
Page
Report on Internal Control Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 1 -2
Independent Auditor's Report on Compliance with Requirements that Could Have a
Direct and Material Effect on Each Major Program, Internal Control Over
Compliance and on the Schedule of Expenditures of Federal Awards in
Accordance with OMB Circular A-133 3 -4
Schedule of Expenditures of Federal Awards 5
Notes to the Schedule of Expenditures of Federal Awards 6
Schedule of Findings and Questioned Costs 7- 8
Summary Schedule of Prior Audit Findings 9
Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards
Board of Directors
East Valley Water District
Highland, California
We have audited the financial statements of the business-type activities of the East Valley Water District
District) as of and for the year ended June 30, 2011, which collectively comprise the District's basic
financial statements, and have issued our report thereon dated January _,2012. We conducted our audit in
accordance with auditing standards generally accepted in the United States of America and the standards
applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States.
Internal Control Over Financial Reoortin
In planning and performing our audit, we considered East Valley Water District's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion
on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the
District's internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the District's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the entity's
financial statements will not be prevented,or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over financial
reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined
above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether East Valley Water District's financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts. However, providing an opinion on compliance
with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
We noted certain matters that we reported to Management of the District in a separate letter dated
011.
This report is intended solely for the information and use of management, the Board of Directors, others
within the entity, federal awarding agencies and pass-through entities and is not intended to be and should
not be used by anyone other than these specified parties.
January_,2012
2
Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and
Material Effect on Each Major Program,Internal Control Over Compliance and on the Schedule of
Expenditures of Federal Awards in Accordance with OMB Circular A-133
Board of Directors
East Valley Water District
Highland,California
Compliance
We have audited the East Valley Water District's compliance with the types of compliance requirements
described in the OMB CircularA-133 Compliance Supplement that could have a direct and material effect on
each of the East Valley Water District's major federal programs for the year ended June 30, 2011. The East
Valley Water District's major federal programs are identified in the summary of auditors' results section of
the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws,
regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the
East Valley Water District's management. Our responsibility is to express an opinion on the East Valley
Water District's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of
States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133
require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with
the types of compliance requirements referred to above that could have a direct and material effect on a major
federal program occurred. An audit includes examining, on a test basis, evidence about the East Valley
Water District's compliance with those requirements and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our
audit does not provide a legal determination of the East Valley Water District's compliance with those
requirements.
In our opinion, the East Valley Water District complied, in all material respects, with the compliance
requirements referred to above that could have a direct and material effect on each of its major federal
programs for the year ended June 30,2011.
Internal Control Over Compliance
Management of the East Valley Water District is responsible for establishing and maintaining effective
internal control over compliance with requirements of laws, regulations, contracts and grants applicable to
federal programs. In planning and performing our audit, we considered the East Valley Water District's
internal control over compliance with requirements that could have a direct and material effect on a major
federal program to determine the auditing procedures for the purpose of expressing our opinion on
compliance and to test and report on internal control over compliance in accordance with OMB Circular
A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, we do not express an opinion on the effectiveness of the East Valley Water
District's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a deficiency,
or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility
that material noncompliance with a type of compliance requirement of a federal program will not be
prevented,or detected and corrected,on a timely basis.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over compliance
that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.
Schedule of Expenditures of Federal Awards
We have audited the financial statements of the business-type activities of the East Valley Water District as of
and for the year ended June 30, 2011, and have issued our report thereon dated January _, 2012. Our audit
was performed for the purpose of forming opinions on the financial statements that collectively comprise the
East Val ey Water District's financial statements as a whole. The schedule of expenditures of federal awards
is preserted for purposes of additional analysis as required by U.S. Office of Management and Budget
Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required
part of the financial statements. Such information is the responsibility of management and was derived from
and relates directly to the underlying accounting and other records used to prepare the financial statements.
The information has been subjected to the auditing procedures applied in the audit of the financial statements
and certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards generally accepted in the
United States of America. In our opinion,the information is fairly stated in all material respects in relation to
the financial statements taken as a whole.
phis report is intended solely for the information and use of the Board of Directors, management, others
within the entity,federal awarding agencies and pass-through entities and is not intended to be and should not
be used by anyone other than these specified parties.
January 20 12
4
EAST VALLEY WATER DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Year Ended June 30,2011
Federal
Domestic Program
Federal Grantor/ Assistance Identification Program
Pass-through Grantor/Program Title Number Number Expenditures
U.S.Environmental Protection Aeenev
Passed through the State of California Department of
Public Health:
Drinking Water State Revolving Fund 66.468 SRF 1 OCXI 19 754,029
Drinking Water State Revolving Fund-Loan 66.468 SRFIOCX119 1,759,400
Total
2,513,429*
U.S.Department of Homeland Security
Passed through FLIM
Passed through the State of California Emergency
Management Agency:
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00465 12,365
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00466 5,939
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00468 5,327
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00469 8,032
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00560 11,992
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00562 5,914
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00563 1,417
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00564 3,606
Disaster Grant—Public Assistance 97.036 PA-09-CA-1952-PW-00679 18,210
Total
72'802
Total Federal Financial Assistance
2,586,231
Major Program
5
EAST VALLEY WATER DISTRICT
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Year Ended June 30,2011
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO THE SCHEDULE OF
FEDERAL AWARDS
a) Scope of Presentation
The accompanying schedule presents only the expenditures incurred (and related awards received) by the
East Valley Water District that are reimbursable under programs of federal agencies providing financial
assistance. For the purpose of this schedule, financial assistance includes both federal financial assistance
received directly from a federal agency, as well as federal funds received indirectly by the East Valley Water
District from a non-federal agency or other organization. Only the portion of program expenditures
reimbursable with such federal funds is reported in the accompanying schedule. Program expenditures in
excess of the maximum federal reimbursement authorized or the portion of the program expenditures that
u en,funded with state, local or other non-federal funds are excluded from the accompanying schedule.
b) Basis of Accounting
The expenditures included in the accompanying schedule were reported on the accrual basis of accounting.
Under the accrual basis of accounting, expenditures are incurred when the East Valley Water District
becomes obligated for payment as a result of the receipt of the related goods and services. Expenditures
reported include any property or equipment acquisitions incurred under the federal program.
c) Major Programs
The District had one major program for the year ended June 30, 2011, consisting of the U.S. Environmental
Protzction Agency Loan/Grant which had total disbursements of$2,513,429. This amount calculates to 97%
of the total disbursements from federal awards.
6
EAST VALLEY WATER DISTRICT
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30,2011
SECTION I-SUMMARY OF AUDITORS' RESULTS
Financial Statements
Type of Auditors' Report Issued: Unqualified
Internal Control Over Financial Reporting:
Material Weakness(es)Identified? No
Significant Deficiencies Identified not Considered
to be Material Weaknesses? No
Noncompliance Material to Financial Statements Noted? No
Federal Awards
Internal Control Over Major Programs:
Material Weakness(es)Identified? No
Significant Deficiencies Identified not Considered
to be Material Weaknesses?
No
Type of Auditors' Report Issued on Compliance for
Major Programs:
Unqualified
Any Audit Findings Disclosed that are Required to be Reported in
Accordance With OMB Circular A-133, Section .510(a)? No
Identification of Major Programs:
CFDA Numbers Name of Federal Program or Cluster
U.S. Environmental Protection Agency
66.468 Drinking Water State Revolving Fund
Dollar Threshold used to Distinguish Between Type A
And Type B Programs:
300,000
Auditee Qualified as Low-Risk Auditee? No
7
EAST VALLEY WATER DISTRICT
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30,2011
SECTION II- FINANCIA.L STATEMENT FINDINGS
There were no auditors' findings required to be reported in accordance with GAS
SECTION III-FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
There were no auditors' findings to be reported in accordance with paragraph .510(a)of OMB Circular A-133.
8
EAST VALLEY WATER DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
Year Ended June 30,2011
I. FINANCIAL STATEMENT FINDINGS
There were no auditors' findings required to be reported in accordance with GAS.
II. FINDINGS AND QUESTIONED COSTS-MAJOR FEDERAL AWARD PROGRAMS AUDIT
There were no auditors' findings to be reported in accordance with paragraph .510(a)of OMB Circular A-133.
9
2012
Mr. John Mora, General Manager
Fast Valley Water District
3654 E. Highland Avenue, Ste. 30
Highland, California 92346
Dear Mr. Mura:
We have audited the financial statements of the East Valley Water District (the
District") as of and for the year ended June 30, 2011, and have issued our report thereon
dated 2012. In planning and performing our audit, we considered its internal
conrroli oorderto determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and not to provide assurance on the internal control.
We noted no matters involving the internal control and its operations that we considered
to be material weaknesses under standards established by the American Institute of
Certified Public Accountants. However, we noted the following items of less
significance which are presented for your consideration.
1)
Formal Policies and Procedures
Our audit procedures involved obtaining and evaluating various District policies and
procedures. During our review we noted the District could benefit from establishing formal
policies in certain areas, including the following:
Capital Asset Policies (relating to capital asset purchases, disposals, etc.)
Accounting Policies and Procedures
Fraud Prevention and Detection Policy
Although the District may have informal policies in these areas, we believe the District
could benefit from a more formal and comprehensive policies and procedures manual,
appnwed by the Board, which would provide detailed guidance to employees and
management of the District. This will help to ensure consistency in these areas, even if there
is staff turnover. The following describes these policies in more detail:
Capital Asset Policies
The District is required to disclose its Capitalization Policy and depreciation methods in the
annual financial statements. Currently, the District has no such formal policy. A
comprehensive Capital Asset Policy would provide written guidance regarding
capitalization thresholds (the level at which capital assets are recorded as assets rather than
expensed), as well as depreciation methods and estimated useful lives. In addition, a Capital
Asset Policy should provide guidance to staff regarding the capital asset disposal
procedures. GFOA has issued recommended practices in these areas which the District
should refer to when developing such a policy.
Accounting Policies and Procedures
A formal accounting policies and procedures manual should be developed to thoroughly
document the accounting process, including month-end and year-end closing procedures,
journal entry procedures, and the review and approval process, among others. The manual
should clearly demonstrate adequate segregation of duties in the financial reporting and
accounting functions.
Code of Conduct (including fraud prevention and detection policies)
The District's Board and Management are responsible for designing and implementing
systems and procedures for the prevention and detection of fraud, and for ensuring a culture
and environment that promotes honesty and ethical behavior. Fraud can range from minor
employee theft and unproductive behavior to misappropriation of assets and fraudulent
financial reporting. Although external auditors are required to consider the risk of fraud in
the audit process, it should be noted that external auditors are not considered part of the
District's controls over the prevention and detection of fraud. Rather, external auditors are
required to evaluate the District's fraud prevention and detection program, in relation to the
audit of the financial statements.
The risk of fraud can be reduced through a combination of prevention, deterrence, and
detection measures. However, fraud can be difficult to detect because it often involves
concealment through falsification of documents or collusion among management,
employees, or third parties. Therefore, it is important to place a strong emphasis on fraud
prevention, which may reduce opportunities for fraud to take place, and fraud deterrence,
which could persuade individuals that they should not commit fraud because of the
likelihood of detection and punishment. Moreover, prevention and deterrence measures are
much less costly than the time and expense required for fraud detection and investigation.
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During our audit we noted the District has taken steps to address the risk of fraud in certain
areas, such as segregation of duties and other internal controls. However, we recommend
the District consider taking a more formal, proactive approach to fraud prevention and
deterrence. This would involve establishing an ongoing program of formally identifying
and measuring fraud risks, taking steps to mitigate identified risks, and implementing and
monitoring any necessary preventive and deterrent measures. this fraud prevention
program should be documented in a formal policy.
For example, although the District provides training regarding ethics to management level
employees, the District should consider establishing a more formal training program for all
employees regarding fraud. New employees should be trained at the time of hiring about
the entity's code of conduct(including fraud policies). This training should explicitly cover
expectations of all employees regarding (1) their duty to communicate certain matters; (2) a
list of the types of matters, including actual or suspected fraud, to be communicated along
with specific examples; and (3) information on how to communicate those matters. In
addition to the training at the time of hiring, employees should receive refresher training
periodically thereafter.
As mentioned above, management needs to provide information to employees on how to
communicate fraud related matters. Research has shown that the majority of fraud is
detected by fellow employees, and not by outside auditors or internal controls. It is
important for the District to establish and communicate to employees a reporting system that
is appropriate for the District. The District should consider establishing a confidential
reporting mechanism, not only for employees, but also for vendors and customers of the
District.
In summary, the District has established controls over fraud in many areas. However, the
District should consider expanding and documenting its fraud prevention program as
discussed above. The above comments do not address all components of a strong
antifraud program. Additional information can be provided to the District's management
regarding this issue.
2)
Purchases and Disbursements
It is our understanding the District had an informal policy in place during the 2010-11
fiscal year requiring the General Manager's approval prior to the preparation and
disbursement of a check in excess of $1,000. During our testing of disbursements we
found two checks over $1,000 for which the supporting documentation did not include
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the General Manager's approval signature. It should be noted the General Manager
ultimately approved the checks by signing them. However, there was no indication the
checks were approved prior to the purchase and preparation of the check.
The District should establish procedures to ensure that all policies are adhered to on a
consistent basis, including purchasing and disbursement policies.
3)
Physical Security for Computer Equipment
During our audit, we observed that the District's computer equipment is not located in a
secure area. Normally, computer equipment should be stored in a locked area, with
access limited only to authorized individuals, such as IT personnel. However, during our
site visit, it appeared the District's equipment was maintained in an office that was not
locked on a regular basis, indicating that unauthorized individuals could potentially
access the District's system.
We recommend the District take steps to provide greater physical security for the
computer system.
Summation
We would like to take this opportunity to express our appreciation for the assistance
extended us during the course of our audit. If you have any questions regarding our
recommendations, please call our office. This letter is intended solely for the information
and use of management and is not intended to be and should not be used by anyone other
than these specified parties.
Respectfully submitted,
TEAMAN, RAMIREZ& SMITH, INC.
Greg W. Fankhanel, CPA
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