HomeMy WebLinkAbout2007-10 ADM i
MINUTES OF THE REGULAR MEETING OF
THE ADMINISTRATION COMMITTEE
Orange County Sanitation District
Wednesday, October 10, 2007, at 5:00 P.M.
A meeting of the Administration Committee of the Orange County Sanitation District was held on
October 10, 2007, at 5:00 p.m., in the Sanitation District's Administrative Office.
(2) Following the Pledge of Allegiance, a quorum was declared present, as follows:
ADMINISTRATION COMMITTEE STAFF PRESENT:
MEMBERS: Jim Ruth, General Manager
DIRECTORS PRESENT: Bob Ghirelli,Assistant General Manager
Mark Waldman, Chair Lorenzo Tyner, Director of Finance and
Phil Luebben, Vice Chair Administrative Services
Steven Choi Mike White, Controller
Bill Dalton Lilis Kovac, Committee Secretary
Jon Dumitru Norbert Gala
Rich Freschi Bob Gaggle
Darryl Miller Randy Kleinman
Joy Neugebauer Jeff Reed
Chris Norby
Ken Parker OTHERS PRESENT:
Sal Tinajero Bred Hogin, General Counsel
Jim Winder Shirish Patel, Lance, Soll & Lunghard
Jim Ferryman, Board Chair Bryan Gruber, Lance, Soil & Lunghard
Doug Davert, Board Vice Chair
DIRECTORS ABSENT: H{�EL��CQppL� ppKK EEp�
(3) APPOINTMENT OF CHAIR PRO TEM 04ENI NTAFI STFNU'ACT
No appointment was necessary. OCT 2 4 2007
(4) PUBLIC COMMENTS
BY.-
There were no public comments.
(5) REPORT OF THE COMMITTEE CHAIR
Chair Waldman did not give a report.
(6) REPORT OF THE GENERAL MANAGER
General Manager, Jim Ruth, did not give a report.
'Minutes of the Administration Committee
October 10, 2007
Page 2
(7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES
Lorenzo Tyner, Director of Finance and Administrative Services, did not give a report.
(8) REPORT OF GENERAL COUNSEL
Brad Hogin, General Counsel, did not give a report.
(9) CONSENT CALENDAR ITEMS
Consideration of motion to approve all agenda items appearing on the Consent Calendar not
specifically removed from same, as follows:
a. MOVED, SECONDED AND DULY CARRIED: Approve minutes of the September 12,
2007 meeting of the Administration Committee.
END OF CONSENT CALENDAR
(10) ACTION ITEMS
a. ADM07-49 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to approve a Professional Services Agreement with Aon Risk
Services Inc., for an Owner Controlled Insurance Program
Broker/Administrator(OCIP), Specification No. CS-2007-347BD, in an
amount not to exceed 0.3955% of total construction value (minimum of
$150,000/yr.), for a one-year period, with four additional one-year renewal
options.
(11) INFORMATIONAL ITEMS
a. ADM07-50 Internal Audit Report—Groundwater Replenishment System Construction
Agreement with the Orange County Water District.
Mr. Shirish Patel and Mr. Bryan Gruber of Lance, Soil and Longhard,
reported the results of their audit as directed by Subcommittee Directors
Waldman, Parker and Luebben. Documentation was found to be in an
overall reasonable order indicating OCSD had paid its agreed-upon share
of costs. Expenses included within the audited billings were found to have
been substantiated by supporting documentation. One proposed
recommendation directed at the Sanitation District was included in the
auditors report to minimize inaccuracies.
Unutes of the Administration Committee
October 10, 2007
Page 3
b. ADM07-51 Additional Retiree Benefit Account(ARBA) Update
Human Resources and Employee Relations Manager,Jeff Reed,
informed the Administration Committee members that AB 1124 had just
been signed by the governor, and may be considered in how the
Sanitation District chooses to administer its retiree health insurance
benefit. It was noted that the agreement with OCERS to administer ARBA
will be expiring in December 2007. A detailed report will be provided at
the November Administration Committee meeting.
(12) CONVENE INCLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION
54957(b)(1).
There was no closed session.
(13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS. IF
ANY
There were none.
(14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR
ACTION AND STAFF REPORT
There were none.
(15) FUTURE MEETING DATES
The next regular Administration Committee meeting is scheduled for November 14, 2007, at
5 p.m.
(16)ADJOURNMENT
The Chair declared the meeting adjourned at 5:30 p.m.
Submitted by:
L y�_a�
Lilia Covac
Committee Secretary
KWepNgendMAdmin Committee\1007\101007 Admin Minutes.doc
STATE OF CALIFORNIA)
) SS.
COUNTY OF ORANGE )
Pursuant to California Government Code Section 54954.2, 1 hereby certify that
the Notice and Agenda for the Administration Committee Meeting of Orange County
Sanitation District to be held on October 10, 2007, was duly posted for public inspection
in the main lobby of the Districts' offices on October 3, 2007.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of October
2007.
Life Kovac, Committee Secretary
Orange County Sanitation District
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ORANGE COUNTY SANITATION DISTRICT
(714)2B224111 NOTICE OF MEETING
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ADMINISTRATION COMMITTEE
MEETING DATES
Meeting Date Board Meeting Dates
October 10, 2007 October 24, 2007
November 14, 2007 November 28, 2007
December 12, 2007 'December 19, 2007
January 2008 — Dark January 23, 2008
February 13, 2008 February 27, 2008
March 12, 2008 March 26, 2008
April 9, 2008 April 23, 2008
May 14, 2008 May 28, 2008
June 11, 2008 June 25, 2008
July 9, 2008 July 23, 2008
AUGUST DARK August 27, 2008
September 10, 2008 September24, 2008
October 1, 2008 October 22, 2008
-Meetings being held the third Wednesday of the month.
ROLL CALL
ADMINISTRATION COMMITTEE
Finance, Human Resources and Information Technology
Meeting Date: October 10, 2007 Time: 5:00 o.m.
Adjourn-
COMMITTEE MEMBERS 1141
Mark Waldman Chair
Phil Luebben ice Chair
Steven Choi
Bill Dalton
Jon Dumitru
Rich Freschi
Darryl Miller
Joy Neu ebauer
Chris Norb
Ken Parker
Sal Tina'ero
Jim Winder
James M. Ferryman Board Chair
Doug Davert Board Vice Chair
OTHERS
Brad H in, General Counsel
STAFF
Jim Ruth, General Manager
Bob Ghirelli, Assistant General Manager
Nick Arhontes, Director of Operations& Maint.
Jim Herberg, Director of Engineering
Ed Torres, Director of Technical Services
Lorenzo Tyner, Director of Finance and
Administrative Services
Lilia Kovac, Committee Secretary
Jeff Reed, Human Resources and Employee
Relations Mana er
Mike White, Controller
Wdeptage�aW in Gommitice11007%G2.Roll GalLdoc
AGENDA
REGULAR MEETING OF THE
ADMINISTRATION COMMITTEE
ORANGE COUNTY SANITATION DISTRICT
WEDNESDAY, OCTOBER 10, 2007, AT 5:00 P.M.
ADMINISTRATIVE OFFICE
10844 Ellis Avenue
Fountain Valley, California 92708
www.ocsd.com
(1) PLEDGE OF ALLEGIANCE
(2) DECLARATION OF QUORUM
(3) APPOINTMENT OF CHAIR PRO TEM, IF NECESSARY
(4) PUBLIC COMMENTS
(5) REPORT OF COMMITTEE CHAIR
(6) REPORT OF GENERAL MANAGER
(7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES
(6) REPORT OF GENERAL COUNSEL
(9) CONSENT CALENDAR ITEMS
Consideration of motion to approve all agenda items appearing on the Consent Calendar not
specifically removed from same, as follows:
a. Approve minutes of the September 12, 2007 meeting of the Administration Committee.
END OF CONSENT CALENDAR
b. Consideration of items deleted from Consent Calendar, if any.
Book Page I
October 10, 2007 Page 2
(10) ACTION ITEMS
a. ADM0749 Recommend to the Board of Directors to approve a Professional Services
Agreement with Aon Risk Services Inc.,for an Owner Controlled Insurance
Program Broker/Administrator(OCIP), Specification No. CS-2007-347BD, in
an amount not to exceed 0.3955% of total construction value (minimum of
$150,0001yr.), for a one-year period, with four additional one-year renewal
options. (Book Page 9)
(11) INFORMATIONAL ITEMS
a. ADM07-50 Internal Audit Report—Groundwater Replenishment System Construction
Agreement with the Orange County Water District. (Book Page 12)
b. ADM07-51 Additional Retiree Benefit Account (ARBA) Update (Book Page 22)
(12) CLOSED SESSION
i During the crourse of conducting the business set forth on Ihis agentla as a regular meeting of the Committee, I
the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations,
pending or potential litigation,or personnel matters, pursuant to Government Code sections 54956.8, 54966.9,
54957 or 54957.6,as rated.
i Reports relating to (a) purchase and sale of real property; (b) matters of Pending or potential litigation; (c) !
i employee actions cr negotiations with employee representatives; or which are exempt from public disclosure
i under the California Public Records Act,may be reviewed by the Committee during a permitted dosed session
i and are not available for public inspection. At such time as final actions are taken by the Committee on any of
these subtecls,the minutes will reflect all required disclosures of information. _---_.-.-_-_--
a. Convene in closed session.
b. Reconvene in regular session.
c. Consideration of action, if any, on matters considered in closed session.
(13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY
(14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA
FOR ACTION AND STAFF REPORT
(15) FUTURE MEETING DATES
The next regular Administration Committee meeting is scheduled for November 14, 2007, at
5 p.m.
(16) ADJOURNMENT
Book Page 2
October 10, 2007 Page 3
Agenda Posting: In accordance with the requirements of CalKomia Government Code Section 64954.2, this agenda
has been posted in the main lobby of the District's Administrative offices not less than 72 hours prior to the meeting
date and time above. All written materials relating to each agenda item are available for public inspection in the office
of the Clerk of the Board.
Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for
discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency Rem or because
there is a need to take immediate action, which need came to the attention of the Committee subsequent to the
posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours
prior to the meeting date.
Public Comments: Any member of the public may address the Administration Committee on specific agenda items or
matters of general interest. As determined by the Chair, speakers may be defamed until the specific Rem is taken for
discussion and remarks may be limited to three minutes.
Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by
the Committee except as authorized by Section 54954.2(b).
Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further
explanation, and unless a particular Rem is requested to be removed from the consent calendar by a Director of staff
member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by
one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar.
All items removed from the consent calendar shall be considered in the regular order of business.
The Committee Chair will determine if any items are to be deleted from the consent calendar.
Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held
within five(5)days of this meeting per Government Code Section 54954.2(b)(3).
Meeting Adioumment: This meeting may be adjourned to a later time and items of business from this agenda may be
considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section
54955(posted within 24 hours).
Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require
any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the
Board's office at(714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature
of the disability and the type of accommodation requested.
Notice to Committee Members'
For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair
or Clerk of the Board ten days in advance of the Committee meeting.
Committee Chair: Mark Waldman (714)827-1959
Committee Secretary: Lilia Kcvac (714)593-7124 IkovacQocsd.com
General Manager Jim Ruth (714)593-7110 iruth0ccsd.com
Assistant General Manager Bob Ghirelli (714)593-7400 rehirelli(cDocsd.com
Director of Finance and Lorenzo Tyner (714)593-7550 ItvnerQocsd.com
Administrative Services
Human Resources and Employee Jeff Reed (714)593-7144 ireedC&ocsd.com
Relations Manager
H:ldephagendaAdmin CommitteeF1007103.101007 Adminisealton Agenda dm
Book Page 3
October 10, 2007
ADMINISTRATION COMMITTEE
AGENDA CALENDAR
Item Action
November Receive and File Comprehensive Annual Financial Action
Report CAFR
November Labor Program Status Informational
November Series 2006 COPs Liquidity Substitution Action
November Series 2007E COPS Financing Documents Action
Boric Page 4
MINUTES OF THE REGULAR MEETING OF
THE ADMINISTRATION COMMITTEE
Orange County Sanitation District
Wednesday, September 12, 2007, at 5:00 P.M.
A meeting of the Administration Committee of the Orange County Sanitation District was held on
September 12, 2007, at 5:00 p.m., in the Sanitation Districts Administrative Office.
(2) Following the Pledge of Allegiance, a quorum was declared present, as follows:
ADMINISTRATION COMMITTEE STAFF PRESENT:
MEMBERS: Jim Ruth, General Manager
DIRECTORS PRESENT: Bob Ghirelli,Assistant General Manager
Mark Waldman, Chair Lorenzo Tyner, Director of Finance and
Phil Luebben, Vice Chair Administrative Services
Steven Choi Mike White, Controller
Bill Dalton Lille Kovac, Committee Secretary
Jon Dumitru Norbert Gaia
Joy Neugebauer Laurie Klinger
Chris Norby Jeff Reed
Ken Parker Juanita Skillman
Sal Tinajero Rich Spencer
Jim Winder
Rich Freschi OTHERS PRESENT:
Doug Davert, Board Vice Chair Brad Hogin, General Counsel
Jim Ferryman, Board Chair Ed Soong, PRAG
Victor Hsu, Fulbright& Jaworski, LLP
DIRECTORS ABSENT:
Darryl Miller
(3) APPOINTMENT OF CHAIR PRO TEM
No appointment was necessary.
(4) PUBLIC COMMENTS
There were no public comments.
(5) REPORT OF THE COMMITTEE CHAIR
Chair Waldman did not give a report.
(6) REPORT OF THE GENERAL MANAGER
General Manager,Jim Ruth, did not give a report.
Book Page 5
Minutes of the Administration Committee
September 12, 2007
Page 2
(7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES
Lorenzo Tyner, Director of Finance and Administration, provided a brief summary of various
department activities; i.e., Owner Controlled Insurance Program (OCIP); Treasury management;
investments, Comprehensive Annual Financial Report; staffing; Workers' Compensation
program; and Proposition 218 notices.
(8) REPORT OF GENERAL COUNSEL
Brad Hogin, General Counsel, reported on the current negotiations with the Department of
Education for the recovery of fair share of sewer fees for the last four years and future years.
(9) CONSENT CALENDAR ITEMS
Consideration of motion to approve all agenda items appearing on the Consent Calendar not
specifically removed from same, as follows:
a. MOVED, SECONDED AND DULY CARRIED: Approve minutes of the June 13, 2007
meeting of the Administration Committee.
b. ADM0741 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to adopt Resolution No. OCSD 07-_,Appointing
Representatives for the District to Act as Agents on its Behalf in the Small
Claims Courts of Orange County Judicial Districts, and Repealing
Resolution No. OCSD 04-12.
C. Item pulled for discussion.
d. Item pulled for discussion.
e. ADM0744 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to adopt Resolution No. OCSD 07- ,Terminating the
California Public Entity Insurance Authority Joint Powers Agreement.
END OF CONSENT CALENDAR
I. ADM0742 Director Davert requested clarification of methods available to ensure
payment of permit fees. It was then,
MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to approve the discharge of uncolleclible debt owed by Expo-
Dyeing & Finishing in the amount of$151,370.36.
g. ADM0743 Director Davert inquired about the possibility of securing debts for
accounts that have defaulted, and directed General Counsel to investigate
legal avenues.
Book Page 6
Minutes of the Administration Committee
September 12, 2007
Page 3
MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to approve a Deferred Payment Agreement with Pacific
Ocean Dyeing & Finishing in the amount of$224,981.99, for the collection
of all charges and fees owed for sewer service charges and industrial
discharge permit fees, for a two-year period, plus interest of 10% per
annum.
(10) ACTION ITEMS
a. ADM07-45 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to authorize issuance of up to$300 million in new fixed-rate
Certificates of Participation debt.
b. ADM07-46 MOVED, SECONDED AND DULY CARRIED: (1)Approve a Consultant
Services Agreement with Fulbright&Jaworski, L.L.P., to provide bond
counsel services for a one-year period effective September 12, 2007, in a
form approved by General Counsel, with option to renew for four one-year
periods for an amount not to exceed $200,000 per year; and,
(2)Approve a 10% contingency per year($20,000).
C. ADM0747 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board
of Directors to authorize the General Manager to procure bids for the
replacement of the Certificates of Participation Series 2006 Standby
Purchase Agreement.
(11) INFORMATIONAL ITEMS
a. AOM07-48 Succession Management Program Update
Human Resources and Employee Relations Manager, Jeff Reed, briefly
reviewed the background and the history of the Succession Management
Program. Employee Relations Supervisor, Rich Spencer, and Laurie
Klinger, Human Resources Specialist, presented details of the program
and its projected timetable.
(12) CONVENE INCLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION
54957(b)(11.
There was no closed session.
(13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF
ANY
There were none.
(14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR
Book Page 7
Minutes of the Administration Committee
September 12,2007
Page 4
ACTION AND STAFF REPORT
There were none.
(15) FUTURE MEETING DATES
The next regular Administration Committee meeting is scheduled for October 10, 2007, at
5 p.m.
(16)ADJOURNMENT
The Chair declared the meeting adjourned at 5:35 p.m.
Submitted by:
Lilia Kovac
Committee Secretary
wdepmgendawmin Commideel100M5.09120r Mmin Minulea.doc
Book Page 8
ADMINISTRATION COMMITTEE Ma
tD/t9o�e
o/o7 rc 1eO12 7aaoo-.
AGENDA REPORT Item Nurr a rM WOW
ADM0749
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
SUBJECT: SELECTION OF AN OWNER CONTROLLED INSURANCE PROGRAM
BROKER/ADMINISTRATOR
GENERAL MANAGER'S RECOMMENDATION
Approve a Professional Services Agreement with Aon Risk Services Inc., for an Owner
Controlled Insurance Program Broker/Administrator (OCIP), Specification No.
CS-2007-34713D, in an amount not to exceed 0.3955%of total construction value
(minimum of$150,000/yr.), for a one-year period, with four additional one-year renewal
options.
SUMMARY
A consultant was previously hired to assess the feasibility of an owner controlled
Insurance program (OCIP). The consultant found that an OCIP would be feasible and
likely save the District considerable money. The District Board of Directors then
approved the release of an RFP to solicit proposals from qualified OCIP broker/
administrators. The following four firms submitted a proposal in response to the
District's RFP:
Proposer Cost as a % of Total Estimated
Construction Value $500 mil.
• Alliant Insurance Sendoes Inc. • 0.3700%
• Aon Risk Services, Inc. • 0.3955%
• Arthur J. Gallah er&Co. • 0.2700%
• Kaercher Cam bell &Associates • 0.3001%
After review of the competing proposals and interviews of these four experienced OCIP
broker/administrators, a panel of seven evaluators (representing District departments
such as Finance, Risk Management, Safety, Engineering, and Purchasing) chose Aon
Risk Services, Inc. (Aon). Aon was able to demonstrate that they were the leader in the
field of OCIP brokerage/administration with far more experience than any other
proposer. Although Aon's proposal is slightly more costly than the other proposers, staff
believes that the additional cost will be more than offset through savings in the actual
insurance premiums resulting from Aon's superior brokerage services and through
Aon's claims management and safety and loss control programs.
Form N. motor= nwNee.mm,m>
Page 1
Book Page 9
An owner controlled insurance program (OCIP) provides insurance coverage for job site
construction projects. This would eliminate the burden of the construction contractor
from having to provide workers' compensation and general liability insurance as part of
their bid proposal. This also allows for possible centralized purchase of other types of
insurance such as builder's risk and pollution liability, if appropriate. An OCIP
centralizes and coordinates construction project insurance and coordinates loss control
and loss prevention. An OCIP would virtually eliminate multiple insurers, cost
duplication, stacked markups, potential cross litigation, gaps in coverage, inadequate
limits, and uninsured contractors. An OCIP generally will produce noticeable savings
compared to the overall project bids submitted by the individual contractors due to
economies of scale. Also, the OCIP manages the overall capital improvement safety
program to ensure that all contractor employees are properly trained in safety.
Advantages of an OCIP include:
• Better control over claims, litigation and settlement negotiations
• Competitive advantage for minority, small and specialty contractors
• Volume purchase equates to lower insurance rates
• Elimination of hidden subcontractor mark-ups
• Cash flow earnings on deferred premium and loss payment
• Dividends or returned premiums based on favorable claims reporting
Aon, as the broker/administrator, will assist OCSD in procuring appropriate insurance
policies from one or more major insurance carriers who insure OCIP's, such as:
• ACE
• AIG
• Arch Insurance
• Liberty Mutual
• Lloyds of London and London Companies
• St. Paul
• Zurich Insurance
The cost described above for Aon's services involves features which may not become
relevant, and therefore the cost may be less. It includes extra cost for another ''% FTE
safety person as well as the maximum possible incentive award to Aon if losses are
extremely low. It also includes the purchase of certain insurance policies that OCSD
may decide against, depending on the premium and terms that insurers may offer. If
any of these items do not become relevant, the actual cost would decrease. In addition,
the minimum of$150,000/yr. only becomes relevant if construction drops to an
unexpectedly low level. Aon has indicated a willingness to instead reduce the
availability of personnel dedicated to the OCIP, which would reduce that minimum.
FOM No.0 IOZ3 pgvM:=107
Page 2
Book Page 10
PRIOR COMMITTEE/BOARD ACTIONS
On June 13, 2007, the Administration Committee approved the release of a request for
proposal for the administration of an Owner Controlled Insurance Program, CS-2007-
346BD, covering the Sanitation District's $2.5 billion capital improvement program.
ADDITIONAL INFORMATION
This complies with authority levels of the Sanitation District's Delegation of Authority.
Insurance is budgeted as part of each project's overall cost and this program is intended
to reduce that cost.
Fom No.O 10 3 P.ersel.ow1Nl
Page 3
Book Page I I
ADMINISTRATION COMMITTEE MOOR,Date
To ad.or Dlr.
10/10/07
AGENDA REPORT Item Number Item Nu-
AGENDA
Orange County sanitwon District
FROM: James D. Ruth, General Manager
Lorenzo Tyner, Director of Finance and Administrative Services
SUBJECT: INTERNAL AUDIT REPORT— GROUNDWATER REPLENISHMENT
SYSTEM CONSTRUCTION AGREEMENT WITH THE ORANGE
COUNTY WATER DISTRICT
GENERAL MANAGER'S RECOMMENDATION
Informational item.
SUMMARY
At the direction of the Administration Committee's Audit Oversight Subcommittee,
Lance, Soll & Lunghard, LLP (LSL), Certified Public Accountants was engaged to audit
for proper application of agreed-upon procedures on the $500 million Groundwater
Replenishment System construction project (GWRS); a joint 50:50 cost-sharing
agreement between the Orange County Sanitation District (OCSD) and the Orange
County Water District (OCWD). In essence, OCWD staff manages the projects,
including the solicitation of bids, the procurement of services, and the payment of bills.
In turn, OCWD bills OCSD its 50 percent of the net direct costs. Each agency is
responsible for paying the full costs of its own staff members working on the project,
and the related overhead. As of the beginning of the audit, $333.54 million has been
incurred in total, and $166.77 million has been reimbursed by OCSD.
The agreed-upon procedures performed by LSL included:
• Obtaining and reviewing applicable agreements entered into between OCSD and
OCWD related to the GWRS Project;
• Obtaining an understanding of the controls in place for capturing costs related to the
project and the controls over preparation and review of the Cost-Sharing Invoices to
OCSD.
• Reviewing the detail of expenditures incurred for the GWRS Project as of Cost-
Sharing Invoice#96 covering periods February 28, 2007, and selected a sample of 20
vendors for review.
• Randomly selected a sample of 25 Cost-Sharing Invoices prepared by the OCWD for
review.
Fo,m No.D 102.3 Pev1eM:0Y01M
Page 1
Book Page 12
Based on LSL's review of the GWRS project Cost-Sharing Invoices prepared by
OCWD, it is their judgment that the overall processes, controls, and substantiation of
the Cost-Sharing Invoices was reasonable. However, they did find areas which could
be improved upon.
LSL will provide a more detailed explanation of the audit scope, methodology, and their
findings at the October Administration Committee meeting.
PRIOR COMMITTEE/BOARD ACTIONS
At the February 14, 2007 Administration Committee Meeting, the Committee members
approved the selection of LSL,to perform internal auditing services as directed by the
Committee for the period of March 1, 2007 through February 29, 2008, in an amount not
to exceed $58,670. The Committee also at this time established an audit oversight
subcommittee consisting of Directors Waldman, Luebben, and Parker assigned to meet
with auditors and staff, to give direction on the scope of audit areas, and to report back
to the Administration Committee on the results of audits undertaken.
ADDITIONAL INFORMATION
N/A
ATTACHMENT
1. Independent Accountants' Report from Lance Soll & Lunghard, LLP
JDR:LT:MW
Fom,No.DWio,o
Route WN,/JI
Page 2
Book Page 13
Lance Bm0dd0 W.Burro.,
Sop R DOdardL Perker
Lunghard DeAdXK Chu
M h E. c
le
LLP
Donald G.ehrar
Certifier!Public Accountants Rmmrd K.RlkneW
Rrend
Robert C.Lenee
Rithoa W
rd C.Shc
Pred J.Luughvrd,Jr.
August 27,2007
Administration Committee
Orange County Sanitation District
Fountain Valley,California
INDEPENDENT ACCOUNTANTS'REPORT
We have performed the procedures enumerated below, which were agreed to by the management of the
Orange County Sanitation District, Fountain Valley, California (Sanitation District), solely to assist the
Sanitation District in evaluating key provisions of the agreements between the Orange County Sanitation
District and the Orange County Water District(Water District)related to the Ground Water Replenishment
System (GWRS) project. This engagement to apply agreed-upon procedures was performed in
accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of these procedures is solely the responsibility of the management of the
Orange County Sanitation District. Consequently,we make no representation regarding the sufficiency of
the procedures described below, either for the purpose for which this report has been requested or for
any other purpose.
The procedures performed and the results obtained from the performance thereof were as follows:
1. Procedures Performed: Obtained and reviewed applicable agreements entered into between the
Sanitation District and the Water District for the GWRS Project.
We reviewed the original agreement entered into February 1997 and the four related amendments which
relate to the project planning phase. We also reviewed the agreement entered into November 2002 and
the related two amendments which relate to the continued development (planning, design, and
construction), operation, and maintenance of the GWRS project. As of the start of our review, the project
was in the later stages of development; therefore, our review does not encompass the operation and
maintenance of the system. Rather, our review focuses on the development of the system and the Cost
Sharing Invoices between the Sanitation District and the Water District for these development costs.
Per the agreements,the Water District acts as the lead agency in the project and performs the day-to-day
project management for the GWRS project and submits regular Cost Sharing Invoices to the Sanitation
District for 50%of the costs incurred less 50%GWRS grant revenue received.
Findings: Not applicable.
Water District Response: Not applicable.
2. Procedures Performed: We obtained an understanding of the controls in place for capturing costs
related to the project and the controls over preparation and review of the Cost Sharing Invoices to the
Sanitation District. We met with various Sanitation District and Water District personnel, reviewed
Cost Sharing Invoices and observed controls.
Findings: Based on our review,we feel the existing controls are good,but can be improved upon.
75 PEARS
1929 f2004
01 Exiib ea 203 N.Bree Blvd.,Suite 203 a B.ii,CA 92621-4056 a(714)672-0022 n Fax(714)672-0331 •www Islrndcwm
rases
6
LM Ohm
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Administration Committee
Orange County Sanitation District
August 27.2007
Page 2
Recommendation: We recommend existing controls be strengthened by the Sanitation District in
their review of grant revenues and payroll costs. Currently, the Sanitation District personnel perforrn
a review during the preparation of the Cost Sharing Invoices consisting of an examination of the
check register and any unusual or infrequent invoices. Our recommendation would be that the review
be expanded to include:
a) Tracing grant cash receipts from general ledger records to Cost Sharing Invoices to ensure
all grant revenue is property reflected in the current Cost Sharing Invoice.
b) Agreeing payroll costs reported on Cost Sharing Invoices to payroll journals.
Water District Response: Not applicable.
Sanitation District Response: The Sanitation District believes that the auditors recommendations
in a)and b)above are excellent tools to ensure that the Sanitation District is credited with its share of
all related GWRS grant revenue and that only applicable payroll costs are inducted on the Cost
Sharing Invoices. However, as these tools, or auditing procedures, are primarily used by auditors
examining financial records, these tools may not be effectively used by engineers evaluating
Invoices. As stated within the agreement, the Sanitation District was granted the right to audit these
Invoices following the completion of the GWRS construction. It is that process that staff believes is
the most beneficial means of ensuring accuracy. The applicable auditing procedures were idenfified
and included within the "agreed upon (audifing) procedures" established between the auditors and
the Sanitation District's management.
3. Procedures Performed: We reviewed the detail of expenditures incurred for the GWRS Project as
of Cost Sharing Invoice#96 covering periods through February 28,2007, and selected the following
sample of 20 vendors to review.
Cumulative
Venda,Name Description Payments
1 J.F.Shea Construction,Inc. Construction GWR Advanced Water Treatment $ 262,350,459.00
2 Camp Dresser s McKee Inc. Consulting Services 33.510.990.00
3 Layne Christensen Construction of GWR Berner Facilities 12,537,3DD.80
4 Southern California Edison Design s Construction 66kv/12kv substation 2,396,000.00
Changes bike detour schedule and Compensation
5 River View Golf Structure 350,000.00
6 Montgomery Watson Hama Consulting Services 12.478,272-85
7 Separation Processes Consulting Services 2,113,575.28
8 Ken Thompson,Inc Construction Services for Unit I Pipeline 27,653,546.00
9 Rutsn 8 Tucker Legal Services 118239.93
10 Southern California Edison UBlities Services 53,640.72
11 Colich Construction Groundwater Replenishment System Unit II Pipeline 18,762,433.30
12 Utility Technology B Associates Gram Assistance 97,449.09
13 Townsend Public ABairs Consulting Services 250,389.14
14 Porter Novell!(formerly NCG P.N.) Public Relations-Phase III 3,365,863.94
15 Applied Computer Mobile Office(Computer Equipment) 38,95229
16 Thomas Dawas Project Management 675,354.14
17 Laura Thomas Consulting Services 805,199.58
18 Blacks Veatch Consulting Services 503,428.32
19 County of Orange Permit Fees 165,291.01)
20 LH Woods Theolacy Construction 1,431,840.45
Book Page 15
.SOa 6
lFn 1
Administration Committee
Orange County Sanitation District
August 27, 2007
Page 3
Findings: Not applicable.
Water District Response: Not applicable.
4. Procedures Performed: From the vendors selected in procedure 3 above, we reviewed for the
following:
a) From the Water District's check register,we obtained all project invoices and check copies for
selected vendor and examined to ensure propriety.
b) We traced disbursements from the Water District's check register to Cost Sharing Invoices to
ensure completeness.
c) We reconciled the payments made to the cumulative payments reported in Cost Sharing
Invoice#96 to the Sanitation District.
d) We examined evidential matter to verify that appropriate procurement methods were
employed and approved purchase orders or contracts were in place.
e) We verified approval per the delegation of authority as set in the Agreement between the
Sanitation District and the Water District.
f) If applicable, for payroll costs we obtained the approved employment contracts, recalculated
wages,verified all hours were recorded, and determined eligibility and approval.
Findings: Based on our procedures performed,we noted the following:
a) The Water District provided support for payments made to Porter Novell!(formerly NCG P.N.)
totaling $3,353,618.31. Cumulative payments reported through Cost Sharing Invoice #96
totaled $3,365,863.84. The difference of$12,245.53 was unexplained.
Water District Response: The Water District has created a spreadsheet tracking all of the
Cost Sharing Invoices and the Porter Novell! invoices represented on each Cost Sharing
Invoice and found that due to an error on the part of the Water District in posting the
cumulative balance forward amount in 2002 the Water District failed to include a Porter
Novelli invoice for$8,800. This invoice was not provided to the auditors and therefore is not
reflected in their total. The Water District will review this analysis with the Sanitation District
prior to adjustment of any Cost Sharing Invoice.
b) The Water District provided support for payroll costs related to Thomas Dawes totaling
$730,417.83. The total excludes payrolls 25-26 in 1997, payrolls M in 1999 and workers
compensation charges for the period April 1998 through December 1998 and January 2002
through May 2002 because the Water District was unable to locate these items. Cumulative
payments reported through Cost Sharing Invoice#96 totaled$675,354.14. The difference of
$55,063.69 was unexplained.
Water District Response: The auditors point out that payroll periods were excluded. The
Water District believes this to be a record storage and retrieval problem more than a cost
control issue. The Water District has in excess of 3000 cases of records in storage at Iron
Mountain which were labeled by as many as 20 different employees during the nine year
period covered by the audit. The 1997 payroll records date beyond the statute of limitations
Book Page 16
fa0�6
IacMy' YIv2
Administration Committee
Orange County Sanitation District
August 27,2007
Page 4
and record retention requirements of the IRS. The auditors do point out that "overall, the
processes, controls, and substantiation of Cost Sharing Invoices was reasonable". The
$55,063.69 difference of Thomas Dawes payroll costs that were not included in Cost Sharing
invoices will be reviewed with the Sanitation District prior to adjustment of any Cost Sharing
Invoice.
c) The Water District provided support for payroll costs related to Laura Thomas totaling
$809,950.64. The total excludes payrolls 23-25 in 2002 and workers compensation charges
for the period January 2002 through March 2003 because the Water District was unable to
locate these items. Cumulative payments reported through Cost Sharing Invoice#96 totaled
$805,199.58. The difference of$4,751.06 was unexplained.
Water District Response: The auditors point out that payroll periods were excluded. The
Water District believes this to be a record storage and retrieval problem more than a cost
control issue. The Water District has in excess of 3000 cases of records in storage at Iron
Mountain which were labeled by as many as 20 different employees during the nine year
period covered by the audit. The 1997 payroll records date beyond the statute of limitations
and record retention requirements of the IRS. The auditors do point out that "overall, the
processes, controls, and substantiation of Cost Sharing Invoices was reasonable". The
$4,751.06 difference of Laura Thomas payroll costs that were not included in Cost Sharing
Invoices will be reviewed with the Sanitation District prior to adjustment of any Cost Sharing
Invoice.
d) The Water District provided support for payments made to Utility Technology and Associates
totaling$88,990.88. Cumulative payments reported through Cost Sharing Invoice#96 totaled
$97,449.09. The difference of$8,458.21 was unexplained.
Water District Response: The difference of$8,458.21 will be deducted from a future Cost
Sharing Invoice.
e) The Water District was unable to locate three invoices to Utility Technology and Associates
totaling$21,324.28 of the$88,990.88 in finding 4(d)above.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4.c)Water District responses described above.
f) During our review of invoices for Utility Technology and Associates we noted that the
majority of costs pertained to grant assistance for a grant with the California Energy
Commission(CEC)which we found during our review of grants to be a grant which was not
cost shared.
Water District Response: The Sanitation District did not receive any grant credit for the
CEC grant because the expenditures which were reimbursed by the grant were not shared
with the Sanitation District. The Water District did include in the Cost Sharing Invoices to the
Sanitation District, costs pertaining to grant writing expenses for the CEC grant. The reason
for this is that the entire grant was to be used to analyze,test and select the best processing
technologies that would be used in the GWRS plant and to ensure that they were the most
energy efficient methods. Otherwise, the Water District and the Sanitation District would
have had to conduct this testing and analysis as a cost shared expense.
Book Page 17
�
� L
Administration Committee
Orange County Sanitafion District
August 27, 2007
Page 5
Recommendation: We recommend controls be strengthened through a timely and thorough review
of support.
5) Procedures Performed: We randomly selected a sample of 25 Cost Sharing Invoices prepared by
the Water District and reviewed for the following:
a) We traced 100% of Cost Sharing Invoice to support including check register, invoice, check
copy,grant cash receipts, payroll journals, etc.
b) We reviewed and verified items related to GWRS and were properly coded and approved.
c) We reviewed calculations and footing of the invoices.
Findings: Based on our procedures performed,we noted the following:
a) On various Cost Sharing Invoices, we experienced difficulty recalculating payroll costs
reported in the Cost Sharing Invoices for Laura Thomas and Thomas Dawes. The
differences appeared to relate to timing and the calculations added to payroll for taxes and
workers compensation. The Water District was unable to explain the differences.
Water District Response: Since 2005, the Water District has used a standard method for
calculating these shared payroll costs and include in the monthly cost share hardcopy file a
documented audit trail of the payroll registers and tax and workers compensation insurance
costs used in the Cost Share Invoice.
b) On Cost Sharing Invoice #21, payroll charges for Tama Snow totaled $1,122.65 however,
the Water District was only able to support costs of$508.64. The difference of$614.01 was
unexplained.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
c) On Cost Sharing Invoice #29, expenditures reported for Gary Vogt and Associates totaled
$8,000; however,the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
d) On Cost Sharing Invoice #64, expenditures reported for Ross Gaza totaled $825; however,
the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
e) On Cost Sharing Invoice #72 (228/05) the Water District invoiced the Sanitation District
$1,708,419.15 too much due to an error in expenditures reported related to JF Shea
Construction; however, the Water District corrected this on Cost Sharing Invoice 993
(11/3010%).
Water District Response: The Water District acknowledges the error and that the error was
subsequently corrected by the Water District Since the time that this problem was
M--. D— 12
I�L�
Administration Committee
Orange County Sanitation District
August 27, 2DO7
Page 8
Conclusion
We were not engaged to and did not perform an audit, the objective of which would be the expression of
an opinion on key provisions of the agreements between the Orange County Sanitation District and the
Orange County Water District related to the Ground Water Replenishment System project. Accordingly,
we do not express such an opinion. Had we performed additional procedures, other matters might have
come to our attention that would have been reported to the District
This report is intended solely for the information and use of the specified users listed above and is not
intended to be, and should
ldd not
be,,-used by anyone other than those specified parties.
Tw�yblesa�, . '�
Book Page 21
Mhibfic
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Donald G Motor
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August 27,2007 P^ Id J.m°ogherd Jr.
Administration Committee
Orange County Sanitation District
Fountain Valley,California
INDEPENDENTACCOUNTANTS'REPORT
We have performed the procedures enumerated below, which were agreed to by the management of the
Orange County Sanitation District, Fountain Valley, California (Sanitation District), solely to assist the
Sanitation District in evaluating key provisions of the agreements between the Orange County Sanitation
District and the Orange County Water District(Water District)related to the Ground Water Replenishment
System (GWRS) project. This engagement to apply agreed-upon procedures was performed in
accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of these procedures is solely the responsibility of the management of the
Orange County Sanitation District. Consequently,we make no representation regarding the sufficiency of
the procedures described below, either for the purpose for which this report has been requested or for
any other purpose.
The procedures performed and the results obtained from the performance thereof were as follows:
1. Procedures Performed: Obtained and reviewed applicable agreements entered into between the
Sanitation District and the Water District for the GWRS Project.
We reviewed the original agreement entered into February 1997 and the four related amendments which
relate to the project planning phase. We also reviewed the agreement entered into November 2002 and
the related two amendments which relate to the continued development (planning, design, and
construction), operation, and maintenance of the GWRS project. As of the start of our review, the project
was in the later stages of development; therefore, our review does not encompass the operation and
maintenance of the system. Rather, our review focuses on the development of the system and the Cost
Sharing Invoices between the Sanitation District and the Water District for these development costs.
Per the agreements, the Water District acts as the lead agency in the project and performs the day-to-day
project management for the GWRS project and submits regular Cast Sharing Invoices to the Sanitation
District for 50%of the costs incurred less 50%GWRS grant revenue received.
Findings: Not applicable.
Water District Response: Not applicable.
2. Procedures Performed: We obtained an understanding of the controls in place for capturing costs
related to the project and the controls over preparation and review of the Cost Sharing Invoices to the
Sanitation District. We met with various Sanitation District and Water District personnel, reviewed
Cost Sharing Invoices and observed controls.
Findings: Based on our review,we feel the existing controls are good, but can be improved upon.
75 )'EARS
--a"ies
19219
V2004
0J Exh&wca 203 N.Brea Blvd.,Suite 203 a Brea,CA 92821-0056 0(714)672-0022 o F.(714)672-0331 a www W as c-ru
Administration Committee
Orange County Sanitation District
August27,2007
Page 2
Recommendation: We recommend existing controls be strengthened by the Sanitation District in
their review of grant revenues and payroll costs. Currently, the Sanitation District personnel perform
a review during the preparation of the Cost Sharing Invoices consisting of an examination of the
check register and any unusual or infrequent invoices. Our recommendation would be that the review
be expanded to include:
a) Tracing grant cash receipts from general ledger records to Cost Sharing Invoices to ensure
all grant revenue is properly reflected in the current Cost Sharing Invoice.
b) Agreeing payroll costs reported on Cost Sharing Invoices to payroll journals.
Water District Response: Not applicable.
Sanitation District Response: The Sanitation District believes that the auditors recommendations
in a)and b)above are excellent tools to ensure that the Sanitation District is credited with its share of
all related GWRS grant revenue and that only applicable payroll costs are included on the Cost
Sharing Invoices. However, as these tools, or auditing procedures, are primarily used by auditors
examining financial records, these tools may not be effectively used by engineers evaluating
Invoices. As stated within the agreement, the Sanitation District was granted the right to audit these
Invoices following the completion of the GWRS construction. It is that process that staff believes is
the most beneficial means of ensuring accuracy. The applicable auditing procedures were identified
and included within the "agreed upon (auditing) procedures" established between the auditors and
the Sanitation District's management.
3. Procedures Performed: We reviewed the detail of expenditures incurred for the GWRS Project as
of Cost Sharing Invoice X96 covering periods through February 28, 2007, and selected the following
sample of 20 vendors to review.
Cumulative
Vendor Name Description Payments
1 J.F.Shea Conssuction,Inc. Construction GWR Advanced Water Treatment $ 282,350,459.00
2 Camp Dresser&McKee Inc. Consulting Services 33,510,990.00
3 Layne Chnstersen Construction of GWR Banker Faciti air 12,537,300.80
4 Southern California Edison Design 8 Construction 88kv112kv substation 2,399,000.00
Changes bike detour schedule and Compensation
5 RHer View Golf Structure 350,000.00
8 Montgomery Watson Harza Consulting Services 12.478.272.85
7 Separation Processes Consulting Services 2,113,575.28
8 Ken Thompson,Inc. Construction Services for Unit I Pipeline 27,e83,548.o0
9 Rutan&Tucker Legal Services 118.239.93
10 Southern California Edison Utilities Services 53,840.72
11 Coach Construction Groundwater Replenishment System Unit It Pipeline 16,762,433.30
12 Utility Technology&Associates Grent Asssmnre 07,449.09
13 Townsend Public Affairs Consulting Services 250,38$.114
14 Porter Novell](formerly NCG P.N.) Public RelaBons-Phase In 3,365,863.84
15 Applied Complaer Mobile Dike(Computer Equipment) 38,952.29
18 Thomas Dawes Project management 9e 675.354.14
17 Leure Thomas Consulting Services 905.199189 58 S9
18 Black&Veatch Consulting Services 503,428.32
19 County of Orange Permit Fees 16529100
20 LH Woods Theolacy Construction 1,431,840.45
Book Page IS
E6
Administration Committee
Orange County Sanitation District
August 27,2007
Page 3
Findings: Not applicable.
Water District Response: Not applicable.
4. Procedures Performed: From the vendors selected in procedure 3 above, we reviewed for the
following:
a) From the Water District's check register,we obtained all project invoices and check copies for
selected vendor and examined to ensure propriety.
b) We traced disbursements from the Water District's check register to Cost Sharing Invoices to
ensure completeness.
c) We reconciled the payments made to the cumulative payments reported in Cost Sharing
Invoice#96 to the Sanitation District.
d) We examined evidential matter to verity that appropriate procurement methods were
employed and approved purchase orders or contracts were in place.
e) We verified approval per the delegation of authority as set in the Agreement between the
Sanitation District and the Water District.
f) If applicable, for payroll costs we obtained the approved employment contracts, recalculated
wages,verified all hours were recorded, and determined eligibility and approval.
Findings: Based on our procedures performed,we noted the following:
a) The Water District provided support for payments made to Porter Novelli(formerly NCG P.N.)
totaling $3,353,618.31. Cumulative payments reported through Cost Sharing Invoice #96
totaled$3,365,863.94. The difference of$12,245.53 was unexplained.
Water District Response: The Water District has created a spreadsheet tracking all of the
Cost Sharing Invoices and the Porter Novelli invoices represented on each Cost Sharing
Invoice and found that due to an error on the part of the Water District in posting the
cumulative balance forward amount in 2002 the Water District failed to include a Porter
Novelli invoice for$8,800. This invoice was not provided to the auditors and therefore is not
reflected in their total. The Water District will review this analysis with the Sanitation District
prior to adjustment of any Cost Sharing Invoice.
b) The Water District provided support for payroll costs related to Thomas Dawes totaling
$730,417.83. The total excludes payrolls 25-26 in 1997, payrolls 5-6 In 1999 and workers
compensation charges for the period April 1998 through December 1998 and January 2002
through May 2002 because the Water District was unable to locale these Items. Cumulative
payments reported through Cost Sharing Invoice#96 totaled $675,364.14. The difference of
$55.063.69 was unexplained.
Water District Response: The auditors point out that payroll periods were excluded. The
Water District believes this to be a record storage and retrieval problem more than a cost
control issue. The Water District has in excess of 3000 cases of records In storage at Iron
Mountain which were labeled by as many as 20 different employees during the nine year
period covered by the audit. The 1997 payroll records date beyond the statute of limitations
Book Page 16
r�r.s
�6
�Md
Administration Committee
Orange County Sanitation District
August 27,2007
Page 4
and record retention requirements of the IRS. The auditors do point out that "overall, the
processes, controls, and substantiation of Cost Sharing Invoices was reasonable". The
$55,063.69 difference of Thomas Dawes payroll costs that were not included in Cost Sharing
invoices will be reviewed with the Sanitation District prior to adjustment of any Cost Sharing
Invoice.
c) The Water District provided support for payroll costs related to Laura Thomas totaling
$809.950.64. The total excludes payrolls 23-25 in 2002 and workers compensation charges
for the period January 2002 through March 2003 because the Water District was unable to
locale these items. Cumulative payments reported through Cost Sharing Invoice#96 totaled
$805,199.58. The difference of$4,751.06 was unexplained.
Water District Response: The auditors point out that payroll periods were excluded. The
Water District believes this to be a record storage and retrieval problem more than a cost
control issue. The Water District has in excess of 3000 cases of records in storage at Iron
Mountain which were labeled by as many as 20 different employees during the nine year
period covered by the audit. The 1997 payroll records date beyond the statute of limitations
and record retention requirements of the IRS. The auditors do point out that "overall, the
processes, controls, and substantiation of Cost Sharing Invoices was reasonable". The
$4,751.06 difference of Laura Thomas payroll costs that were not included in Cost Sharing
Invoices will be reviewed with the Sanitation District prior to adjustment of any Cost Sharing
Invoice.
d) The Water District provided support for payments made to Utility Technology and Associates
totaling$88,990.88. Cumulative payments reported through Cost Sharing Invoice#96 totaled
$97,449.09. The difference of$8,458.21 was unexplained.
Water District Response: The difference of$8,458.21 will be deducted from a future Cost
Sharing Invoice.
e) The Water District was unable to locate three invoices to U61ily Technology and Associates
totaling$21,324.28 of the$88,990.88 in finding 4(d)above.
Water District Response: The inability to locale these invoices is conditioned by the same
issues discussed in 4. b)and 4.c)Water District responses described above.
f) During our review of invoices for Utility Technology and Associates we noted that the
majority of costs pertained to grant assistance for a grant with the California Energy
Commission (CEC)which we found during our review of grants to be a grant which was not
cost shared.
Water District Response: The Sanitation District did not receive any grant credit for the
CEC grant bemuse the expenditures which were reimbursed by the grant were not shared
with the Sanitation District. The Water District did include in the Cost Sharing Invoices to the
Sanitation District, costs pertaining to grant writing expenses for the CEC grant. The reason
for this is that the entire grant was to be used to analyze,test and select the best processing
technologies that would be used in the GWRS plant and to ensure that they were the most
energy efficient methods. Otherwise, the Water District and the Sanitation District would
have had to conduct this testing and analysis as a cost shared expense.
Book Page 17
M
on Committee
Orange County Sanitation District
August 27, 2007
Page 5
Recommendation: We recommend controls be strengthened through a timely and thorough review
of support.
5) Procedures Performed: We randomly selected a sample of 25 Cost Sharing Invoices prepared by
the Water District and reviewed for the following:
a) We traced 100% of Cost Sharing Invoice to support including check register, invoice, check
COPY, grant cash receipts,payroll journals,etc.
b) We reviewed and verified hems related to GWRS and were properly coded and approved.
c) We reviewed calculations and footing of the invoices.
Findings: Based on our procedures performed,we noted the following:
a) On various Cost Shanng Invoices, we experienced difficulty recalculating payroll costs
reported in the Cost Sharing Invoices for Laura Thomas and Thomas Dawes. The
workers compensation. The Water District was unable to explain the differences.
differences appeared to relate to timing and the calculations added to payroll for taxes and
Water District Response: Since 2005, the Water District has used a standard method for
calculating these shared payroll Costs and include in the monthly cost share hardcopy file a
documented audit trail of the payroll registers and tax and workers compensation insurance
1
costs used in the Cost Share Invoice.
b) On Cost Sharing Invoice #21, payroll charges for Tama Snow totaled $1.122.66 however,
the Water District was only able to support Costs of$508.64. The difference of$614.01 was
unexplained.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
c) On Cost Sharing Invoice #29, expenditures reported for Gary Vogt and Associates totaled
$8,000; however, the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is Conditioned by the same
issues discussed in 4.b)and 4. c)Water District responses described above.
d) On Cost Sharing Invoice#64, expenditures reported for Ross Gaza totaled $825; however,
the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
e) On Cost Sharing Invoice #72 (228105) the Water District invoiced the Sanitation District
$1,708,419.15 too much due to an error in expenditures reported related to JF Shea
Construction; however, the Water District corrected this on Cost Sharing Invoice #93
(11130/06).
Water District Response: The Water District acknowledges the error and that the error was
subsequently corrected by the Water District. Since the time that this problem was
Book Page 18
�6
r r.r�+an
_i ®cse�C
Administration Committee
Orange County Sanitation District
August 27, 2007
Page 8
Conclusion
We were not engaged to and did not perform an audit, the objective of which would be the expression of
an opinion on key provisions of the agreements between the Orange County Sanitation District and the
Orange County Water District related to the Ground Water Replenishment System project Accordingly,
we do not express such an opinion. Had we performed additional procedures, other matters might have
come to our attention that would have been reported to the District.
This report is intended solely for the information and use of the specified users listed above and is not
intended to be,and should not be, used by anyone other than those specified parties.
Book Page 21
Book Page 19
tY�6
all
,ac+®vpw2
Administration Committee
Orange County Sanitation District
August 27,2007
Page 5
Recommendation: We recommend controls be strengthened through a timely and thorough review
of support
5) Procedures Performed: We randomly selected a sample of 25 Cost Sharing Invoices prepared by
the Water District and reviewed for the following:
a) We traced 100% of Cost Sharing Invoice to support including check register, invoice, check
copy,grant cash receipts, payroll journals,etc.
b) We reviewed and verged items related to GWRS and were property coded and approved.
c) We reviewed calculations and footing of the invoices.
Findings: Based on our procedures performed,we noted the following:
a) On various Cost Sharing Invoices, we experienced difficulty recalculating payroll costs
reported in the Cost Sharing Invoices for Laura Thomas and Thomas Dawes. The
differences appeared to relate to timing and the calculations added to payroll for taxes and
workers compensation. The Water District was unable to explain the differences.
Water District Response: Since 2005, the Water District has used a standard method for
calculating these shared payroll costs and include in the monthly cost share hardoopy file a
documented audit trail of the payroll registers and tax and workers compensation insurance
costs used in the Cost Share Invoice.
b) On Cost Sharing Invoice #21, payroll charges for Tama Snow totaled $1,122.65 however,
the Water District was only able to support costs of$508.64. The difference of$614.01 was
unexplained.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4. c)Water District responses described above.
c) On Cost Sharing Invoice#29, expenditures reported for Gary Vogt and Associates totaled
$8,000; however,the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is conditioned by the same
issues discussed in 4. b)and 4.c)Water District responses described above.
d) On Cost Sharing Invoice#64, expenditures reported for Ross Gaza totaled $825; however,
the Water District was not able to provide the supporting invoice.
Water District Response: The inability to locate these invoices is conditioned by the same
issues dismissed in 4. b)and 4.c)Water District responses described above.
e) On Cost Sharing Invoice #72 (2128/05) the Water District invoiced the Sanitation District
$1,708,419.15 too much due to an error in expenditures reported related to JF Shea
Construction; however, the Water District corrected this on Cost Sharing Invoice #93
(11/30/06).
Water District Response: The Water District acknowledges the error and that the error was
subsequently corrected by the Water District Since the time that this problem was
Book Page 18
Lxm6
r r�eyrad
wmc+'xsnv4
Administration Committee
Orange County Sanitation District
August 27,2007
Page 6
discovered the Water District immediately created a control formula in the Microsoft Excel
spreadsheet that is then used to reconcile and qualify the grant total of shared costs. The
Water District can have these available for inspection upon Sanitation District request.
f) We noted several instances where credit for grant revenues received were not given to the
Sanitation District in the proper Cost Sharing Invoice and rather were reflected in a
subsequent month's invoice. From our discussions with the Water District, this related to
timing and proper notification of receipted cash prior to invoice preparation.
Water District Response: Since the receipt of the last grant funding,the Water District has
instituted a communication network between the Accounts Receivable/Cash Applications
function and the Cost Share Billing stag that will provide for simultaneous credit of the grant
funds and immediate reflection in subsequent Cost Sharing Invoice.
g) We noted as a general practice of the Water District, that if grant cash receipts exceeded
disbursements for the period of a Cost Sharing Invoice then the surplus was applied to future
Cost Sharing Invoices until the surplus was eliminated.
Water District Response: No response.
h) We noted that the Sanitation District was given $2,777,375 too much credit for grant
revenues during the period June 2004 through March 2005 due to an error in how revenues
were being applied to the invoices during that period. However, this was corrected by the
Water District in the December 2005 invoice.
Water District Response: No response.
i) On Cost Sharing Invoice#50 there was a credit adjustment for$250 for credit received from
plan sales for which the Water District did not provide support.
Water District Response: In the future, the Water District will make photocopies of the
payment checks that are submitted by contractors for additional copies of blue prints and file
these with the monthly Cost Sharing Invoice file.
j) On Cost Sharing Invoice #52 there was a credit adjustment for $7,185.73 for a credit
adjustment from Cost Sharing Invoice #51 for which the Water District did not provide
support.
Water District Response: No response.
Recommendation: We recommend controls be strengthened through a timely and thorough review
of support.
6) Procedures Performed: We obtained grant agreements entered into by the Water District for the
GWRS project, the applicable reimbursement requests, and the Water District general ledger tracking
and agreed with amounts reported in the Cost Sharing Invoices to ensure completeness and
accuracy of grant amounts reported in the Cost Sharing Invoices and ensured proper credit was given
to the Sanitation District.
Findings: No findings were noted as a result of our procedures.
Book Page 19
�6
Administration Committee
Orange County Sanitation District
August 27,2007
Page 7
Water District Response: Not applicable.
7) Procedures Performed: We reviewed the Sanitation District's support and approval for payments
made to the Water District as pan of the Cost Sharing Invoices for the GWRS Project and agreed with
amounts reported by the Water District on the invoices as of Cost Sharing Invoice #96 through
February 28,2007,
Findings: No findings were noted as a result of our procedures.
Water District Response: Not applicable.
8) Procedures Performed: We reviewed the minutes of the Joint Cooperative Committee from
March 1997 through March 2007.
Findings: Not applicable.
Water District Response: Not applicable.
Summary of Results
Based on our review of the Ground Water Replenishment System project Cost Sharing Invoices prepared
by the Orange County Water District, we feel that, overall, the processes, controls, and substantiation of
the Cost Sharing Invoices was reasonable. As noted in the previous sections, we performed tests of
expenditures, invoices, and grants and performed a review of the controls in place. We found that there
were areas which could be improved upon as mentioned above. Our key recommendations would be:
1) Item 1,page 1 —no recommendations
2) Item 2, page 1 —we recommend existing controls be strengthened by the Sanitation District in their
review of grant revenues and payroll costs. Through a more thorough review in these two areas
some of the issues encountered during our tests of grants and expenditures would be reduced.
3) Item 3,page 2—no recommendations
4) Item 4, page 3—we recommend existing controls be strengthened by the Sanitation District through a
timely and thorough review.
5) Item 5,page 5—we recommend existing controls be strengthened by the Sanitation District through a
timely and thorough review.
6) Item 6, page 6—no recommendations
7) Item 7, page 7—no recommendations
8) Item 8, page 7—no recommendations
Book Page 20
�6
�yt6
Administration Committee
Orange County Sanitation District
August 27,2007
Page 8
Conclusion
We were not engaged to and did not perform an audit, the objective of which would be the expression of
an opinion on key provisions of the agreements between the Orange County Sanitation District and the
Orange County Water District related to the Ground Water Replenishment System project. Accordingly,
we do not express such an opinion. Had we performed additional procedures, other matters might have
come to our attention that would have been reported to the District.
This report is intended solely for the information and use of the specfied users listed above and is not
intended to be,and should not be, used by anyone other than those specified parties.
Book Page 21
ADMINISTRATION COMMITTEE Meeting Date To ad.or Dir.
10/10/07
AGENDA REPORT aem Number Item Number
ADM07-51
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
SUBJECT: ADDITIONAL RETIREE BENEFIT ACCOUNT (ARBA) UPDATE
GENERAL MANAGER'S RECOMMENDATION
For information only
SUMMARY
On December 31, 2007, the agreement between OCERS and OCSD pertaining to the
Additional Retiree Benefit Account (ARBA) will expire. OCERS has provided notice that
they will no longer administer the ARBA benefit currently provided to OCSD retirees.
Beginning January 1, 2008, OCSD will administer the ARBA benefit to eligible retirees
by mailing monthly checks directly to each retiree, and providing a 1099R form at the
end of the calendar year.
PRIOR COMMITTEEIBOARD ACTIONS
• May 24, 2006: The second amended ARBA agreement was approved by
OCSD's Board of Directors.
• May 10, 2006: An amended agreement for the ARBA benefit was presented to
the FAHR Committee to address depleting ARBA benefit funds. In addition, a
timeline for addressing intermediate and long-term issues with retiree plan
benefits was discussed.
ADDITIONAL INFORMATION
Background Information
ARBA benefits are a retiree medical premium offset plan. Retirees who have a vested
right in this benefit are provided with $10 per month for every year of service up to a
maximum of 25 years or$250 per month to offset the costs associated with health
insurance premiums. Unlike the retiree paid medical premium plan, ARBA benefits are
sent directly to the retiree in the retirement benefits payment from OCERS. As such,
ARBA benefits are taxable to the retiree.
Fmm No.Dt 1=1 RwIwE;DLDt,Dt
Page 1
Book Page 22
The Retiree Medical Benefit Reserve (RMBR) account that funds ARBA benefits was
depleted in September 2006. The RMBR account was established in December 2002,
and was funded using excess earnings from OCERS investments. Until September
2006, ARBA benefits were funded entirely by excess earnings from OCERS pension
investments. Due to poor market conditions, there are no excess earnings to replenish
depleting ARBA benefit funds. Since OCSD has a legal obligation to continue funding
retiree medical benefits to those retirees and employees who have a vested right in the
benefit, OCSD will begin self-administering this benefit.
The current ARBA agreement terminates on December 31, 2007. Other agencies'
ARBA agreements with OCERS also expire on December 31, 2007, as well. Although
OCERS has indicated that it does not intend to continue the RMBR account past the
2007 termination date, it reviewed ideas to continue administering ARBA benefits
through employer contributions. OCERS indicated that they will charge an
administrative fee and will not administer any variation of the benefit if retiree medical
benefits change in the future. For example, if OCSD transitions from a defined benefit
plan to a defined contribution plan, such as Health Saving Accounts (HSA), OCERS
would not administer that benefit.
Future Issues
In considering the future funding of retiree medical benefits, OCSD intends on
developing a funding strategy that will reduce costs over the long term and will help
secure benefits expected by retirees and employees. In addition, the funding strategy
should identify a low risk investment plan, consistent with'OCSD's Board-approved
investment policy, to ensure a market rate of return on the funds subsidizing retiree
medical benefits.
ATTACHMENTS
1. Letter regarding OCERS/OCSD Agreement Termination, dated August 6, 2007
JDR:LT:RS:Ic
Fg1 No,DW1023 gMaoJ.0TOW
Page 2
Book Page 23
T RETIREMENT
�� SYSTEM
August 6, 2007
5e.vugrhrArtixmd
RrtitedAlnnber+xf
Kim Erickson
CnNoi RANcNnSANtA Senior Human Resources Analyst
MAR FFFA Orange County Sanitation District
P.O. Box 8127
Crrc of SAN JUAN Fountain Valley, Ca 92728
CAe„xANo
CoU of Oa GF Dear Ms. Erickson:
OP. GF C.N
Ctmenmv Di.r cr This is to confirm the termination date of the ARBA/RMBR agreement
between The Sanitation District and the Orange County Employees
OONOE000N Retirement System (OCERS).
CNlulatN&FAMIUU
COMMIZION
The Second Amended and Restated Memorandum of Understanding
O.Gl CtwNrc Regarding ARBA/RMBR was signed by the Sanitation District and OCERS
Ea"n,m on June 19, 2006. That agreement called for a termination date of
REn"M.Sham" December 31, 2006, with an optional one year extension. In a letter dated
O;,NGr COUNry Flu December 11, 2006, Lorenzo Turner, Director of Finance and
AU Noe Administrative Services for the Sanitation District exercised the one year
option.
Ow ct Co Loaf.
Fo".unON
C.MmisAON Based on these facts, it is OCERS' position that the ARBA/RMBR
OMMIS
agreement between the Sanitation District and OCERS will terminate on
OPANGE CWMY PUBLIC December 31, 2007.
Uw La"
OxANCE OwNIv If you have any questions regarding this matter, you may reach me at
S...Dcr (714) 558-6201.
OMI'ICE Caum
TnANrom.moN Sincerely,
AFrmoarnv
ON ECg VECM1M
CovrlmEDmxlcr l !/�
S(t
ephen Cadena
su'N..F,C.Oum OF Assistant CEO, Internal Operations
CWFORFIG,COUNIT
OF On cr.
TM SFOKFMON
ComwRAGFNc,ti
ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM 2223 Wellington Avenue,Santa Am, CA 92701
Telephone(714)558-6200 Fm(714)558-6236
Book Page 24
ORANGE COUNTY SANITATION DISTRICT
(714) 962-2411
www.ocsd.com
Mailing Address:
P.O. Box 8127
Fountain Valley, California
92728-8127
Street Address:
10844 Ellis Avenue
Fountain Valley, California
92708-7018