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HomeMy WebLinkAbout03-14-2012 Administration Committee Agenda03/14/12 Administration Committee Agenda Page 1 of 3 Orange County Sanitation District Regular Meeting of the Administration Committee Wednesday, March 14, 2012 5:30 P.M. Administration Building Board Room 10844 Ellis Avenue Fountain Valley, CA (714) 593-7130 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS:If you wish to speak, please complete a Speaker’s Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS:The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: Integrated Emergency Response Plan CIP Projects Update CONSENT CALENDAR: 1. Approve Minutes of the February 8, 2012 Administration Committee Meeting. ACTION ITEMS: 2. Recommend to the Board of Directors to: Receive and file Internal Audit Reports on Employee Compensation and Information Technology issued by the District’s Contract Internal Auditors. 03/14/12 Administration Committee Agenda Page 2 of 3 3. Recommend to the Board of Directors to: A. Reject the apparent low bid submitted by Govplace as deemed non- responsive in accordance with specification requirements for Purchase of Cisco Parts, Specification No. E-2012-521BD; and, B. Approve a Purchase Order Agreement with CDW-G, the lowest responsive and responsible bidder, for Purchase of Cisco Parts, Specification No. E- 2012-521BD, for an amount not to exceed $620,206; and, C. Approve a contingency of $62,020 (10%). INFORMATIONAL ITEMS: 4. Status of 2012-13 Insurance Renewals 5. Worker’s Compensation Update 6. District FY 2012-13 and FY 2013-14 Budget Update OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, April 11, 2012, at 5:30 p.m. 03/14/12 Administration Committee Agenda Page 3 of 3 Accommodations for the Disabled: Meeting Rooms are 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. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted outside the main gate of the Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of the Board of Directors, are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Maria E. Ayala Clerk of the Board (714) 593-7130 mayala@ocsd.com For any questions on the agenda, Committee members may contact staff at: General Manager Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 jghirelli@ocsd.com Assistant General Manager Jim Herberg (714) 593-7300 jherberg@ocsd.com Director of Finance and Administrative Services Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Director of Human Resources Jeff Reed (714) 593-7144 jreed@ocsd.com Page 1 of 2 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. 3/28/12 AGENDA REPORT Item Number2 Item Number Orange County Sanitation District FROM:James D. Ruth, General Manager Lorenzo Tyner, Director of Finance and Administrative Services GENERAL MANAGER'S RECOMMENDATION Receive and file Internal Audit Reports on Employee Compensation and Information Technology issued by the District’s Contract Internal Auditors. SUMMARY At the direction of the Administration Committee’s Audit Oversight Subcommittee, Lance, Soll & Lunghard, LLP (LSL), Certified Public Accountants were engaged to apply agreed-upon procedures on the Review of Employee Compensation and Information Technology. Attached are the Accountant Reports from LSL, the Sanitation District’s contracted internal auditors on these two agreed upon procedure reviews. Also attached are separate reports on staff’s responses to the auditor’s findings and recommendations pertaining to these two reviews. In summary, LSL concluded that overall, the Sanitation District is appropriately following its prescribed policies and procedures over employee compensation. Of the eight procedures applied by the auditors in their review of Information Technology, several recommendations for improvement were provided on IT Security Policies and Procedures, and one recommendation each on IT strategic planning and monitoring processes, Risk Assessment Policies and Procedures, Policy and Procedures over Change Management, and Policy and Procedures over hardware. PRIOR COMMITTEE/BOARD ACTIONS December 08, 2011 –Administration Committee approved the selection of LSL, to perform internal auditing services for the period of March 1, 2011 through February 28, 2012, in an amount not to exceed $58,670. Also at this time, the Administration Committee established an Audit Oversight Subcommittee consisting of Directors Anderson, Edger, Nielson, and Waldman who were 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. Page 2 of 2 October 12, 2011 – Lance, Soll & Lunghard, LLP, reported to the Committee on the recent audits conducted for the Sanitation District. The areas the audits focused on were: compliance with debt covenants; sole source contracts in operations and maintenance; and, asset management program. ADDITIONAL INFORMATION N/A CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. Accountants’ Report on Agreed-Upon Procedures on Employee Compensation. 2. Staff’s Response to Internal Audit Report on Employee Compensation. 3. Accountant’s Report on Agreed-Upon Procedures on Information Technology. 4. Staff’s Responses to Internal Audit Report on Information Technology. JDR:LT:MW ORANGE COUNTY SANITATION DISTRICT Independent Accountant’s Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Employee Compensation December 27, 2011 203 North Brea Blvd Suite 203 Brea, CA 92821 Lance Soll & Lunghard, LLP 41185 Golden Gate Circle Suite 103 Murrieta, CA 92562 ORANGE COUNTY SANITATION DISTRICT Independent Accountant’s Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Employee Compensation December 27, 2011 December 27, 2011 INDEPENDENT ACCOUNTANT’S REPORT ON APPLYING AGREED-UPON PROCEDURES Administration Committee Orange County Sanitation District Fountain Valley, California We have performed the procedures enumerated below which were agreed to by the management of the Orange County Sanitation District, California (the District), solely to assist the District in reviewing the internal control policies and procedures over employee compensation. 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 the procedures is solely the responsibility of the management of the 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 specific procedures performed and the results obtained from the performance thereof were as follows: 1.Procedures Performed: We selected a sample of 51 employees of the District to analyze payroll transactions within the last fiscal year (2011). The sample was determined using a risk based approach with factors including the degree of complexity, level of compensation, and the potential for fraud. We selected employees from the executive group and each of the bargaining groups for our sample. Our tests covered a review of personnel files and hiring documents, Memorandum of Understandings (MOU’s), contracts, resolutions, timecards, paychecks, pay journals, leave balances, W-2 reporting, and verification of internal control policies and procedures governing payroll transactions. Findings: When comparing the benefits amounts for the Executive Management Team, we noted amounts reported in the payroll system did not agree to the most recent specific “At Will Employee Contracts” to be effective July 2nd, 2010. Certain benefit amounts based on a percentage of salary and a flat amount were not properly updated in the payroll system, causing a variance between the agreed upon amount stated in the contract and the actual amount reported in the payroll system. We also noted the amount of accrued leave time for 4 of the 5 Executive Management Team employees were calculated incorrectly due to improper updating in the benefit system and lack of review for the changes put into effect. The net effect of these errors totaled $904.59 in overpay. We recommend that a checklist is created and followed when changes are made to the Executive Management Team benefits. Once changes have been completed and the checklist is completed, another employee from human resources should make sure the checklist is filled out and changes properly executed. Once this is done, the checklist and benefit change spread sheet should be given to payroll and verified once more that all amounts are correct and in-line with contracted amounts. Brandon W. Burrows, CPA David E. Hale, CPA, CFP A Professional Corporation Donald G. Slater, CPA Richard K. Kikuchi, CPA Susan F. Matz, CPA Shelly K. Jackley, CPA Bryan S. Gruber, CPA Lance, Soll & Lunghard, LLP 203 North Brea Boulevard Suite 203 Brea, CA 92821 TEL: 714.672.0022 Fax: 714.672.0331 www.lslcpas.com 41185 Golden Gate Circle Suite 103 Murrieta, CA 92562 TEL: 951.304.2728 Fax: 951.304.3940 Honorable Mayor and Members of District Council Orange County Sanitation District Page 2 Upon inquiry we also noted that spreadsheets sent to the Executive Management Team to fill out when updating chosen benefits, were not protected and susceptible to formula alteration, which could lead to potential benefits in excess of the contracted 37% of pay maximum. We recommend that the spreadsheet formula be password protected and once completed, checked for clerical accuracy by both an employee in human resources and in payroll. 2.Procedures Performed: We tested the accuracy of the employee’s total pay and benefits as reported to the California State Controller’s office for calendar year 2010 Compensation Report for the sample we selected in the procedure above. Findings: No findings were noted other than the findings provided in the procedure above. Conclusion We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the specified elements, accounts or items. 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 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. Brea, California December 27, 2011 ORANGE COUNTY SANITATION DISTRICT Memorandum DATE: January 4, 2012 TO: Mike White, Controller FROM: Richard Spencer, Human Resources Supervisor CC: Jeff Reed, Director of Human Resources SUBJECT: Independent Accountants’ Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Employee Compensation, dated December 27, 2011 The following responses are being made to the recommendations that were presented in Lance Sole & Lunghard’s Independent Accountant’s Report, dated December 27, 2011. Recommendation No. 1: We recommend that a checklist is created and followed when changes are made to the Executive Management Team benefits. Once changes have been completed and the checklist is completed, another employee from human resources should make sure the checklist is filled out and changes properly executed. Once this is done, the checklist and benefit change spread sheet should be given to payroll and verified once more that all amounts are correct and in-line with contracted amounts. Upon inquiry we also noted that spreadsheets sent to the Executive Management Team to fill out when updating chosen benefits, were not protected and susceptible to formula alteration, which could lead to potential benefits in excess of the contracted 37% of pay maximum. We recommend that the spreadsheet formula be password protected and once completed, checked for clerical accuracy by both an employee in human resources and in payroll. Response: We are in agreement with the auditors finding and have developed and implemented into practice the EMT compensation checklist as recommended. In addition, we have password protected the spreadsheet formula, and implemented the procedure to have the completed EMT compensation spreadsheets verified by both human resources and payroll for accuracy. ORANGE COUNTY SANITATION DISTRICT Independent Accountant’s Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Information Technology December 27, 2011 203 North Brea Blvd Suite 203 Brea, CA 92821 Lance Soll & Lunghard, LLP 41185 Golden Gate Circle Suite 103 Murrieta, CA 92562 ORANGE COUNTY SANITATION DISTRICT Independent Accountant’s Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Information Technology December 27, 2011 December 27, 2011 Administration Committee Orange County Sanitation District Fountain Valley, California INDEPENDENT ACCOUNTANT’S REPORT ON APPLYING AGREED-UPON PROCEDURES We have performed the procedures enumerated below which were agreed to by the management of the Orange County Sanitation District, California (the District), solely to assist the District in reviewing the internal control policies and procedures over Information Technology (IT). 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 the procedures is solely the responsibility of the management of the 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 specific procedures performed and the results obtained from the performance thereof were as follows: 1. Procedures Performed: We performed a review of the IT departmental organization and structure. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. 2. Procedures Performed: We performed a review of IT strategic planning and monitoring processes. Findings and Recommendations: The District currently utilizes the CRISP SCADA system which is a dated system that is not commonly used or known. While the system meets the current operational needs of the District, there are long-term risks to the District in maintaining this system due to obsolescence of its hardware, software and limited support options. According to the District's Near-Term SCADA Strategic Plan, the district has addressed the hardware issues to maintain the system until its planned replacement starting in 2020 with an estimated completion time of around five years. While there are also risks to replacing a system, we feel there is a much greater risk to maintaining such a system in the long-term. We recommend that the District continue with its plans to replace the CRISP SCADA System to deal with the software risks. This project should have high visibility across the IT, PCI and upper management departments because of the increasing software risk of the current system. Lance, Soll & Lunghard, LLP .ORTH"REA"OULEVARDs3UITEs"REA #!s4%,s&AXwww.lslcpas.com Orange County Temecula Valley Silicon Valley "RANDON7"URROWS #0! $AVID%(ALE #0! #&0 A Professional Corporation $ONALD'3LATER #0! 2ICHARD++IKUCHI #0! 3USAN&-ATZ #0! 3HELLY+*ACKLEY #0! "RYAN3'RUBER #0! $EBORAH!(ARPER #0! Administration Committee Orange County Sanitation District Page 2 3. Procedures Performed: We performed a review of policies and procedures over project management. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. 4. Procedures Performed: We performed a review of IT security policy and procedures including: i. How policies are created, reviewed, and approved ii. How policies are communicated iii. How compliance is monitored and enforced including an acceptable use policy, data retention and destruction, remote connectivity, passwords, and logical access Findings and Recommendations: We recommend: x Acceptable use policy (computer end user policy) should be updated to include consequences of failing to abide by the policy. x Remote access policy should be updated to include more detail of what is being done. x Domain passwords should be changed from 6 characters to 8 to provide greater strength and security against any brute force attack. x All SCADA system users should have unique usernames and passwords. Password security should follow as close as possible to IT password policies x There are three physically unsecured SCADA workstations which should be secured to prevent unauthorized access. x If possible, all SCADA users should only be given the rights to make changes that are related to their job function 5. Procedures Performed: We performed a review of risk assessment policies and procedures. Findings and Recommendations: Each time an audit or scan is conducted, it should be logged with the type of scan/audit, person performing, and the results. This will provide a trail and history to show trends and patterns of possible malware infections or attacks. 6. Procedures Performed: We performed a review of policies and procedures over asset management. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. 7. Procedures Performed: We performed a review of policies and procedures over change management. Findings and Recommendations: The change control policy is basic and brief. It should be updated to specifically address and reflect the different processes and different types of changes. 8. Procedures Performed: We performed a review of policies and procedures over hardware. Findings and Recommendations: We recommend the District implement a formal mobile device policy. Administration Committee Orange County Sanitation District Page 3 Conclusion We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the specified elements, accounts or items. 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 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. Brea, California December 27, 2011 Page 1 of 5 ORANGE COUNTY SANITATION DISTRICT Memorandum DATE: January 17, 2012 TO: Mike White, Controller FROM: Rich Castillon, IT Systems & Operations Manager SUBJECT: Independent Accountants’ Report on Agreed-Upon Procedures on the Internal Control Policies and Procedures over Information Technology, dated December 27, 2011 The following responses are being made to the recommendations that were presented in Lance Sole & Lunghard’s Independent Accountant’s Report, dated December 27, 2011. Procedure No. 1 The auditor’s performed a review of the IT departmental organization and structure. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. Procedure No. 2 The auditor’s performed a review of IT strategic planning and monitoring processes. Findings and Recommendations: The District currently utilizes the CRISP SCADA system which is a dated system that is not commonly used or known. While the system meets the current operational needs of the District, there are long-term risks to the District in maintaining this system due to obsolescence of its hardware, software and limited support options. According to the District's Near-Term SCADA Strategic Plan, the district has addressed the hardware issues to maintain the system until its planned replacement starting in 2020 with an estimated completion time of around five years. While there are also risks to replacing a system, we feel there is a much greater risk to maintaining such a system in the long-term. We recommend that the District continue with its plans to replace the CRISP SCADA System to deal with the software risks. This project should have high visibility across the IT, PCI and upper management departments because of the increasing software risk of the current system. Page 2 of 5 District Response: District staff has actively addressed risks presented by the CRISP SCADA system since its initial installation in 1994. A significant number of system modifications have been completed to replace obsolete components and improve system performance. Staff will continue to actively manage the system to assure a secure and viable SCADA system is in place at all times. However, we do agree with the recommendation that the CRISP will eventually be replaced. The planned project for CRISP system replacement is Project J-120, Process SCADA Replacement. This project is scheduled to begin in 2020. Staff estimates that the current SCADA system with continued minor upgrades and updates will continue to meet the District’s control system needs at least through 2023. Staff is attempting to maximize the return on investment from the existing system while balancing against the risks for CRISP obsolescence and the risks in CRISP replacement. Staff will continue to assess risks, costs, and opportunities to adjust the start date of Project J-120 on an annual basis to assure that the project is started well before the system becomes unsupportable, or no longer meets the District’s needs. Procedure No. 3 The auditor’s performed a review of policies and procedures over project management. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. Procedure No. 4 The auditor’s performed a review of IT security policy and procedures including: i.How policies are created, reviewed, and approved ii.How policies are communicated iii.How compliance is monitored and enforced including an acceptable use policy, data retention and destruction, remote connectivity, passwords, and logical access Findings and Recommendations: Auditor’s recommend: x Acceptable use policy (computer end user policy) should be updated to include consequences of failing to abide by the policy. x Remote access policy should be updated to include more detail of what is being done. x Domain passwords should be changed from 6 characters to 8 to provide greater strength and security against any brute force attack. Page 3 of 5 x All SCADA system users should have unique usernames and passwords. Password security should follow as close as possible to IT password policies x There are three physically unsecured SCADA workstations which should be secured to prevent unauthorized access. x If possible, all SCADA users should only be given the rights to make changes that are related to their job function District Response: Staff is in agreement with these recommendations. Specifically: x The acceptable use policy (computer end user policy) will be updated to include the consequences of failing to abide by the policy. x The remote access policy will be updated to reflect the latest technology and capabilities available. In addition, staff will include more detail on what is being done. x Staff will change the standard password length from 6 to 8 characters. Please note that administrator level passwords are required to be 15 characters. This is enforced by Group Policy. x The Operations and IT staff are in discussions to determine the optimum approach to controlling workstation access without hampering operability. The approach will consider requirements from accepted standards such as National Institute of Standards and Technology, the security offered by the physical security of the plant perimeter and locks on all the process buildings, and the potential consequences of an unauthorized workstation access. x The three physically unsecured SCADA workstations installed in the Emergency Operations Center conference room in the Plant 1Control Center are normally logged into with a read-only password and are used to monitor plant status during an emergency. While they can be used by an operator for issuing process control commands, this would only be during an emergency. These three workstations will incorporate the access changes incorporated into the other workstations. x Although this recommendation is possible with the CRISP system, doing so will further hamper operator options for process control. This option will be discussed as part of the password security issue and the same criteria used to make conclusions. Procedure No. 5 The auditor’s performed a review of risk assessment policies and procedures. Page 4 of 5 Findings and Recommendations: Each time an audit or scan is conducted, it should be logged with the type scan/audit, person performing, and the results. This will provide a trail and history to show trends and patterns of possible malware infections or attacks. Response: Staff is in agreement with this recommendation. A log will be developed and maintained to capture the data for trending. Procedure No. 6 The auditor’s performed a review of policies and procedures over asset management. Findings and Recommendations: No findings or recommendations were noted as a result of the procedures performed. Procedure No. 7 The auditor’s performed a review of policies and procedures over change management. Findings and Recommendations: The change control policy is basic and brief. It should be updated to specifically address and reflect the different processes and different types of changes. District Response: Staff is in agreement with this recommendation. The change control policy will be updated to specifically address the current Change Advisory Board processes and the standard, normal, and emergency change procedures. Procedure No. 8 The auditor’s performed a review of policies and procedures over hardware. Findings and Recommendations: A formal mobile device policy should be implemented. Page 5 of 5 District Response: Staff is in agreement with the recommendation. A formal mobile device policy is currently under development. 1DW-102 Board AR, Rev 10/04/Page 1 of 2 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. 03/28/12 AGENDA REPORT Item Number3 Item Number Orange County Sanitation District FROM:James D. Ruth, General Manager Originator: Lorenzo Tyner, Director, Finance and Administrative Services SUBJECT:Purchase of Computer Parts GENERAL MANAGER'S RECOMMENDATION A. Reject the apparent low bid submitted by Govplace as deemed non-responsive in accordance with specification requirements for Purchase of Cisco Parts, Specification No. E-2012-521BD; and, B. Approve a Purchase Order Agreement with CDW-G, the lowest responsive and responsible bidder, for Purchase of Cisco Parts, Specification No. E-2012-521BD, for an amount not to exceed $620,206; and, C. Approve a contingency of $62,020 (10%). SUMMARY This procurement provides Information Technology networking equipment to support the computer network for the J-33-3 Power Monitoring and Control Systems project and the SP-89 Plant Process Network Equipment Upgrade project. The J-33-3 project installs electrical power monitoring and control equipment at Plant 1. The SP-89 project expands and updates the treatment plant network to accommodate a number of current and upcoming Capital Improvement Projects. The apparent lowest bidder did not provide Original Equipment Manufacturer (OEM) parts as required in the specification, thus the rejection of their bid PRIOR COMMITTEE/BOARD ACTIONS 04/24/1992: Established Cisco Equipment as the Sanitation District’s standard networking equipment 1DW-102 Board AR, Rev 10/04/Page 2 of 2 ADDITIONAL INFORMATION This procurement was competitively bid with 281 prospective bidders with 9 bid packages being received by the Sanitation District. The responsible companies that bid and the bid amounts are listed below. Purchase of Cisco Parts Bid Date – 02/28/2012 @ 2:00 P.M. E-2012-521BD Bidder Amount of Bid CDW-G $620,206.27 PC Mall Gov $630,965.24 New Tech Solutions, Inc. $635,842.43 Future Computing $659,299.86 OM Office Supply, Inc. $669,051.15 IT Partners $680,150.97 Spectrum Communications $703,047.37 Govplace was deemed non-responsible with a bid for $419,635.61 for Cisco Parts or equal. Outsell Consulting LLC rescinded their bid for $554,802.46 due to a pricing error. Staff recommends CDW-G be awarded a purchase order the Purchase of Cisco Parts as the lowest responsible and responsible bidder. CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Sanitation District’s Delegation of Authority. This item has been budgeted. Date of Approval Amount Contingency 03/28/2012 $ 620,206.27 $62,020 (10%) Page 1 of 4 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. N/A AGENDA REPORT Item Number4 Item Number Orange County Sanitation District FROM:James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance & Administrative Services SUBJECT:Status of 2012-13 Insurance Renewals GENERAL MANAGER'S RECOMMENDATION Informational only. SUMMARY Historically, the Administration Committee has asked for status updates regarding the renewals of major insurance policies each year. The Risk Management Division and the Sanitation District’s operational insurance broker begin the process of renewal each January, and final quotes are typically received in June shortly before the beginning of the new fiscal year. The Sanitation District budget provides funds for the renewal of the following four major insurances for the operations: 1) Excess General Liability Insurance 2) Excess Workers’ Compensation 3) All-Risk Property and Flood insurance 4) Boiler & Machinery insurance PRIOR COMMITTEE/BOARD ACTIONS June 2011 - The Board approved renewal of the above four policies for the period July 1, 2011 through June 30, 2012. ADDITIONAL INFORMATION 1) Excess General Liability Insurance Program The Sanitation District’s Excess General Liability Insurance Program is currently provided through the California Municipal Excess Liability Program (CAMEL) and its sister program, the Alliant National Municipal Liability Program (ANML). The Sanitation District has participated in the CAMEL program since FY 1996-97. Page 2 of 4 ADDITIONAL INFORMATION (cont’d) This program currently provides the Sanitation District with a $30 million policy of comprehensive coverage for municipal liability, bodily injury and property damage, and personal injury. The program was structured to also include Employment Practices, and Public Officials Errors & Omissions coverage. The $30 million coverage has a self-insured deductible of $250,000 per occurrence and $500,000 deductible for employment practices claims. Since 1997, the Employment Practices portion of coverage has been enhanced from a $2 million sub-limit to the full $30 million policy limit. The actual insurance coverage currently consists of two separate layers. The first layer is the “Basic” $10 million program with self-insured retention of $250,000. The second layer consists of $20 million of coverage in excess of the first layer of $10 million. The premium for 2011-12 was $333,609, a decrease of about 4% from the previous year. 2) Excess Workers’ Compensation Insurance The Excess Workers’ Compensation insurance coverage is with the California State Association of Counties Excess Insurance Authority (CSAC EIA). The Sanitation District has participated in this program or its predecessor since 2003. Excess Workers’ Compensation Program currently provides so-called “Statutory” (unlimited) coverage with a self-insured retention (SIR), or deductible, of $750,000. The use of Excess Workers’ Compensation Insurance dates back to the late 1980’s. At that time, the Fiscal Policy Committee approved an SIR, or deductible, of $250,000, for such coverage. Due to the hardening of the workers’ compensation market, this deductible was raised to $500,000 beginning in FY 2002-03 through a policy with Employers Reinsurance Corporation (ERC) that provided coverage at the time of $25 million with a self-insured retention (SIR), or deductible of $500,000. Some additional risk may be associated with the CSAC EIA joint powers authority in that a premium surcharge can be assessed to individual members if an unusually large number of losses were to occur outside of the actuarial evaluation estimates. However, historically the CSAC EIA premiums for excess workers compensation have been so much less than competing quotes available to the Sanitation District that if even there were a surcharge, the cost might still continue to be cheaper. The renewal of the Excess Workers’ Compensation Insurance for the period July 1, 2011 through June 30, 2012 was at a rate of .00249 (approximately a 10% reduction compared to the previous year’s rate of .002763) partly due to the Sanitation District’s decision to increase its self-insured retention. This premium rate generated an estimated premium of $153,742 based on the estimated 2011-12 payroll. Since Page 3 of 4 ADDITIONAL INFORMATION (cont’d) the premium itself is based on final payroll, the Sanitation District will not know the exact final premium until the year is over. 3) All-Risk Property and Flood Insurance All-Risk Property and Flood Insurance Program (Property Insurance) provides for comprehensive coverage for most of the Sanitation District’s real and personal property regarding virtually all perils including fire, flood, and business interruption. The Sanitation District previously carried earthquake insurance as part of its Property Insurance, but in the last few years earthquake insurance has been impossible to obtain or not cost-effective. Currently, the Sanitation District has earthquake insurance only in connection with some of its buildings under construction. Current Property Insurance limits are $1 billion for most perils other than flood and earthquakes, and $300 million for flood, with many sub-limits for various situations. In order to reach $1 billion in limits, the broker had to arrange for nearly a dozen different layers of insurers. The SIR is $250,000 per occurrence for most types of losses. Since the late 1990’s, the Property Insurance has been with a nationwide joint purchase property insurance program called Public Entity Property Insurance Program (PEPIP), one of the world’s largest property programs. It is important to note that this joint purchase property insurance program offers the purchasing power of numerous large public entities without the pooling or sharing of coverage or losses. The renewal of All-Risk Property and Flood Insurance for the period July 1, 2011 through June 30, 2012 was at a premium of $449,441, approximately a 3% increase from the previous year, after a decrease of 5.8 percent the year before. 4) Boiler & Machinery Insurance The Boiler & Machinery insurance program provides comprehensive coverage for loss caused by machinery breakdown and explosion of steam boilers or other covered process equipment, including damage to the equipment itself and damage to other property caused by covered accident. The current Boiler & Machinery insurance program provides coverage ($100 million per occurrence/ with deductibles ranging from $25,000 to $350,000) for losses caused by covered machinery breakdown (e.g., motors, steam turbines, digesters, co-gen engines). Damages to the equipment, as well as damages to other property and improvements caused by the machinery breakdown, are covered by the boiler & Page 4 of 4 ADDITIONAL INFORMATION (cont’d) machinery insurance. This program augments the Sanitation District’s all-risk property insurance that covers perils such as fire and flood. The renewal of the Boiler & Machinery Insurance Program for the period July 1, 2011 through June 30, 2012 was at $16,188, an increase of approximately 4%, after a decrease of about 9 percent the year before. CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A DW-102 Board AR, Rev 10/04/10 Page 1 of 1 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. N/A AGENDA REPORT Item Number5 Item Number Orange County Sanitation District FROM:James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance & Administrative Services SUBJECT:Worker’s Compensation Update GENERAL MANAGER'S RECOMMENDATION Informational only SUMMARY Historically, the Administration Committee has asked for status updates regarding Worker’s Compensation. The Risk Management Division contracts with a third party administrator to provide comprehensive worker’s compensation services to the District. The numbers provided below demonstrate the Workers Compensation trends over the past four years. Policy Period Claims Made Total Costs Incurred 2008/2009 34 627,543.91 2009/2010 27 198,830.58 2010/2011 26 145,690.44 2011/2012 19 102,600.96 The above numbers demonstrate a 55% reduction of claims made, and an 83% reduction in total cost incurred. PRIOR COMMITTEE/BOARD ACTIONS N/A Page 1 ADMINISTRATION COMMITTEE Meeting Date 03/14/12 To Bd. of Dir. N/A AGENDA REPORT Item Number6 Item Number Orange County Sanitation District FROM:James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services GENERAL MANAGER'S RECOMMENDATION Informational item re FY 2012-13 and FY 2013-14 District Budget Update. SUMMARY For continued discussion on the development of the District’s Proposed FY 2012-13 and FY 2013-14 Budget, detail of the District’s revenues has been provided below. The proposed budget will be presented for adoption at the June 27, 2012 Board meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. FY 2011-12 Budget Development Revenue Detail JDR:LT:MW:jf Page 2 FY 2011-12 Budget Development Detail Revenue Summary (in millions) Category 2011-12 Adopted 2012-13 Proposed 2013-14 Proposed Beginning Reserves $607.0 $573.4 $643.4 Revenues: Service Fees 248.5 253.5 271.3 Permit User Fees 11.4 10.5 11.3 CFCC 6.8 7.7 7.7 Property Taxes 63.4 61.0 61.0 Interest 11.7 12.0 12.0 Other Revenue 30.3 23.0 24.6 Debt Proceeds 0.0 120.0 0.0 Total Revenue $372.1 $487.7 $387.9 The District has a variety of revenue sources available for operating and capital expenses. The major revenue sources are as follows: • Beginning Balances • General Sewer Service Fees • Industrial Waste Permit User Fees • Capital Facilities Capacity Charges (CFCC) • Property Taxes • Interest Earnings • Other Miscellaneous Revenue • Debt Proceeds 2012-13 2013-14 General Service Fees – User fees are ongoing fees for service paid by customers connected to the sewer system. A property owner, or user, does not pay user fees until connected to the sewer system and receiving services. Once connected, a user is responsible for his share of the system’s costs, both fixed and variable, in proportion to his demand on the system. These fees are for both Single Family Residences (SFR) and Multiple Family Residences (MFR). $253.5M $271.3M Page 3 2012-13 2013-14 General Service Fees (cont’d) Sewer Service Fee Increases The Board approved single family residential rate (the underlying basis for all sewer rates) of $297 for FY 2012-13. A new rate study will be completed to assist in determining the rate for FY 2013-14. Current assumption includes a 7% increase in these rates for FY 2013-14. These rates are still well below the average annual sewer rate of $406 currently being charged throughout the state according to a 2008 survey of 920 agencies encompassing all counties within California. Industrial Waste Permit User Fees – Fees paid by large industrial and commercial properties owners connected to the sewer system. These fees are for the owner’s share of the system’s costs, both fixed and variable, in proportion to his demand on the system. Since the inception of the Permit User Fee program in 1970, users of the District’s system that discharge high volumes or high strength wastewater have been required to obtain a discharge permit and pay extra fees for the costs of service. $10.5M $11.3M Capital Facilities Capacity Charges (CFCC) – Capital Facilities Capacity Charge is a one-time, non-discriminatory charge imposed at the time a building or structure is newly connected to the District’s system, directly or indirectly, or an existing structure or category of use is expanded or increased. This charge pays for District facilities in existence at the time the charge is imposed, or to pay for new facilities to be constructed in the future, that are of benefit to the property being charged. $7.7M $7.7M Property Taxes – The County is permitted by State law (Proposition 13) to levy taxes at 1% of full market value (at time of purchase) and can increase the assessed value no more than 2% per year. The District receives a share of the basic levy proportionate to what was received in the 1976 to 1978 period less $3.5 million, the amount that represents the State’s permanent annual diversion from special districts to school districts that began in 1992-93. The District’s share of this revenue is dedicated for the payment of debt service. $61.0M $61.0M Interest Earnings – Interest earnings are generated from the investment of accumulated reserves consisting of a cash flow/contingency, a capital improvement, a renewal/replacement, and a self-insurance reserve. $12.0M $12.0M Page 4 2012-13 2013-14 Other Revenue – Other revenue also includes $15.5 million and $15.7 from the Irvine Ranch Water District (IRWD) for capital, O&M, and solids charges and $4.1 million and $5.6 million for sewer services provided to the Santa Ana Watershed Protection Authority (SAWPA) and the Sunset Beach Sanitary District for FY 2012-13 and 2013-14, respectively. $23.0M $24.6M Debt Proceeds – Certificates of Participation (COPs) are the District primary mechanism for financing capital projects. COPs are repayment obligations based on a lease or installment sale agreement. COPs are not viewed as “debt” by the State of California, but rather a share in an installment arrangement where the District serves as the purchaser. $120.0M $0.0M Debt Financing Due to the magnitude of identified future annual capital and operations and maintenance expenditures, it is necessary that the District utilize debt financing to meet its total obligations. Debt financing allows the District to meet projected construction schedules while achieving the lowest possible user fees, as well as long-term stability for the user fees. Financing The District uses long-term borrowing for capital improvements that cannot be financed from current revenue. Before any new debt is issued, the impact of debt service payments on total annual fixed costs is analyzed. Over the past 9 years, $1.2 billion of new money debt financings have been completed to fund the the $2 billion in capital improvemetns that have been required. A new debt issuance of $120 million is planned for FY 2012-13. Certificate of Participation (COP) The primary debt mechanism used is Certificate of Participation (COP). COPs are repayment obligations based on a lease or installment sale agreement. The COP structure was selected over other structures because COPs are not viewed as debt by the State of California, as the purchaser does not actually receive a "bond," but rather a share in an installment sale arrangement where the District serves as the purchaser. The District Maintains its AAA Rating The District maintains ratings of “AAA” from Standards and Poor and Fitch Ratings. A triple A rating is the highest obtainable for any governmental agency. In order to maintain this rating, the District adheres to its Debt Policy and coverage ratios requirements. This Board-adopted policy serves as the agency’s guide in the management of existing debt and in the issuance of future debt.