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Home My WebLink About01-20-2022 Audit Ad Hoc Committee Complete Agenda PacketORANGE COUNTY SANITATION DISTRICT SPECIAL NOTICE REGARDING CORONAVIRUS (COVID-19) AND ATTENDANCE AT PUBLIC MEETINGS Governor Newsom signed Assembly Bill (AB) 361 on September 16, 2021, which, in part, addresses the conduct of public meetings in light of the continued State of Emergency order. Effective October 1, 2021, AB 361 suspends the requirements located in California Government Code, Section 54953, Subdivision (b), Paragraph (3) specifically pertaining to the conduct of public meetings. As such, the Orange County Sanitation District (OC San) Board of Directors has determined that due to the size of OC San’s Board of Directors (25), and the health and safety of the members, the Board of Directors will be participating in meetings of the Board telephonically and via Internet accessibility. PUBLIC PARTICIPATION Your participation is always welcome. OC San offers several ways in which to interact during meetings. You will find information as to these opportunities below. ONLINE MEETING PARTICIPATION You may join the meeting live via Teams on your computer or similar device or web browser by using the link below: Click here to join the meeting We suggest testing joining a Teams meeting on your device prior to the commencement of the meeting. For recommendations, general guidance on using Teams, and instructions on joining a Teams meeting, please click here. Please mute yourself upon entry to the meeting. Please raise your hand if you wish to speak during the public comment section of the meeting. The Clerk of the Board will call upon you by using the name you joined with. Meeting attendees are not provided the ability to make a presentation during the meeting. Please contact the Clerk of the Board at least 48 hours prior to the meeting if you wish to present any items. Additionally, camera feeds may be controlled by the meeting moderator to avoid inappropriate content. OC ~SAN ORANGE COUNTY SANITATION DISTRICT HOW TO PARTICIPATE IN THE MEETING BY TELEPHONE To join the meeting from your phone: Dial (213) 279-1455 When prompted, enter the Phone Conference ID: 433 488 948# All meeting participants may be muted during the meeting to alleviate background noise. If you are muted, please use *6 to unmute. You may also mute yourself on your device. Please raise your hand to speak by use *5, during the public comment section of the meeting. The Clerk of the Board will call upon you by using the last 4 digits of your phone number as identification. NOTE: All attendees will be disconnected from the meeting at the beginning of Closed Session. If you would like to return to the Open Session portion of the meeting, please login or dial-in to the Teams meeting again and wait in the Lobby for admittance. VIEW THE MEETING ONLINE ONLY The meeting will be available for online viewing only at: https://ocsd.legistar.com/Calendar.aspx HOW TO SUBMIT A COMMENT You may provide verbal comment in real time during the meeting. In order to provide a verbal comment, please raise your hand as described above or alert the Clerk of the Board before or during the public comment period. You may also submit your comments and questions in writing for consideration in advance of the meeting by using the eComment feature available online at: https://ocsd.legistar.com/Calendar.aspx or sending them to OCSanClerk@ocsan.gov with the subject line “PUBLIC COMMENT ITEM # (insert the item number relevant to your comment)” or “PUBLIC COMMENT NON-AGENDA ITEM”. You may also submit comments and questions for consideration during the meeting by using the eComment feature available online at: https://ocsd.legistar.com/Calendar.aspx. The eComment feature will be available for the duration of the meeting. All written public comments will be provided to the legislative body and may be read into the record or compiled as part of the record. TECHNICAL SUPPORT PRIOR TO AND DURING MEETINGS For technical assistance before and during the meeting, please call 714-593-7431. For any other questions and/or concerns, please contact the Clerk of the Board’s office at 714-593-7433. Thank you, in advance, for your patience in working with thesetechnologies. We appreciate your interest in OC San! January 14, 2022 NOTICE OF REGULAR MEETING AUDIT AD HOC COMMITTEE ORANGE COUNTY SANITATION DISTRICT Thursday, January 20, 2022 – 5:00 P.M. ACCESSIBILITY FOR THE GENERAL PUBLIC Your participation is always welcome. Specific information as to how to participate in this meeting is detailed in the Special Notice attached to this agenda. In general, OC San offers several ways in which to interact during meetings: you may join the meeting live via Teams on your computer or similar device or web browser, join the meeting live via telephone, view the meeting online, and/or submit comments for consideration before or during the meeting. The Regular Meeting of the Audit Ad Hoc Committee of the Orange County Sanitation District will be held at the above location and in the manner indicated on Thursday, January 20, 2022 at 5:00 p.m. 0 ~SAN 10844 Ellis Avenue Fountain Valley, CA 92708 714.962.2411 ORANGE COUNTY SANITATION DISTRICT www.ocsan.gov Our Mission: To protect public health and the environment by providing effective wastewater collection, treatment, and recycling. Serving: Anaheim Brea Buena Park Cypress Fountain Valley Fullerton Garden Grove Huntington Beach Irvine La Habra La Palma Los Alamitos Newport Beach Orange Placentia Santa Ana Seal Beach Stanton Tustin Villa Park County of Orange Costa Mesa Sanitary District Midway City Sanitary District Irvine Ranch Water District Yorba Linda Water District ORANGE COUNTY SANITATION DISTRICT Effective 1/12/2022 BOARD OF DIRECTORS Complete Roster AGENCY/CITIES ACTIVE DIRECTOR ALTERNATE DIRECTOR Anaheim Stephen Faessel Gloria Ma’ae Brea Glenn Parker Steven Vargas Buena Park Art Brown Connor Traut Cypress Paulo Morales Anne Hertz Fountain Valley Patrick Harper Ted Bui Fullerton Jesus J. Silva Nick Dunlap Garden Grove Steve Jones John O’Neill Huntington Beach Kim Carr Dan Kalmick Irvine Anthony Kuo Farrah N. Khan La Habra Rose Espinoza Steve Simonian La Palma Marshall Goodman Nitesh Patel Los Alamitos Ron Bates NONE Newport Beach Brad Avery Joy Brenner Orange Kim Nichols Chip Monaco Placentia Chad Wanke Ward Smith Santa Ana Johnathan Ryan Hernandez Nelida Mendoza Seal Beach Sandra Massa-Lavitt Schelly Sustarsic Stanton David Shawver Carol Warren Tustin Ryan Gallagher Austin Lumbard Villa Park Chad Zimmerman Robert Collacott Sanitary/Water Districts Costa Mesa Sanitary District Bob Ooten Art Perry Midway City Sanitary District Andrew Nguyen Mark Nguyen Irvine Ranch Water District John Withers Douglas Reinhart Yorba Linda Water District Brooke Jones Ted Lindsey County Areas Board of Supervisors Doug Chaffee Donald P. Wagner AUDIT AD HOC COMMITTEE Regular Meeting Agenda Thursday, January 20, 2022 - 5:00 PM Board Room Administration Building 10844 Ellis Avenue Fountain Valley, CA 92708 (714) 593-7433 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 Orange County Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, and on the Orange County Sanitation District’s website at www.ocsan.gov 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. AGENDA DESCRIPTION: The agenda provides a brief general description of each item of business to be considered or discussed. The recommended action does not indicate what action will be taken. The Board of Directors may take any action which is deemed appropriate. MEETING AUDIO: An audio recording of this meeting is available within 24 hours after adjournment of the meeting at https://ocsd.legistar.com/Calendar.aspx or by contacting the Clerk of the Board at (714) 593-7433. NOTICE TO DIRECTORS: To place items on the agenda for a Committee or Board Meeting, the item must be submitted in writing to the Clerk of the Board: Kelly A. Lore, MMC, (714) 593-7433 / klore@ocsan.gov at least 14 days before the meeting. FOR ANY QUESTIONS ON THE AGENDA, BOARD MEMBERS MAY CONTACT STAFF AT: General Manager: Jim Herberg, jherberg@ocsan.gov / (714) 593-7300 Asst. General Manager: Lorenzo Tyner, ltyner@ocsan.gov / (714) 593-7550 Asst. General Manager: Rob Thompson, rthompson@ocsan.gov / (714) 593-7310 Director of Human Resources: Celia Chandler, cchandler@ocsan.gov / (714) 593-7202 Director of Engineering: Kathy Millea, kmillea@ocsan.gov / (714) 593-7365 Director of Environmental Services: Lan Wiborg, lwiborg@ocsan.gov / (714) 593-7450 OC ~SAN ORANGE COUNTY SANITATION DISTRICT AUDIT AD HOC COMMITTEE Regular Meeting Agenda Thursday, January 20, 2022 CALL TO ORDER AND PLEDGE OF ALLEGIANCE ROLL CALL AND DECLARATION OF QUORUM: Clerk of the Board PUBLIC COMMENTS: Your participation is always welcome. Specific information as to how to participate in a meeting is detailed in the Special Notice attached to this agenda. In general, OC San offers several ways in which to interact during meetings: you may join the meeting live via Teams on your computer or similar device or web browser, join the meeting live via telephone, view the meeting online, and/or submit comments for consideration before or during the meeting. You may provide verbal comment in real time during the meeting. In order to provide a verbal comment, please raise your hand (directions provided in the Special Notice attached to this agenda) or alert the Clerk of the Board before or during the public comment period. You may submit your comments and questions in writing for consideration in advance of the meeting by using the eComment feature available online at: https://ocsd.legistar.com/Calendar.aspx or sending them to OCSanClerk@ocsan.gov with the subject line “PUBLIC COMMENT ITEM # (insert the item number relevant to your comment)” or “PUBLIC COMMENT NON-AGENDA ITEM”. You may also submit comments and questions for consideration during the meeting by using the eComment feature available online at: https://ocsd.legistar.com/Calendar.aspx. The eComment feature will be available for the duration of the meeting. All written public comments will be provided to the legislative body and may be read into the record or compiled as part of the record. INFORMATION ITEMS: 1.2022-2089INTERNAL AUDIT UPDATE RECOMMENDATION: Information Item. Originator:Lorenzo Tyner Agenda Report Internal Audit Report - Contracts Procurement Process Attachments: OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: Adjourn the Audit Ad Hoc Committee Meeting. Page 1 of 1 AUDIT AD HOC COMMITTEE Agenda Report Administration Building 10844 Ellis Avenue Fountain Valley, CA 92708 (714) 593-7433 File #:2022-2089 Agenda Date:1/20/2022 Agenda Item No:1. FROM:James D. Herberg, General Manager Originator: Lorenzo Tyner, Assistant General Manager SUBJECT: INTERNAL AUDIT UPDATE GENERAL MANAGER'S RECOMMENDATION RECOMMENDATION: Information Item. BACKGROUND The Orange County Sanitation District (OC San) selected the audit firm of Eide Bailly LLP to provide audits of various OC San programs and processes as selected by the Audit Ad Hoc Committee. Most recently, the Audit Ad Hoc Committee selected the contracts procurement process for audit. The auditors were directed to focus its efforts on three specific areas: Construction Contract Compliance, Sole Source Contracts, and General Manager Approved Purchases. The auditors will provide an update of those efforts. Additionally, staff and the auditors will present potential topics for future audit selection. ADDITIONAL INFORMATION The Audit report covers: Eide Bailly LLP performed an independent assessment of OC San’s contracts procurement process to ensure that sole source contracts, Public Works construction projects, and General Manager approved purchases are procured in compliance with the established policies and procedures. The audit work done in the three areas is summarized below. 1) Construction Contract Compliance Audit contracts related to four (more or less) construction projects to determine if they were executed successfully in several areas, including project cost and timeliness, accuracy of invoice payments, retention release, and administrative requirements such as insurance and bonding. Validate that appropriate checks and balances exist between Engineering and Contracts staff to ensure proper payment to correct vendors for completed work. Orange County Sanitation District Printed on 1/14/2022Page 1 of 2 powered by Legistar™ OC6SAN ORANGE COUNTY SANITATION DISTRICT File #:2022-2089 Agenda Date:1/20/2022 Agenda Item No:1. 2)Sole Source Contracts Review OC San’s purchasing policies and procedures as they relate to the procurement of sole source products and services,including a walkthrough to determine that the proper procedures were being followed as designed to ensure that sole source contracts are properly authorized and appropriate. Selected sole source contracts and test projects for key internal controls related to the authorization of sole source contracts,including approvals for sole source request forms, minutes,and justification letters.Test that OC San has established valid justification for selecting sole source vendors in accordance with the purchasing policies and procedures in addition to reviewing sole source vendor service agreements and invoices. 3)General Manager Approved Purchases The General Manager has the authority to approve purchases over $50,000.These purchases are reported to the Board on a quarterly basis through a report to the Administration Committee.Review purchasing process to ensure that appropriate documentation is completed, and protocols are followed. RELEVANT STANDARDS ·Conduct audits to determine if an entity’s operations are being conducted in an economical and efficient manner ·Conduct audits to establish whether specific government programs are effective in meeting their stated goals and objectives ·Conduct audits to determine if an entity is following policies and procedures in conducting operations ATTACHMENT The following attachment(s)may be viewed on-line at the OC San website (www.ocsan.gov)with the complete agenda package: ·Contracts Procurement Process Internal Audit Report Orange County Sanitation District Printed on 1/14/2022Page 2 of 2 powered by Legistar™ Contracts Procurement Process Internal Audit Report January 4, 2022 Orange County Sanitation District Submitted By Eide Bailly LLP OCSD – CONTRACTS PROCURMENT TABLE OF CONTENTS Executive Summary .............................................................................. 1 Background Information ...................................................................... 1 Objective & Scope ................................................................................ 1 Methodology ........................................................................................ 2 Testing Results and Conclusion ............................................................ 3 Appendix A – Internal Controls and Related Control Activities ........... 4 OCSD – CONTRACTS PROCUREMENT 1 | eidebailly.com Executive Summary Eide Bailly LLP (“We”, or “Our”) performed an independent assessment of Orange County Sanitation District’s (“The District”) contracts procurement process to ensure that sole source contracts, Public Works construction projects, and General Manager approved contracts are procured in compliance with the established policies and procedures (P&Ps). During our review, we didn’t identify any instances where contracts were handled and / or processed outside the established guidelines of the District. Background Information The District is a public agency that provides wastewater collection, treatment, and disposal services for approximately 2.6 million people in central and northwest Orange County. The District is governed by a Board of Directors consisting of 25 board members appointed from 20 cities, two sanitary districts, two water districts and one representative from the Orange County Board of Supervisors. The District’s procurement practices are governed by Purchasing Ordinance that establishes general guidelines. There are also numerous internal policy related documents that establish specific requirements and guidelines for each of the three types of contracts reviewed in the scope of this project including sole source contracts, Public Works (PW) construction contracts, and General Manager (GM) approved contracts. Sole Source contracts are generally associated with purchases greater than $10,000 that require the following conditions to be met to justify the purchases: • GM must determine it is the best approach, and / or • Goods and services are unique based on various product attributes, or • Goods and services are available only from one source/vendor. PW construction contracts are generally associated with PW projects greater than $35,000. PW projects involve construction, erection, or alteration of any type of structure, building, or improvement other than sewerage maintenance or repairs. GM approved contracts are typically associated with purchases of goods and services between $50,000 and $100,000 and such purchases are reported to the Board of Directors (BOD) quarterly. GM approved purchases can also utilize sole source contracts when justified. Objective & Scope The objective of this project was to assess whether the District has an effective system of internal controls surrounding 1) sole source contracts, 2) PW construction contracts, and 3) GM approved purchases approved for effective purchasing in compliance with the District's policies. See Appendix A for the list of internal controls and related control activities. The scope of this assessment was to review and evaluate contracts processed in the period from January 1, 2020 to June 30, 2021. Our service was provided in accordance with the American Institute of Certified Public Accountants’ Statement on Standards for Consulting Services. OCSD – CONTRACTS PROCUREMENT 2 | eidebailly.com Methodology We designed a set of assessment procedures that were tailored based on the nature and nuances of business processes for sole source contracts, PW construction contracts, and GM approved purchases. The specific procedures for each category of contracts are described below. 1. General Procedures: • Reviewed the District’s purchasing P&Ps as they relate to the procurement of sole source products and services, PW construction contracts, and GM approved purchases. • Held discussions with Purchasing and Contracts Manager to gain an understanding and nuances of The District’s contracts procurement process. 2. Sole Source Contracts: • Obtained a listing of sole source contracts, selected a sample of 15 sole source contracts, and reviewed them for authorization of sole source contracts, including approvals for sole source request forms, minutes, and justification letters. Verified that the District has established valid justification for selecting sole source vendors in accordance with the purchasing P&Ps in addition to reviewing sole source vendor service agreements and invoices. • Requisition Form: Inspected JDE system workflow records to evidence review and approval of sole source requisitions. • E-Form: Inspected Sole Source e-forms to verify 1) corresponding justification letter was submitted, and 2) appropriate approvals existed. • Justification Letter: Inspected Justification Letters to verify valid justification for selecting sole source vendors in accordance with the District's Purchasing Ordinance. • Agenda Report: Inspected Sole Source transactions exceeding $100k and verified that the associated Agenda Reports have been submitted to the Board. • Purchase Order / Invoices: Inspected purchase orders and invoices to verify appropriateness of supporting documentation. • Denied Requests: Reviewed list of denied sole source requisitions to verify whether denial was appropriate and understand reasons for denial. 3. Public Works Construction Contracts: • Obtained a listing of public works construction contracts and selected a sample of four contracts in various stages including ‘pending’ and ‘completed’ to perform the detailed testing described below. • Obtained and inspected a tracking spreadsheet showing list of contracts initial cost, final cost, delivery date, and final delivery date to determine whether contracts were executed successfully based on the monitored criteria. • Ensured competitive selection was performed (approved vendor, pre-bid, etc.), all required documentation was submitted, and conducted in compliance with both 1) Procurement P&Ps and 2) California Public Contracts Code section 20783. • Reviewed the PW construction contracts to determine that proper procedures were followed as designed to ensure contracts are appropriate, properly authorized, proper supporting documentation exists including accuracy of invoice payments, and that retention release, insurance, and bonding was obtained. • Reviewed the completed Budget Approval Forms to ensure appropriate checks and balances exist to ensure proper payment to correct vendors for completed work. OCSD – CONTRACTS PROCUREMENT 3 | eidebailly.com • Reviewed the contingency amount to ensure proper authorization and documentation including management comments and system (PM Web) evidence. • Performed a review of change orders for appropriate support and approvals. • Ensured that project participants for selected contracts were appropriate including engineering and project managers. • Inspected JDE system workflow records to evidence review and approval for selected PW contracts. 4. General Manager Approved Purchases: • Obtained a listing of GM approved purchases extracted from the District’s ERP system, JD Edwards and selected a sample of 15 contracts to perform the detailed testing described below. • Board Quarterly Report: Inspected quarterly reports submitted to the Board to verify that purchases approved by the GM were reported completely, accurately, and timely. • Requisition Form: Inspected JDE system workflow records to evidence review and approval of sole source requisitions. • Bid Process / Proposals: Inspected bid notices, request for proposals, justification letters, and other supporting documentation to verify competitive selection and appropriate protocols were followed in accordance with the guidelines in the established P&Ps. • Award Notice: Inspected determination of lowest bid or evaluation process, and award notice to verify contract was awarded based on evaluation factors set forth in the established policies and procedures. • Executed Contracts: Inspected executed contracts to verify contracts were executed successfully based on the submitted requisition and accepted scope of work. • Purchase Order / Invoices: Inspected purchase orders and invoices to verify appropriateness of supporting documentation. Testing Results and Conclusion Based on the procedures performed during this assessment, the District’s contract procurement practices appear to be in compliance with the Purchasing Ordinance as well as individual contract procurement policies and procedures established. No exceptions or findings were noted requiring immediate attention for process improvement. OCSD – CONTRACTS PROCUREMENT 4 | eidebailly.com Appendix A – Internal Controls and Related Control Activities We identified the following internal controls (IC) and/or management control activities as they relate to OC San’s contracts procurement process: IC1. GM / Assistant GM – approve and execute contracts up to $100K as well as task order bids up-to $300K for repair and maintenance contracts. IC2. The Board of Directors approve and execute contracts equal or greater than $200K including contingencies. IC3. PW Contracts Tracking: The Project Controls Group tracks projects including Public Works by status, Active versus Closed, in addition to Phase, PO, Contract and Engineering Team. Public Works contracts are approved by the Board and include a schedule of prices. • Who - Project Controls Group • What - Tracks Project Status, including cost and completion status • When - During Contract Life Cycle • How Often - Every Contract IC4. PW Contracts: Procedures exist to solicit bids and/or requests for proposal through notifications, newspaper publication, bids are tabulated, and evidence of award exists. • Who - Contracts Administrator • What - Solicit requests for bids to ensure integrity submissions • When - Inception of each approved project, prior to contracting with supplier • How Often - All Contracts IC5. PW Contracts – Vendor Pre-qualification: Procedures exist to pre-qualify vendors based upon an Evaluation Checklist, including Financial, Safety and Technical evaluations which are completed by the Evaluation Team. • Who - Bid Evaluation Team • What - Performs a review of Financial, Safety and Technical qualifications through evaluating supplier. • When - Prior to awarding contract • How Often - All Public Works Contracts IC6. PW Contracts: Contingencies of 10% are approved by the board and evidenced through minutes. • Who - Board • What - Approve contingency amount • When - Inception of each project • How Often - All Public Works Contracts IC7. PW Contracts: Change Orders are approved based upon adequate support and tracked for the cumulative change order amount to ensure that the contingency is not exceeded. • Who - Project Manager/Engineer • What - Approval and tracking change orders • When - As change orders occur • How Often - All Change Orders OCSD – CONTRACTS PROCUREMENT 5 | eidebailly.com IC8. All Contracts: Retention Release and project registration with the county are performed following project completion and appropriately evidenced. • Who - Contracts Administrator • What - Request retention release payment and county registration • When - Project Completion • How Often - All Contracts. IC9. All Contracts: Purchase Orders exist to ensure the payments to suppliers do not exceed approved project totals. IC10. PW Contracts: Budgets are prepared and approved for Public Works projects and documented in the associated approval forms. IC11. PW Contracts: Progress payments are tracked in PM Web system and include a retainage withholding. IC12. PW Contracts Administration: Risk is mitigated through obtaining a Certificate of Liability Insurance and Performance Bonds for suppliers. IC13. All Purchases: Requisitions are submitted through JDE and are reviewed and approved by department head. IC14. Sole Source Purchases: Sole Source requests are submitted with a justification letter which are reviewed and approved by Manager, Director, Purchasing Manager, and Director of Finance. IC15. Sole Source Purchases: Purchases over $100k are included in the Agenda Report and are submitted and reviewed by the Board. IC16. GM-Approved Purchases: All GM-Approved purchase over $50,000 are submitted and reviewed by the Board on a quarterly basis. IC17. GM-Approved Purchases: Procedures exist to review and evaluate submitted bids or Requests for Proposals to determine lowest and most responsive bid/proposal. OCSD – CONTRACTS PROCUREMENT 6 | eidebailly.com THE FOUNDATIO UCCESS Caring for our external and internal clients with a passion to go the extra mile. Respecting our peers and their individual contributions. Conducting ourselves with the highest level of integrity at all times. Trusting and supporting one another. Being accountable for the overall success of the Firm, not just individual or office success. Stretching ourselves to be innovative and creative, while managing the related risks. Recognizing the importance of maintaining a balance between work and home life. Promoting positive working relationships. And, most of all, enjoying our jobs ... and having fun! EideBaill)'® What i sp" y u eidebailly.com