Report 2017-113 All Recommendation Responses

Report 2017-113: South Orange County Wastewater Authority: It Should Continue to Improve Its Accounting of Member Agencies' Funds and Determine Whether Members Are Responsible for Its Unfunded Liabilities (Release Date: March 2018)

Recommendation for Legislative Action

The Legislature should require new JPA agreements to hold the members responsible for the JPA's unfunded pension and other postemployment benefits obligations and to specify the manner of apportioning those liabilities.

Description of Legislative Action

Assembly Bill (AB) 1912 (Chapter 383, Statutes of 2018), in part, eliminates an authorization for a party to a joint powers agreement (JPA) to separately contract or assume responsibilities for specific debts, liabilities, or obligations of the agency. Further, this statute requires member agencies of an agency established by a JPA that participates in or contracts with a public retirement system, prior to a termination or a decision to dissolve or cease the operations of the agency, to mutually agree as to the apportionment of the agency's retirement obligations among themselves, provided that the agreement equals 100 percent of the retirement liability of the agency. If the member agencies are unable to mutually agree to the apportionment, the board is required to apportion the retirement liability of the agency to each member agency based on the share of service received from the agency, or the population of each member agency, and establish procedures allowing a member agency to challenge the board's determination through the arbitration process. The statute further provides that if a judgment is rendered against an agency or a party to the agreement for a breach of its obligations to the retirement system, the time within which a claim for injury may be presented or an action commenced against the other party that is subject to the liability determined by the judgment begins to run when the judgment is rendered. Those provisions apply retroactively to both a member agency, or current and former member agency, that has an agreement with the board on or before January 1, 2019, and to new agreements with the board on or after that date.

California State Auditor's Assessment of 6-Month Status: Legislation Enacted

Description of Legislative Action

Assembly Bill 1912 (Rodriguez) would, in part, specify that if an agency established by a joint powers agreement participates in or contracts with a public retirement system, member agencies, both current and former to the agreement, would be required, prior to a termination or a decision to dissolve or cease the operations of the agency, to mutually agree as to the apportionment of the agency's retirement obligations among themselves, provided that the agreement equals 100 percent of the retirement liability of the agency. If the member agencies are unable to mutually agree to the apportionment, the bill would require the board to apportion the retirement liability of the agency to each member agency based on the share of service received from the agency or the population of each member agency, and it would establish procedures allowing a member agency to challenge the board's determination through the arbitration process. The bill would further provide that if a judgment is rendered against an agency or a party to the agreement for a breach of its obligations to the retirement system, the time within which a claim for injury may be presented or an action commenced against the other party that is subject to the liability determined by the judgment begins to run when the judgment is rendered. The bill would specify that those provisions apply retroactively to both a member agency, or current and former member agency, that has an agreement with the board on or before January 1, 2019, and to new agreements with the board on or after that date.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

In addition, the Legislature should require all existing JPAs to disclose annually as part of any regularly scheduled communication to their pension and other postemployment benefits plan participants whether the JPA's members are liable for the JPA's unfunded retirement obligations.

Description of Legislative Action

As of March 22, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

As of March 22, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

As of March 22, 2020, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

The Legislature has not taken any action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #3 To: South Orange County Wastewater Authority

SOCWA should finish investigating the difference in available cash balances per its audited financial statements and its accounting records, and then develop a methodology that is agreeable to its members for allocating any additional cash it identifies to the credit of its members. For example, it could allocate this money to members based on each member's existing proportion of available cash per SOCWA's accounting records.

1-Year Agency Response

The SOCWA Board Directors approved a methodology for distribution of additional Cash balances accumulated to June 30, 2018. Documentation provided via email includes distribution methodology and actual distribution to member agencies based on project committee/member share. This work occurred with the annual Use Audit preparation and subsequent reporting of Supplemental Financial Statements.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

Monthly financial updates will be provided to the Finance Committee starting October 2018. Included in the submittal is the presentation the Finance Controller provided to the Finance Committee on 9/19/2018 related to the cash roll forward for FY 2017/18.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Preparing a report of the differences in existing cash and working with the Finance Committee to develop a methodology that is agreeable to our member agencies. The SOCWA Board will consider an allocation based on existing proportion to available cash.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: South Orange County Wastewater Authority

To prevent future discrepancies in available cash balances, SOCWA should implement its improved procedures to better account for members' cash contributions and provide monthly reports of available cash balances to members.

1-Year Agency Response

The SOCWA Board of Directors has approved reporting of cash on hand by quarterly periods beginning December 6, 2018 including reporting for Q1 2018/19. The attached staff reports to the Board of Directors document the Board's adoption of quarterly reporting.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The Finance Controller will be bringing monthly reporting to the Finance Committee in October 2018.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Improved procedures are underway and monthly reporting and procedures will be implemented July 2018.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: South Orange County Wastewater Authority

SOCWA and its members should amend the current JPA agreement to expressly state whether members will be responsible for SOCWA's retirement benefits liabilities in the event it is not able to meet those obligations and then it should inform plan participants of that provision.

Annual Follow-Up Agency Response From October 2019

Please reference the letter provided to miket@auditor.ca.gov with additional references to support compliance with this recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Distribution of obligations for Unfunded Liabilities based on Actuary recommended methodology were included in the SOCWA Year Ended June 30, 2018 Financial Statements and Supplemental Financial Schedules received and filed by the SOCWA Board of Directors. See attached pages showing Board Approved Allocations. Meetings to consider revision to the JPA Agreement are planned in the coming period up to September 2019.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

SOCWA has hired new general counsel who are actively reviewing the SOCWA JPA and associated project committee agreements. SOCWA has embarked on the consideration of revision and amendment of the SOCWA JPA as per the recommendation complete by September 2019.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

We will begin consideration of revision and amendment of the SOCWA JPA as per the recommendation by July 2018 and complete by September 2019.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #6 To: South Orange County Wastewater Authority

To better ensure the timely release of future financial statements, SOCWA should enhance its new procedures for preparing its financial statements by developing and following a timeline with specific deadlines for completing each of its planned year-end tasks.

6-Month Agency Response

SOCWA has developed accounting procedures and a year end schedule to complete planned year-end tasks.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

Accounting procedures are in development to be complete by August 2018.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #7 To: South Orange County Wastewater Authority

To better ensure the reliability of its financial reporting, the effectiveness and efficiency of its operations, and its compliance with laws and regulations, SOCWA should establish a policy requiring it to correct within six months any future internal control deficiencies that its external auditor may identify.

60-Day Agency Response

Task completed with the adoption of the policy addressing selection of the external auditor.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

SOCWA's newly established policy on selection and rotation of its external auditor requires it to correct within six months any future internal control deficiencies.

Recommendation #8 To: South Orange County Wastewater Authority

To enable staff who may be unfamiliar with SOCWA's various accounting procedures to effectively complete their assigned tasks, SOCWA should further develop its accounting procedures by including step-by-step instructions.

6-Month Agency Response

SOCWA has completed this task by providing step by step instructions and training to staff.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

In preparation, projected to be completed September 2018.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: South Orange County Wastewater Authority

To reduce future audit costs, SOCWA should amend its policy on professional service procurements to specify that it should enter into agreements of at least five years with its competitively procured external audit firms. It should also develop a policy to rotate its external auditor when state law requires.

60-Day Agency Response

The SOCWA Board of Directors passed Resolution No. 2018-03: Adopting External Auditor Policy. The Board reviewed the recommendation of the State Auditor's Report and folded in the recommendation to adopt a policy defining the practice of rotation of auditing firms. The Board supported rotation of Auditors and agreed in the Policy to consider appointment for up to 5-year period noting that contract duration may be set with multi-year renewal based on qualifications, experience, and overall satisfaction with performance. Agency counsel is directed by the policy to recommend revisions based on changes in law or recommended standards.

California State Auditor's Assessment of 60-Day Status: Resolved

Recommendation #10 To: South Orange County Wastewater Authority

To ensure that it fully complies with the Public Records Act, SOCWA should do the following:
- Update its policy on the Public Records Act at least annually to ensure that it keeps pace with any changes in the law.
- Develop more detailed procedures to ensure that it responds to requests for records in full compliance with the Public Records Act.
- Establish a policy to retain accurate records and supporting documentation to demonstrate that it fully complies with all requirements of the Public Records Act.

60-Day Agency Response

SOCWA has prepared and adopted Resolution 2018-01: a Revised Policy for for Disclosure of Public Records. In addition SOCWA has implemented a California Public Records Act Log which will allow for public records act request and response information to be kept current in accordance with the adopted policy.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

All Recommendations in 2017-113

Agency responses received are posted verbatim.