A SPECIAL MEETING OF THE SAN GABRIEL BASIN WATER QUALITY AUTHORITY

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1 A SPECIAL MEETING OF THE SAN GABRIEL BASIN WATER QUALITY AUTHORITY AT 1720 W. CAMERON AVENUE, SUITE 100 WEST COVINA, CALIFORNIA THURSDAY, FEBRUARY 18, 2016 AT 10:00 A.M. AGENDA I. CALL TO ORDER URIAS II. PLEDGE OF ALLEGIANCE III. ROLL CALL OF BOARD MEMBERS MORENO Bryan Urias, Chairman Bob Kuhn, Vice-Chairman Luis Ayala, Secretary Tim Miller, Treasurer Louie Aguiñaga, Board Member Mike Whitehead, Board Member John Leung, Board Member (alt) (alt) (alt) (alt) (alt) (alt) (alt) IV. PUBLIC COMMENTS (Agendized Matters Only): URIAS As provided under Government Code Section , this time has been set aside for persons in the audience to provide comment or make inquiries on matters appearing on this Special Meeting agenda only. Please complete the appropriate request card and submit it to the Secretary, prior to the item being heard. A five-minute time limit on remarks is requested. V. ITEMS TOO LATE TO BE AGENDIZED - Recommended Action: URIAS Approve motion determining need to take action on item(s) which arose subsequent to posting of the Agenda (ROLL CALL VOTE: Adoption of this recommendation requires a two-thirds vote of the Board or, if less than two-thirds of Board members are present, a unanimous vote) VI. APPOINTMENT OF COMMITTEE MEMBERS URIAS (a) (b) (c) Administrative/Finance Committee Engineering Committee Legislative/Public Information Committee VII. CONSENT CALENDAR URIAS (Consent items may all be approved by single motion) (a) (b) (c) Minutes for 1/20/16 Regular Board Meeting Demands on Administrative Fund [enc] Demands on Project Fund [enc]

2 VIII. COMMITTEE REPORTS (These items may require action) URIAS (a) Administrative/Finance Committee Report 1. Discussion/Action Regarding Draft of Audited Financial Statements For the Fiscal Year Ended June 30, 2015 [enc] 2. Discussion/Action Regarding Request for Proposal for Audit Services For June 30, 2016 [enc] (b) Legislative/Public Information Committee Report IX. OTHER ACTION/INFORMATION ITEMS URIAS (These items may require action) None. X. ENGINEER'S REPORT SCHOELLERMAN (a) Project Updates: 1. Baldwin Park Operable Unit Status Arrow/Lante Well (Subarea 1) Operational Monrovia Wells Operational SGVWC B6 Plant Operational SGVWC B5 Plant Operational CDWC Well No. 14 Operational La Puente Valley County Water District Operational 2. El Monte Operable Unit Eastern Shallow Zone Operational Eastern Deep Zone Awaiting Permit GSWC Encinita Plant Operational Western Shallow Zone Operational 3. South El Monte Operable Unit Whitmore Street. Ground Water Remediation Operational Treatment Facility City of M.P. Well No. 5 VOC Treatment Operational Facility City of M.P. Well No. 12 VOC Treatment Operational Facility City of M.P. Well No. 15 Operational City of M.P. Well Nos. 1, 3, 10 VOC Treatment Operational Facility GSWC Wells SG-1 & SG-2 Operational SGVWC Plant No. 8 Operational 4. Puente Valley Operable Unit Shallow Zone Feasibility Study

3 Deep Zone Feasibility Study 5. Area 3 Operable Unit City of Alhambra Phase 1 Operational City of Alhambra Phase 2 Operational XI. ATTORNEY'S REPORT PADILLA XII. EXECUTIVE DIRECTOR'S REPORT MANNING XIII. FUTURE AGENDA ITEMS XIV. INFORMATION ITEMS [enc] URIAS URIAS (a) (b) San Gabriel Basin Water Calendar ACWA Legislative Symposium XV. FUTURE BOARD/COMMITTEE MEETINGS URIAS (a) (b) (c) (d) The next Administrative/Finance Committee meeting will be held on Tuesday, March 8, 2016 at 12:00 P.M. at WQA The next Engineering Committee meeting will be held on Tuesday, March 8, 2016 at 1:00 P.M. at WQA The next Legislative/Public Information Committee meeting will be held on Wednesday, March 9, 2016 at 12:00 P.M. The next WQA Board meeting will be held on Wednesday, March 16, 2016 at 12:00pm XVI. BOARD MEMBERS' COMMENTS/REPORTS XVII. CLOSED SESSION URIAS URIAS (a) (b) Closed Session Pursuant to Government Code Section (d)(4) - Conference with Legal Counsel to Discuss Facts and Circumstances which may form the basis for initiating litigation One (1) matter. Closed Session Pursuant to Government Code Section (d)(2) and (e)(2) - Conference with Legal Counsel to Discuss Facts and Circumstances Known to Potential Plaintiffs which may create exposure to litigation One (1) Matter XVIII. ADJOURNMENT URIAS Pursuant to Government Code section , non-exempt public records that relate to open session agenda items and are distributed to a majority of the Board less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the Authority s business office located at 1720 W. Cameron Ave., Suite 100, West Covina, CA 91790, during regular business hours. When practical, these public records will also be made available on the Authority s internet web site, accessible at

4 A REGULAR MEETING OF THE SAN GABRIEL BASIN WATER QUALITY AUTHORITY JANUARY 20, 2016 AT 12:00 P.M. CALL TO ORDER ROLL CALL OF BOARD MEMBERS The Chairman called the regular meeting of the San Gabriel Basin Water Quality Authority to order and reviewed the actions anticipated on the agenda for the meeting. Bryan Urias, Dan Horan (alternate), Luis Ayala, Tim Miller, Mike Whitehead, Louie Aguiñaga and John Leung BOARD MEMBERS ABSENT STAFF MEMBERS PRESENT MEMBERS OF THE PUBLIC PRESENT PUBLIC COMMENT ITEMS TOO LATE TO BE AGENDIZED ELECTION OF OFFICERS Bob Kuhn Ken Manning, Executive Director; Randy Schoellerman, Assistant Executive Director/Sr. Engineer; Dan Colby, Project Resource Manager; Mary Saenz, Director of Finance; Michelle Sanchez, Admin/Accounting Assistant; Richard Padilla, Legal Counsel Mariana Lake, VCWD; Lenet Pacheco, Valley County Water District; Garry Hofer, Cal American Water; Bob Morales, DMC; Mathew Lake, member of the community None. Mr. Manning reported that in regards to item IX.(a) on the agenda an updated report was presented to reflect the most current interest rate for the 4 th quarter of He noted that the interest rate dropped since the posting of the agenda. Mr. Aguiñaga moved to nominate Mr. Urias as Chairman. Mr. Horan made a motion to keep all of the officers the same as the previous year. Mr. Aguiñaga withdrew his motion. Mr. Whitehead noted that the current Treasurer position was vacant. Mr. Urias amended the motion made by Mr. Horan to keep all the officers the same with the exception of the Treasurer which would be voted on separately. Mr. Whitehead seconded the motion and it was unanimously approved. Mr. Aguiñaga moved to nominate Mr. Miller as Treasurer. Mr. Whitehead seconded the motion and it was unanimously

5 approved. APPOINTMENT OF COMMITTEE MEMBERS CONSENT CALENDAR Mr. Urias requested that this item be deferred to the WQA Board meeting in February. Mr. Aguiñaga moved to approve the consent calendar as presented. Mr. Ayala seconded the motion and it was approved. Mr. Whitehead abstained from Project Demand COMMITTEE REPORTS Administrative/Finance Committee Report Discussion Regarding Report on Cash and Investments for 4 th Quarter 2016 Discussion/Action Regarding Comments Received on the Draft 406 Plan for 2016 Mr. Manning reported that the minutes were enclosed for review. Mr. Manning referred to the revised handout that reflects the most recent interest rate. Mr. Schoellerman highlighted the changes that were made to the draft 406 Plan based on the comments that were received. Mr. Aguiñaga moved to adopt the Plan. Mr. Miller seconded the motion and it was approved by the following roll call vote: AYES: URIAS, HORAN, AYALA, MILLER, AGUINAGA, WHITEHEAD, LEUNG NO: None. Legislative/Public Information Committee Report Mr. Manning reported that the minutes were enclosed for review. OTHER ACTION/INFORMATION ITEMS Discussion/Action Regarding Resolution for Authorization to Contract for Service and Establish Accounts with Bank of the West Mr. Manning reported that on the agenda the resolution was listed as which should have been listed as He reported that the Bank of the West requires that the WQA pass and adopt a resolution each time Board Officers are elected, authorizing the Board Officers to contract for service and establish accounts with the Bank, including check signing authorization. Mr. Aguiñaga moved to adopt Resolution , for authorization to contract for service and establish accounts with Bank of the West. Mr. Miller seconded the motion and it was adopted by the following roll call vote: AYES: URIAS, HORAN, AYALA, MILLER, AGUINAGA, WHITEHEAD, LEUNG

6 NO: None. ENGINEER S REPORT ATTORNEY S COMMENTS EXECUTIVE DIRECTOR S REPORT FUTURE AGENDA ITEMS FUTURE BOARD AND COMMITTEE MEETINGS Mr. Schoellerman reported that DWR had finalized the most recent Prop 84 IRWMP grants. Also, he indicated the El Monte Operable Unit Eastside Shallow Zone project is operational. Finally, he noted that staff continued to evaluate modifications to the Whitmore project in consultation with State Water Board staff. Mr. Padilla reported that there will be a closed session. Mr. Manning reported that staff has handed out the W2s for all Board Members. He noted that the American Groundwater Trust/Association of Groundwater Agencies Conference is scheduled for February in Ontario. He indicated that he would be speaking on a panel on February 17 th. He also noted that the WQA Board Meeting was moved to February 18 th at 10 a.m. He lastly reported that the annual WQA trip to Washington, D.C. to discuss federal funding issues was scheduled for February 9 th 11 th. None. The next Administrative/Finance Committee meeting was scheduled for Tuesday, February 9, 2016 at 12:00 P.M. The next Engineering Committee meeting was scheduled for Tuesday, February 9, 2016 at 1:00 P.M. The next Legislative/Public Information has been scheduled for Wednesday, February 10, 2016 at 12:00 P.M. The next WQA Board meeting was scheduled for Thursday, February 18, 2016 at 10:00 A.M. BOARD MEMBERS COMMENTS/ REPORTS CLOSED SESSION Mr. Urias thanked everyone for his re-appoint as the WQA Chairman for another year. He also offered his condolences to Ms. Lake and her son on the passing of her husband. He requested that the meeting be adjourned in his honor. A closed session was held. RECONVENE OPEN SESSION Closed Session Pursuant to Government Code Section (d)(4) Conference with Legal Counsel to Discuss Facts and Circumstances Which may Form the Basis for Initiating Litigation One (1) Matter Mr. Padilla reported that an update was given by Mr. Manning and that general direction was given and no final action was taken.

7 Closed Session Pursuant to Government Code Section (d)(2) and (e)(2) Conference with Legal Counsel to Discuss Facts and Circumstances Known to Potential Plaintiffs Which may Create Exposure to Litigation One (1) Matter ADJOURNMENT Mr. Padilla reported that it was unanimous by the members present that signatory authority be given to Mr. Manning. The Chairman asked if there were any other items of business to come before the Board. There being none, the meeting was adjourned in honor of Ms. Lake s husband. Bryan Urias, Chairman Luis Ayala, Secretary

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20 SAN GABRIEL BASIN WATER QUALITY AUTHORITY ADMINISTRATIVE/FINANCE COMMITTEE AND SPECIAL MEETING OF THE BOARD OF DIRECTORS FEBRUARY 9, 2016 AT 12:00 P.M. CALL TO ORDER COMMITTEE MEMBERS PRESENT WATERMASTER LIASON PRESENT COMMITTEE MEMBERS ABSENT OTHER BOARD MEMBERS PRESENT STAFF MEMBERS PRESENT MEMBERS OF THE PUBLIC PRESENT PUBLIC COMMENT Discussion Regarding Draft of Audited Financial Statements for the Fiscal Year Ended June 30, 2015 Discussion Regarding Request for Proposal for Audit Services for June 30, 2016 The Chairman called the regular meeting of the San Gabriel Basin Water Quality Authority to order and reviewed the actions anticipated on the agenda for the meeting. Louie Aguiñaga, Bryan Urias, and Tim Miller Dave Michalko Mike Whitehead John Leung and Bob Kuhn Randy Schoellerman, Assistant Executive Director; Stephanie Moreno, Executive Assistant/Public Outreach Coordinator; Michelle Sanchez, Admin/Accounting Assistant; Mary Saenz, Director of Finance; Dan Colby, Project Resource Manager Margarita Vargas, Valley County Water District; Al Contreras, Valley County Water District; Mariana Lake, Valley County Water District, Rick Davis, Davis-Farr, LLP Mr. Contreras announced that the Valley County Water District will be looking for a new General Manager. He noted that Ms. Noriega has accepted a position at another water agency. Mr. Davis reviewed the draft audited financial statements for the fiscal year ended June 30, He reported that it was a clean audit and there were no findings. The committee recommended that the audited financial statements go to the full board for approval. Mr. Schoellerman reported that in May 2015 Mayer Hoffman McCann LLP (MHM) notified WQA that its local government audit practice was departing MHM and leaving to form the firm Davis Farr, LLP. In June 2015, the WQA Board approved a one year contract with Davis Farr, LLP for the audit of FY Davis Farr, LLP agreed to fees consistent with the MHM contract. Also, at the time the Board expressed a desire

21 to issue an RFP for audit services the following year. He indicated that staff has prepared a list of several qualified audit firms including our current and past auditors. After brief discussion, the committee recommended that staff initiate the request for proposal process for the audit services and that this item go to the full board for approval. EXECUTIVE DIRECTOR S REPORT Mr. Schoellerman reported that Mr. Manning was ill so he could not make the trip to Washington, D.C. to discuss federal funding issues. He noted that Mr. Monares and Mr. Whitehead were already there and would continue with meetings. Mr. Schoellerman reported that WQA had received a Notice of Violation from the Los Angeles Regional Water Quality Control Board for marginally exceeding the average CrVI discharge limit at WQA s Whitmore Street Groundwater Remediation Facility in December He explained that CrVI levels are normally in the 5 ppb range and not an issue. However, there was a temporary spike in the reported concentrations of two samples of which the 9.8 ppb average exceeded the 8.0 ppb monthly average limit. Subsequently, the concentrations returned to their normal levels and have remained there since that time. Finally, Mr. Schoellerman reminded everyone that the upcoming WQA Board meeting was moved to Thursday, February 18 th at 10 a.m. ADJOURNMENT The Chairman asked if there were any other items of business to come before the Board. There being none, the Board meeting was adjourned. Bryan Urias, Chairman Luis Ayala, Secretary

22 AGENDA SUBMITTAL To: WQA Board of Directors From: Kenneth R. Manning, Executive Director Date: February 18, 2016 Subject: Draft of Audited Financial Statements for the Fiscal Year Ended June 30, 2015 Recommendation / Proposed Action The Administrative/Finance Committee recommends that the WQA Board of Directors approve the draft of the annual audit for the fiscal year ended June 30, Discussion The draft of the annual audit for the fiscal year ended June 30, 2015 is hereby submitted for review and discussion to the WQA Board of Directors. Davis Farr, LLP is the WQA s current audit firm. Marc Davis, CPA, Partner, presented the audit draft to the Administrative/Finance Committee on February 9, The audit draft is comprised of the following documents: Financial Statement Audit of Basic Financial Statements Single Audit on Expenditures of Federal Awards SAS 114 Report Summary of Audit Results Included in the Financial Statement Audit of Basic Financial Statements is Management s Discussion and Analysis on pages 3 through 16. This is prepared by WQA staff and includes a description of the financial statements, a comparison of current year to prior year financial data and explanation of changes, as well as a discussion of selected accounts and projects. This information should be read in conjunction with the Financial Statement Audit to gain a deeper understanding of the information being presented.

23 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Basic Financial Statements Year ended June 30, 2015

24 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Basic Financial Statements Year Ended June 30, 2015 TABLE OF CONTENTS Page Independent Auditor s Report 1 Management s Discussion and Analysis 3 Basic Financial Statements: Statement of Net Position 17 Statement of Revenues, Expenses and Changes in Net Position 18 Statement of Cash Flows 19 Notes to Basic Financial Statements 21

25 Independent Auditors Report Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Report on the Financial Statements We have audited the accompanying financial statements of the San Gabriel Basin Water Quality Authority (Authority), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

26 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Authority, as of June 30, 2015, and the respective changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information The financial statements of the Authority for the fiscal year ended June 30, 2014 were audited by other auditors whose report dated January 27, 2015 expressed an unmodified opinion on those statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2014 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated, 2016 on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. Irvine, California,

27 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 DESCRIPTION OF FINANCIAL STATEMENTS The San Gabriel Basin Water Quality Authority ("Authority") is a special district whose major function is to facilitate the development, financing and implementation of groundwater treatment programs in the San Gabriel Valley. The Authority presents its financial statements using the economic resources measurement focus and the full accrual basis of accounting. As an enterprise fund, the Authority's basic financial statements include the statements of net position, statements of revenues, expenses and changes in net position and statements of cash flows. The financial statements also include notes that explain information in the financial statements and provide more detailed data. The statements of net postion presents information on all of the Authority's assets and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of financial position of the Authority. The statements of revenues, expenses and changes in net position presents information showing how the Authority's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows, as revenues and expenses are recognized on the accrual basis of accounting. The statements of cash flows are related to the other financial statements by the way they link changes in assets and liabilities to the effect on cash and cash equivalents over the course of the fiscal year. The notes to the financial statements provide useful information regarding the Authority's significant accounting policies, and explain significant account balances and activities, certain material risks, obligations, commitments, contingencies and subsequent events, if any

28 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 SUMMARY FINANCIAL INFORMATION AND ANALYSIS The following condensed financial information provides an overview of the Authority's financial position and financial activities for the fiscal years ended June 30, 2015 and June 30 Dollar Percentage Change Change Assets Current assets $ 17,634,108 $ 18,262,072 $ (627,964) -3.4% Capital assets 5,450,733 5,744,459 (293,726) -5.1% Construction in progress 32,076,202 29,415,077 2,661, % Noncurrent assets 3,393,131 3,720,080 (326,949) -8.8% Total assets 58,554,174 57,141,688 1,412, % Liabilities Current liabilities 7,496,613 8,492,857 (996,244) -11.7% Noncurrent liabilities 3,370,476 3,697,492 (327,016) -8.8% Total liabilities 10,867,089 12,190,349 (1,323,260) -10.9% Net Position Invested in capital assets 5,450,733 5,744,459 (293,726) -5.1% Invested in construction in progress 32,076,202 29,415,077 2,661, % Restricted 7,600,908 7,825,939 (225,031) -2.9% Unrestricted 2,559,242 1,965, , % Total net position 47,687,085 44,951,339 2,735, % Total liabilities and net position $ 58,554,174 $ 57,141,688 $ 1,412, % - 4 -

29 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Statement of Net Position Current Assets - For the year ended June 30, 2015, current assets total $17.6M, and are composed primarily of $13.6M of cash and investments and $3.2M of accounts receivable. Current assets decreased $627K or 3.4% over the prior year, with the majority of the decrease related to cash and investments. For the prior year ended June 30, 2014, current assets totaled $18.3M, and were composed primarily of $14.0M of cash and investments and $3.4M of accounts receivable At June 30, 2015, accounts receivable includes $626K due from the United States Bureau of Reclamation (USBR) for Title XVI grants related to capital costs. This is an increase of $478K over FY Also included is $1.3M due from the U.S. Environmental Protection Agency (EPA) for pending reimbursements for treatment and remediation (T & R) costs incurred for projects in the South El Monte Operable Unit (SEMOU). The EPA receivable represents an increase of $485K or 58.0% from FY Accounts receivable also includes $1.2M due from Potentially Responsible Parties (PRPs) related to project Capital Costs and T & R costs. This represents a decrease of $91K or 7.2% from FY Also included in current assets is $378K of Spare Parts Inventory, comprised of various replacement parts and other nonchemical consumables used for the T & R of the treatment facilities in the BPOU and $327K representing the current portion of a note receivable and interest receivable related to a loan with the State Water Resources Control Board Department of Toxic Substances (see the description under Noncurrent Assets/Noncurrent Liabilities). Capital Assets - During FY 2015, improvements at the SEMOU Whitemore Treatment Facility totaled $1,353. The current year transactions, including depreciation of $295,079, resulted in a net decrease in capital assets of $293,726, or 5.1%

30 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Statement of Net Position (continued) Construction in Progress (CIP) - The Authority, through agreements with local water producers and PRPs has agreed to provide capital funding for various projects in the San Gabriel Basin. Capital costs associated with these projects are categorized and accounted for as CIP. Project capital costs include land acquisition costs, construction costs, professional fees, labor costs and other related project costs. Through agreement, the projects have been funded by the Authority's Assessments, PRPs, Water Producers, and Federal Funding and State Funding contributions. The contributions received for projects under construction are recorded as capital contributions. Upon completion, costs related to projects owned by the Authority are transferred to capital assets and depreciated, and costs related to projects where title is retained by the water producer are retired from CIP and the associated capital costs are distributed from contributed capital. As of June 30, 2015, CIP totaled $32.1M, a net increase of $2.7K or 9.0% from FY Approximately 7.0% of the CIP costs are related to the BPOU, 42.7% are related to the El Monte Operable Unit (EMOU) and 49.9% are related to the Puente Valley Operable Unit (PVOU). During 2015, the Authority incurred CIP costs totaling $2.5M for the continuing design and construction of the treatment facilities in the EMOU, and costs of $144K for the PVOU design and the BPOU single pass treatment facilities. Shown below is the composition of CIP by operable unit as of June 30, 2015 and Construction in Progress BPOU $2.3M SEMOU $121K EMOU $13.7M 2014 Construction in Progress BPOU $2.1M SEMOU $121K EMOU $11.2M PVOU $16.0M PVOU $15.9M - 6 -

31 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Statement of Net Position (continued) Construction in Progress (CIP) (continued) - Listed below is a general description of the major projects currently under construction and included in CIP as of June 30, BALDWIN PARK OPERABLE UNIT Valley County Water District Single Pass Treatment Facility Current costs relate primarily to the design and construction of a single pass ion exchange treatment system, replacing the existing regenerable ion exchange treatment equipment. EL MONTE OPERABLE UNIT Eastside Shallow / Southeast Deep Remedy - Eastside Performing Settling Defendants Current costs relate primarily to the design and construction activities of extraction wells, re-injection wells, conveyance pipelines and a VOC Treatment Facility. PUENTE VALLEY OPERABLE UNIT Intermediate Zone Remedy - San Gabriel Valley Water Company Plant B7 - Northrop Current costs relate primarily to the design and construction of extraction wells, conveyance pipelines, and a VOC treatment facility located at a site in the Puente Valley Operable Unit

32 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Statement of Net Position (continued) Noncurrent Assets/Noncurrent Liabilities - During prior years, the Authority received a total of $6,440,000 in loan proceeds from the Department of Toxic Substances Control through the State Water Resources Control Board for reimbursement of project costs related to the Valley County Water District Subarea 1 (SA1) project located in the BPOU. At June 30, 2015, the noncurrent portion of the note payable totaled $3.4M. The BPOU PRPs have an agreement with the Authority to repay the amount of the loan and accrued interest, in accordance with the Authority's repayment terms with the State Water Resources Control Board. Accordingly, the noncurrent portion of the loan receivable is recorded as a noncurrent asset, with a balance of $3.4M as of June 30, Restricted Net Assets - For FY 2015, restricted net assets total $7.6M, which is a decrease of $225K or 2.5% from FY The restricted net assets includes cash, investments and receivables comprised primarily from federal funding and settlement funds. The Authority has entered into several agreements with USBR to provide funding through two federal programs (Title XVI and Restoration Funds) for water treatment facilities located in the San Gabriel Basin. The funds are provided on a reimbursement basis and then applied to projects through the Authority's Federal Funding Program Administration (FFPA). The Authority has also entered into a Cooperative Agreement with EPA to provide funding for water treatment facilities in the SEMOU. These funds are provided on an advance basis and once received by the Authority must be paid to the water producers within a few days. In addition to the funding from USBR and EPA, the Authority has reached several financial settlements with PRPs in the BPOU, SEMOU and EMOU. These settlement funds are deposited into the Authority accounts and are disbursed for capital and T & R costs incurred or to be incurred in connection with the specific projects identified in the agreements

33 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Revenue, Expenses and Changes in Net Position Dollar Change Percentage Change Total Operating Revenues $ 18,885,239 $ 22,413,492 $ (3,528,253) -15.7% Total Operating Expenses 18,599,764 22,744,674 (4,144,910) -18.2% Operating Income (Loss) 285,475 (331,182) 616, % Nonoperating Revenues 123, ,241 (10,978) -8.2% Nonoperating (Expenses) (99,832) (7,110,754) 7,010, % Income (Loss) before Capital June 30 Contributions 308,906 (7,307,695) 7,616, % Capital Contributions 2,426,840 5,148,245 (2,721,405) -52.9% Changes in net position 2,735,746 (2,159,450) 4,895, % Beginning net position 44,951,339 47,110,789 (2,159,450) -4.6% Ending net position $ 47,687,085 $ 44,951,339 $ 2,735, % Operating Revenues - The primary revenue variances were related to revenues and contributions from PRPs and federal funding awards. PRP Contributions - By agreement, T & R costs for projects located primarily in the BPOU and SEMOU are paid through the Authority. For FY 2015, the Authority received and recognized as revenue $14.3M in funding from the PRPs for costs related to these projects, a decrease of $2.8M or 16.6% over the prior year. For FY 2014, the Authority received and recognized as revenue $17.1M in funding from the PRPs for costs related to these projects. WQA Federal Funding Awards - The Authority recognizes as income certain federal awards paid for project capital and T & R costs. During FY 2015, $2.5M was recognized as revenue from federal awards, a decrease of $1.1M or 31.3% over the prior year. During FY 2014, $3.6M was recognized as revenue from federal awards

34 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Revenue, Expenses and Changes in Net Position (continued) Operating Expenses - The five major areas of expense variances that developed during the fiscal year were related to professional services, consulting, discharge permitting activities, project T & R costs, and project grants. Professional Services - Costs incurred during 2015 include legal costs related to the SEMOU and litigation with potential PRPs, costs for general legal counsel, the services of a computer consultant, an outside accountant, audit services and an engineering firm. For FY 2015 professional services totaled $123K which is an overall decrease of $9K, or 7.0% from the prior year. This is due primarily to a reduction in costs for general legal counsel as well as a reduction in legal fees related to the resolution of issues in the SEMOU. The cost of professional services are expected to increase in the next fiscal year as the Authority is entering negotations on certain agreements with PRPs. Consulting - The Authority engages consultants to assist with efforts in Washington D.C. and Sacramento to find outside sources of funding for clean-up projects. Costs incurred for FY 2015 totaled $513K which is a reduction of $25K or 4.7% from FY 2014 in which costs associated with consulting totaled $538K. Discharge Permitting Activities - During FY 2012, the Authority became involved in an effort to assist in the resolution of discharge permitting issues for water producers and PRPs in the San Gabriel Basin. Costs for the overall project were budgeted at $415K, with $17K expended in 2015, $126K expended in FY 2014, $165K in FY 2013 and $103K during FY The project has been completed in FY 2015, and any on-going costs will be a result of assisting water producers with the permitting process. Project T & R Costs - These costs relate primarily to projects operating in the BPOU and SEMOU. The costs and the corresponding revenues are recognized when they are paid by the Authority. Although the majority of these costs are funded through PRPs, for FY 2015 approximately $757K in costs were funded by federal funding sources. T & R costs totaled $15.6M in FY 2015, a decrease of approximately $2.7M from FY 2014, in which costs totaled $18.3M. The decrease is due primarily to improved technologies and increased efficiencies in the treatment and remediation process

35 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Summary of Revenues, Expenses and Changes in Net Position (continued) Project Grants - The items included in this category include certain payments for project capital and T & R costs. For FY 2015, project grant expense totaled $755K, a reduction of $1.3M from FY 2014, in which project grant expense totaled $2.0M. This is due primarily to a reduction in award payments for the PVOU and EMOU projects during FY Nonoperating Revenues (Expenses) - For FY 2015, this item is comprised of interest income and expense. For FY 2014, although the item included interest income and expense, there were also transfers of completed capital projects totaling $7.0M - these are described on page 6 in the category "Construction in Progress". There were no completed capital projects for FY Capital Contributions June Governmental - Federal $ 676,760 $ 148,223 Governmental - State 1,353 3,877 Responsible Parties 1,770,209 5,068,033 Capital Assessment 28,518 (71,888) Capital Contributions 2,476,840 5,148,245 The majority of the current year capital contributions were derived from PRPs. Revenues that are restricted for capital expenditures are recorded as capital contributions. As funding is received for capital projects, it is recorded as a capital contribution and the corresponding costs are recorded as CIP. Fiscal Year Fiscal Year 2015 Actual 2015 Budget Variance Operating Revenues Assessment $ 1,947,582 $ 1,798,731 $ 148,851 Responsible Parties 14,295,716 31,769,054 (17,473,338) Authority Federal Funding Awards 2,483,846 2,288, ,619 State Funding Awards 158, ,560 (146,465) Water Producers - 233,527 (233,527) Total Operating Revenues $ 18,885,239 $ 36,394,099 $ (17,508,860)

36 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Budgetary Highlights - Operating Budget (continued) Operating Revenues (continued) Assessment - Assessment income is recognized during the year in which it is earned. For budget purposes, any unused assessment revenue from prior years is carried over to the next fiscal year and used as a factor to determine the subsequent years assessment. For FY 2015 the assessment was $10.00 per acre foot of prescriptive pumping rights. A total of $1.9M was assessed during Responsible Parties/Federal Funding Awards/Water Producers - The FY 2015 budget included costs related to projects in the SEMOU, PVOU, BPOU, EMOU, Area Three Operable Unit (ATOU), Whittier Narrows Operable Unit (WNOU) and three projects located outside of a designated Operable Unit. The costs were budgeted to be funded through contributions from PRPs, federal funds, state funds, water producers and assessments. The costs are expensed and the corresponding contributions recognized as revenue when paid by the Authority. The FY 2015 revenues are lower than budgeted due to the timing of the cost reimbursements as well as costs and revenues included in the budget that do not flow through the Authority. For example, the budget for water producers is shown as $233K. However these costs are not incurred by the Authority, but rather the water producers and therefore are not included as revenues for the Authority. Project Expenses Fiscal Year Fiscal Year Budget 2015 Actual 2015 Budget Variance Project Grants/Awards $ 754,563 $ 4,742,985 $ (3,988,422) Project T & R 15,606,868 18,469,777 (2,862,909) Total Project Expenses $ 16,361,431 $ 23,212,762 $ (6,851,331)

37 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Budgetary Highlights - Operating Budget (continued) Project Expenses (continued) Project Grants/Awards & Project T & R - The variance in Project Grants/Awards is attributable to EPA grants totaling $1.7M that were recorded as T & R costs rather than Project Grants/Awards for FY Additionally, grants for projects scheduled for FY 2015 are behind schedule and are now budgeted for completion in either FY 2016 of FY The T & R variance is attributable to the SEMOU as $1.7M in T& R costs had been budgeted as Project Grants/Awards and the BPOU, and also T & R costs for BPOU were less than budgeted. The T & R costs are funded by PRPs, federal funding, state funding and water producer contributions; the Project Grants/Awards are funded by federal funding and PRP contributions. Budgetary Highlights - Capital Budget El Monte Operable Unit Fiscal Year Fiscal Year Budget 2015 Actual 2015 Budget Variance Prime Contractor Costs $ 2,516,459 $ 7,721,576 $ (5,205,117) The budgeted costs relate to the Eastside Shallow project and Southeast Deep ESPSD/City of El Monte project. The Shallow East and Southeast Deep ESPSD/ City of El Monte projects started construction early 2014, and the projects are expected to be completed in the spring of The projects are funded through a combination of federal funding and PRPs contributions. The budget for FY 2015 reflected total construction costs for the project for FY 2015, however, costs totaling $2.5M were paid by the Authority with the remainder of the costs paid directly by the PRPs

38 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Budgetary Highlights - Capital Budget (continued) Baldwin Park Operable Unit Fiscal Year Fiscal Year Budget 2015 Actual 2015 Budget Variance Prime Contractor Costs $ 131,949 $ 7,329,850 $ (7,197,901) The budgeted Prime Contractor costs for the BPOU included projects for Treatment Facilities at CDWC's Well 14, VCWD's SA-1, and Covina Irrigating Company's Wellhead. The projects costs are lower than budgeted due to unforeseen delays in the construction process; the FY 2015 project costs relate to VCWD's SA-1 project. Project costs incurred are funded by PRPs and federal funding contributions. Puente Valley Operable Unit Prime Contractor Costs $ 12,717 $ 200,000 $ (187,283) The costs incurred for the PVOU Intermediate Zone Remedy project are under budget for Although the design and construction phase began in FY 2008, the project has been delayed due to institutional and regulatory processes. A new site for the treatment facility has been acquired and the project is now expected to be completed by FY The project is funded through contributions from federal funding, PRPs, and a water producer. South El Monte Operable Unit Prime Contractor Costs $ - $ 115,000 $ (115,000) The Prime Contractor costs for the SEMOU include a project for the design of a treatment facility at SGVWC's Plant 8. This project has been delayed, and it is anticipated construction will start in FY The funding for this project is being provided by federal funding, PRPs, and a water producer

39 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Economic Factors Assessment - Section 605 of WQA's enabling Act, as amended effective January 1, 2004, grants the Authority the authority to impose an annual pumping right assessment not to exceed $10 per acre-foot. Additionally, Section 608 of the enabling Act grants WQA the authority to annually adjust the assessment rate by an amount not to exceed the percentage change in the LA/Riverside Consumer Price Index - All Urban Consumers (CPI). The increase in the CPI from 2004 to 2014 is 26.1 percent, resulting in an allowable maximum assessment of $ Previously the Authority had been able to minimize assessment dollars needed by securing funding from outside sources such as Federal funding, State funding, and funding from PRPs as well as utilizing its reserve that had been built up in previous years. As such, the Authority was able to keep the assessment at $7.25 per acre foot for eleven consecutive years through FY The Authority's Board of Directors and management considered many factors when determining the FY 2015 assessment. An analysis of the past several years showed that project and administrative costs paid for by assessments exceeded assessments collected. The Authority's reserve was being depleted. For FY 2015, the Authority increased its assessment to $10.00 per acre foot. This will allow it to cover the necessary annual administrative and project costs as well as build up the reserves. Barring any unanticipated circumstances, the Authority expects to keep the assessment at $10.00 per acre foot for a minimum of five years before requesting another increase. The table on the next page presents the historical annual assessment rate per acre foot since the Authority's inception

40 SAN GABRIEL BASIN WATER QUALITY AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2015 Economic Factors (continued) Assessment on Prescriptive Pumping Rights Assessment (Per a/f) $19.00 $17.00 $15.00 $13.00 $11.00 $9.00 $7.00 $5.00 $3.00 $1.00 $14.00 $14.00 $14.00 $13.50 $12.49 $12.14 $10.14 $13.31 $8.71 $8.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $10.00 Fiscal Year

41 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Statement of Net Position June 30, 2015 (with comparative information for 2014) Assets Current assets: Cash and investments (note 2) $ 13,552,304 13,967,114 Accounts receivable (note 3) 3,212,089 3,419,932 Inventories 377, ,802 Prepaid expenses and other receivables 56,073 62,866 Interest receivable 108, ,939 Current portion of note receivable (note 4) 327, ,419 Total current assets 17,634,108 18,262,072 Noncurrent assets: Capital assets (note 5): Construction in progress 32,076,202 29,415,077 Other capital assets, net of accumulated depreciation 5,450,733 5,744,459 Deposits 22,655 22,588 Note receivable, net of current portion (note 4) 3,370,476 3,697,492 Total noncurrent assets 40,920,066 38,879,616 Total Assets $ 58,554,174 57,141,688 Liabilities Current liabilities: Accounts payable $ 3,496,710 4,218,605 Accrued expenses 67,646 66,887 Interest payable 99, ,430 Unearned revenue 3,505,409 3,780,516 Current portion of note payable (note 6) 327, ,419 Total current liabilities 7,496,613 8,492,857 Noncurrent liabilities: Note payable, net of current portion (note 6) 3,370,476 3,697,492 Total noncurrent liabilities 3,370,476 3,697,492 Total liabilities 10,867,089 12,190,349 Net Position Investment in capital assets 37,526,935 35,159,536 Restricted 7,600,908 7,825,939 Unrestricted 2,559,242 1,965,864 Total net position 47,687,085 44,951,339 Total liabilities and net position $ 58,554,174 57,141,688 See accompanying notes to basic financial statements

42 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Statement of Revenues, Expenses, and Changes in Net Position Year ended June 30, 2015 (with comparative information for 2014) Operating Revenues: Pumping right assessments $ 1,947,582 1,504,560 Responsible party contributions 14,295,716 17,144,241 WQA federal funding awards 2,483,846 3,617,482 WQA state funding 158, ,209 Total operating revenues 18,885,239 22,413,492 Operating Expenses: Administrative salaries 699, ,798 Fringe benefits 226, ,541 Consulting 512, ,382 Professional services 123, ,988 Office rent 89,275 89,275 Supplies 3,984 10,046 Insurance 13,240 34,319 Public relations 89, ,243 Travel and conferences 49,850 42,121 Telephone and utilities 5,188 6,638 Dues and subscriptions 18,671 18,934 Board member fees 55,703 49,067 Equipment rent and maintenance 37,938 32,566 Depreciation 295, ,403 Miscellaneous expense 637 3,196 Project treatment and remediation costs 15,606,868 18,347,178 Project grants 754,563 2,007,019 Discharge permit activities 17, ,960 Total operating expenses 18,599,764 22,744,674 Operating income (loss) 285,475 (331,182) Nonoperating revenues (expenses): Interest income 123, ,241 Interest expense (99,832) (108,430) Transfer of capital assets to water producers - (7,002,324) Net nonoperating revenues (expenses) 23,431 (6,976,513) Income (loss) before capital contributions 308,906 (7,307,695) Capital contributions 2,426,840 5,148,245 Changes in net position 2,735,746 (2,159,450) Net position at beginning of year 44,951,339 47,110,789 Net position at end of year $ 47,687,085 44,951,339 See accompanying notes to basic financial statements

43 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Statement of Cash Flows Year ended June 30, 2015 (with comparative information for 2014) Cash flows from operating activities: Cash from operating revenues $ 18,991,378 22,461,851 Cash paid to suppliers for goods and services (17,992,654) (20,981,734) Cash paid to employees or on behalf of employees for services (924,737) (893,339) Net cash provided by operating activities 73, ,778 Cash flows from noncapital financing activities: Proceeds received from note receivable 318, ,047 Interest received from note receivable 108, ,801 Payments on note payable (318,419) (310,047) Interest paid on note payable (108,430) (116,801) Net cash provided by noncapital financing activities - - Cash flows from capital and related financing activities: Acquisition of capital assets (1,353) (8,670) Construction in progress expenditures (2,661,125) (7,181,500) Capital contributions received 2,151,733 4,445,552 Net cash provided by (used for) capital and related financing activities (510,745) (2,744,618) Cash flows from investing activities: Interest received on investments 21,948 28,180 Net cash provided by (used for) investing activities 21,948 28,180 Net increase (decrease) in cash and cash equivalents (414,810) (2,129,660) Cash and cash equivalents at beginning of year 13,967,114 16,096,774 Cash and cash equivalents at end of year $ 13,552,304 13,967,114 (Continued) See accompanying notes to basic financial statements

44 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Statement of Cash Flows (Continued) Cash flows from operating activities: Operating income (loss) $ 285,475 (331,182) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 295, ,403 (Increase) decrease in accounts receivable 207, ,375 (Increase) decrease in prepaid expenses 6,793 (213) (Increase) decrease in deposits (67) - Increase (decrease) in accounts payable and accrued liabilities (721,136) 447,395 Net cash provided by operating activities $ 73, ,778 Noncash capital, investing and financing activities: Transfer of capital assets to water producers $ - 7,002,324 See accompanying notes to basic financial statements

45 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements Year Ended June 30, 2015 (1) Summary of Significant Accounting Policies (a) Nature of Organization The San Gabriel Basin Water Quality Authority, initially named as the Main San Gabriel Basin Water Quality Authority, was formed in 1990 as a joint powers authority (JPA) in order to finance and construct clean up projects to purify the contaminated groundwater within the San Gabriel Valley. The Main San Gabriel Basin Watermaster, Upper San Gabriel Valley Municipal Water District, Three Valleys Municipal Water District and San Gabriel Valley Municipal Water District were members of this JPA and provided it with a source of funding for its operations. On February 11, 1993, the Main San Gabriel Basin Water Quality Authority was converted by the State Legislature (SB 1679 The San Gabriel Basin Water Quality Authority Act) from a JPA to a special district and renamed the San Gabriel Basin Water Quality Authority (Authority). Under the direction of a seven-member Board, the major functions of the Authority are to develop, finance and implement groundwater treatment programs in the San Gabriel Valley. The legislative act authorized the Authority to impose pumping right assessments to carry out its treatment activities. Senate Bill No. 429 became law in September, 2013, amending certain sections of the San Gabriel Basin Water Quality Authority Act and extending the Act until July 1, (b) Basis of Accounting and Financial Statement Presentation The Authority is accounted for as an enterprise fund (proprietary fund type). A fund is an accounting entity with a self-balancing set of accounts established to record the financial position and results of operations of a specific governmental activity. The activities of enterprise funds closely resemble those of ongoing businesses in which the purpose is to conserve and add to basic resources while meeting operating expenses from current revenues. Enterprise funds account for operations that provide services on a continuous basis and are substantially financed by revenues derived from user charges. The Authority utilizes the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized as they are incurred. The Authority distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from pumping right assessments, grants and contributions. Operating expenses include project expenses, general and administrative expenses and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Capital contributions consist of contributed capital assets, and other charges that are legally restricted for capital expenditures by state law or by the Board action that established those charges

46 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (b) Basis of Accounting and Financial Statement Presentation (Continued) Net position of the Authority has been reported as restricted when its use is constrained more narrowly than the reporting unit in which they are reported as a result of state laws governing such use. When both restricted and unrestricted resources are available for use, the Authority uses unrestricted resources first, and then restricted resources as they are needed. For capital expenditures, other restricted resources are used first, then unrestricted resources are used if needed. (c) Inventories Inventories consist of replacement parts for various treatment facilities. Inventories are stated at lower of cost or market on the first in first out basis. (d) Accounts Receivable Accounts receivable are recorded at net realizable value. Management believes that accounts receivable are fully collectible. Therefore, no allowance for doubtful accounts is reflected on the Statement of Net Position at June 30, (e) Capital Assets Capital assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated assets are valued at their estimated fair market value on the date received. The Authority capitalizes all assets with a historical cost of at least $5,000 and a useful life of at least 5 years. The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Depreciation is computed utilizing the straight-line method over the following estimated useful lives: Office equipment Office furniture Treatment plant equipment Treatment plants Monitoring wells 3 to 5 years 10 years 10 years 35 years 35 years

47 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (f) Construction in Progress Project capital costs are accumulated as construction in progress over the life of the construction. The Authority believes that it is responsible for the asset s management during the construction phase. Once a project is completed, the asset is "transferred" to the related water entity who takes over the management and maintenance of the asset at that time. Water being treated in the treatment facilities frequently requires more than one type of treatment. A treatment facility may be operational but construction is ongoing to develop additional treatment processes to remediate newly detected contamination or to more efficiently address existing contamination. In these circumstances, if the construction is ongoing, the Authority will retain the project in construction-in-progress until the entire project is completed, even though portions of that project may have some involvement in water treatment activities. (g) Cash Equivalents For the purposes of the statement of cash flows, cash equivalents are defined as shortterm, highly liquid investments that are both readily convertible to known amounts of cash or so near to their maturity that they present insignificant risk of changes in value because of changes in interest rates, and have an original maturity date of 3 months or less. (h) Investments Investments are reported in the accompanying Statement of Net Position at fair value, except for certain investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. Changes in fair value that occur during the fiscal year are recognized as interest income reported for that fiscal year. Interest income also includes interest earnings. (i) Pumping Right Assessments On September 19, 1992, the California state legislature approved legislation to allow the Authority to levy a pumping right assessment on holders of prescriptive (as determined by Superior Court Judgment) pumping rights. Prior to fiscal year ended June 30, 2002, the pumping right assessment consisted of two components, a capital assessment and an administrative assessment. Assembly Bill 2544 amended this practice and combined the capital and administrative assessment into one annual pumping right assessment

48 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (i) Pumping Right Assessments (Continued) Pumping right assessments are imposed, on an as needed basis, after other revenue sources, such as private party, state and federal funding, are budgeted. During the fiscal year ended June 30, 2015, the annual pumping right assessment was $10 per acre-foot. The Authority records incoming funds as operating revenues. Funds are received from the United States Bureau of Reclamation (USBR), United States Environmental Protection Agency (EPA), Water Producers, Potentially Responsible Parties (PRPs), California State Water Resource Control Board (SWRCB) and assessments on water rights holders in the San Gabriel Basin. The Authority incurs three types of costs: project costs, treatment and remediation costs and administrative costs. (j) Accrued Liabilities and Accounts Payable The Authority records accounts payable liabilities when invoices are approved for payment by the authorizing entity, which can be the Authority, PRPs or Water Entities. Administrative Costs These costs relate to administrative costs, including payroll and benefits, incurred by the Authority, and are funded by assessments. A liability is recorded when an invoice is approved by the Authority. The liability is recorded in the same time period as the cost/expense is incurred. Project Costs incurred by the Authority These costs include legal, government relations, community relations, and costs related to projects owned and operated by the Authority. These costs are either funded by PRPs (Baldwin Park Operable Unit, (BPOU)), partially funded by PRPs (El Monte Operable Unit, (EMOU)) and Puente Valley Operable Unit, (PVOU)) or funded by the Authority s assessments (EMOU, PVOU, South El Monte Operable Unit, (SEMOU)) and the Area Three Operable Unit, (ATOU). Generally, the liability is recorded in the same time period as the cost is incurred

49 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (j) Accrued Liabilities and Accounts Payable (Continued) Project Costs Incurred by PRPs and Water Producers and Paid by the Authority As a part of its role in managing the quality of the water in the San Gabriel basin, the Authority will pay for certain costs for which the PRPs are financially responsible. Typically, these costs will be incurred by water producers and then submitted by the water producers to be considered for reimbursement. The process required to approve these costs for reimbursement requires input from various parties. Once a cost has been approved for reimbursement, the Authority reports an expense and a liability for the qualified cost (to reflect the amount due to the producer). An equal amount of revenue (and a receivable) is also reported for the amount of reimbursement approved for collection from the PRP. In the event that a cost is not approved for reimbursement, the Authority has no liability and the cost remains an unrecovered expense of the water producer. Contingent Liabilities The Authority has received funds from various federal, state, and local grant programs. It is possible that at some future date it maybe determined that the Authority was not in compliance with applicable grant requirements. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although management does not expect such disallowed amounts, if any, to materially affect the financial statements. (k) Unearned Revenue The Authority records unearned revenue when it receives funds from the PRPs through the various Cooperating Parties Agreements. By agreement, the funds are required to be used to pay eligible project costs to the water producers. The funds are not considered earned until the water producers submit requests for reimbursement to the Authority and are in agreement that the costs are eligible for reimbursement. (l) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates

50 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (l) Use of Estimates (Continued) Estimates are also required to determine potential impairment of long-lived assets such as property, plant and equipment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the equipment due to obsolescence, or a significant decrease in benefits realized from the equipment. Management is not aware of any circumstances that would lead to a material impairment of any long-lived assets. (m) Comparative Financial Statements and Reclassifications The information included in the accompanying financial statements for the prior year has been presented for comparison purposes only and does not represent a complete presentation in accordance with generally accepted accounting principles. Certain amounts presented in the prior year financial statements have been reclassified in order to be consistent with the current year s presentation. (n) Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority does not have any items that qualify in this category. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority does not have any items that qualify for this category. (o) Net position flow assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government s policy to consider restricted net position to have been depleted before unrestricted net position is applied

51 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies (Continued) (p) Pollution Remediation GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations relates to whether a pollution remediation obligation exists and how the costs should be recognized and disclosed. A pollution remediation obligation is an obligation to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities. For example, obligations to clean up contaminated groundwater is a pollution remediation obligation. When a government knows or reasonably believes a site is polluted, it should determine whether it should be recognizable as a liability. There are several criteria under which an entity must recognize a liability, one of which occurs when a government voluntarily commits or legally obligates itself to commence cleanup activities or monitoring or operation and maintenance of the remediation effort. The Authority was created by the State of California to facilitate the development, financing and implementation of groundwater treatment programs in the San Gabriel Valley, the purpose of which is to clean up contaminated groundwater. As such, the Authority works with water producers, PRPs, as well as local, state and federal government agencies. The Authority itself has not committed or legally obligated itself to commence cleanup activities. As such, under these rules, the Authority does not have a requirement to record a liability for the future estimated pollution remediation cost. (2) Cash and Investments Cash and investments as of June 30, 2015, consist of the following: Cash on hand $ 295 Deposits with financial institutions 831,627 Investments 12,720,382 Total cash and investments $13,552,304 Investments Authorized by the California Government Code, the California Water Code, and the Authority s Investment Policy The following table identifies the investment types that are authorized for the Authority by the California Government Code, and the Authority s investment policy, whichever is most restrictive. The table also identifies certain provisions of the California Government Code, and the Authority s investment policy that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Authority, rather than the general provisions of the California Government Code or the Authority s investment policy

52 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (2) Cash and Investments (Continued) Maximum Maximum Maximum Percentage Investment Authorized Investment type Maturity Allowed In One Issuer Local agency bonds (c) 5 years None None U.S. Treasury obligations (a)(b) 5 years None None U.S. Agency securities (a)(b) 5 years None None Banker s acceptances (c) 180 days 40% 30% Commercial paper (c) 270 days 25% 10% Negotiable certificates of deposit (a)(b) 5 years 30% None Repurchase agreements (c) 1 year None None Reverse repurchase agreements (c) 92 days 20% None Medium-term notes (c) 5 years 30% None Money market mutual funds (c) N/A 20% 10% Mortgage pass-through securities (c) 5 years 20% None Orange County Investment Pool (c) N/A None None Local Agency Investment Fund (LAIF) (a) N/A None None (a) Investment authorized by the Authority s Investment Policy (b) The Authority s investment policy allows a term of 12 months or less (c) Investment is not authorized by the Authority s investment policy Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., brokerdealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Disclosure Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by assignment of a rating by a nationally recognized statistical rating organization

53 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (2) Cash and Investments (Continued) Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value is to changes in market interest rates. Information about the sensitivity of the fair values of the Authority s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Authority s investments by maturity: Remaining Maturity Investment Amount 12 Months Or Less 13 to 36 Months Months Over 60 Months LAIF* $12,720,382 12,720, Total $12,720,382 12,720, * LAIF is not rated. Investment in State Investment Pool The Authority is a voluntary participant in LAIF that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the Authority s investment in this pool is reported in the accompanying financial statements at amounts based upon the Authority s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. (3) Accounts Receivable Accounts receivable consist of the following at June 30, 2015: Federal funding $1,950,951 State funding 29,506 Responsible parties (PRPs) 1,168,015 Assessments 59,856 Other 3,761 Total accounts receivable $3,212,

54 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (4) Note Receivable During the years ended June 30, 2004 and 2005, the Authority loaned funds to certain PRPs for reimbursement of costs incurred in connection with construction of a treatment facility at the Arrow/Lante Well site. The PRPs started repaying the loans in July The repayments are occurring over a twenty-year term on a fully amortizable basis. Interest accrues at the rate of 2.7% per annum. At June 30, 2015, the note receivable for the Authority was $3,697,492. (5) Capital Assets A summary of changes in capital assets at June 30, 2015, is as follows: Beginning Balance June 30, 2014 Additions Deletions Ending Balance June 30, 2015 Capital assets, not being depreciated: Construction in progress $29,415,077 2,661,125-32,076,202 Total capital assets not being depreciated 29,415,077 2,661,125-32,076,202 Capital assets, being depreciated: Office furniture and equipment 252, ,141 BPOU monitoring wells 8,792, ,792,835 SEM sentinel well 102, ,437 SEM Bozung Treatment Facility 894,187 1, ,540 Total capital assets being depreciated 10,041,600 1,353-10,042,953 Less accumulated depreciation: Office furniture and equipment (220,084) (15,343) - (235,427) BPOU monitoring wells (3,882,447) (251,221) - (4,133,668) SEM sentinel well (29,268) (2,927) - (32,195) SEM Bozung Treatment Facility (165,342) (25,588) - (190,930) Total accumulated depreciation (4,297,141) (295,079) - (4,592,220) Total capital assets being depreciated, net 5,744,459 (293,726) - 5,450,733 Total capital assets, net $35,159,536 2,367,399-37,526,

55 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (6) Note Payable During the year ended June 30, 2004, the Authority was granted a loan from the SWRCB. $6,440,000 had been funded from the loan. The loan accrues interest at a rate of 2.7% per annum from the dates funds were disbursed and the interest accrued was included in a fully amortized balance with payments over a twenty-year period commencing in July The funds received under this agreement were loaned to certain PRPs in connection with the construction of a groundwater remediation facility. The Authority will be repaid under terms identical to those granted it by the SWRCB. See note 4 for additional information. Changes in long-term debt for the year ended June 30, 2015, are as follows: Beginning Balance June 30, 2014 Additions Payments Ending Balance June 30, 2015 Due Within One year Note payable $ 4,015, (318,419) 3,697, ,016 Payments of principal and interest for each of the next five fiscal years increments thereafter are as follows: Years ending June 30 Principal Interest Total 2016 $ 327,016 99, , ,846 91, , ,914 81, , ,226 72, , ,790 63, , ,971, ,542 2,134,242 Totals $3,697, ,995 4,268,487 (7) Capital Contributions Capital contributions include the following: Governmental The USBR, under the Title XVI and the Restoration Funds programs, has provided funding for design, planning and construction for treatment facilities in the BPOU, SEMOU, EMOU and PVOU Operable Units

56 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (7) Capital Contributions Water Producers The Authority has entered into agreements with water producers for the design, construction and operation of treatment facilities in the BPOU, SEMOU, PVOU and EMOU, and ATOU operable units. The revenue restricted for capital is included in capital contributions. Responsible Parties The United States Environmental Protection Agency (EPA) identified several private companies referred to as PRPs as being responsible for groundwater contamination in the Main San Gabriel Basin (Basin). Several companies named by the EPA as PRPs have formed coalitions to facilitate the cleanup of the Basin s groundwater supply by providing funding for capital construction in the BPOU, SEMOU, PVOU and EMOU. During the year ended June 30, 2002, the Authority became a party to the BPOU Project Agreement. Under the agreement, PRPs agreed to provide funding for the design, construction, operation, maintenance and management of groundwater extraction, treatment and distribution facilities within the BPOU. The portion related to the design and construction are recorded as capital contributions. The Authority is a party to multiple SEMOU Cooperating Parties Agreements of which several were initially entered into in The agreements called for the SEMOU Cooperating Parties to provide funding to pay, partially pay or reimburse the water entities for capital and operating and maintenance costs incurred or to be incurred in connection with certain projects outlined in the Agreements. During the current year the final agreements with SEMOU Cooperating Parties were executed. (8) Pension Plan The Authority sponsors a Money Purchase Pension Plan under Internal Revenue Code section 401(a) for the benefit of its employees who have attained the age of 21 and have completed 1,000 hours of service. The Authority contributes on behalf of the employees, % of their covered compensation up to and not to exceed the lesser of $30,000, or 25% of covered compensation. The Authority s contributions to the Plan totaled $90,899 for the year ended June 30,

57 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to Basic Financial Statements (Continued) (9) Deferred Compensation Plan The Authority offers its employees and board members a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The Plan, available to all Authority employees and board members, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death or an unforeseeable emergency. (10) Commitments and Contingencies Leases The Authority leases certain equipment under operating leases expiring at various dates through Total rent expense for the year ended June 30, 2015, under the operating leases, was $99,370. Future minimum lease payments under these operating lease agreements as of June 30, 2015, are as follows: Year ending June $ 99, , ,064 Total $199,425 (11) Insurance The Authority is a member of the Association of California Water Agencies Joint Powers Insurance Authority (JPIA). The JPIA is a risk-pooling, self-insurance authority, created under provisions of California Government Code Sections 6500 et seq. The purpose of the JPIA is to arrange and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage. The JPIA provides coverage to the Authority for property losses and general liability. Members of the JPIA share the costs of professional risk management claims, administration and excess insurance. The Authority establishes a selfinsured retention amount which represents the Authority s deductible per occurrence and the JPIA provides self-insured coverage up to established pool limits for the various types of insurance coverage. Coverage limits are $2 million per occurrence for liability; replacement cost for property, subject to a $1,000 deductible; and statutory limits for workers compensation

58 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Single Audit Report on Expenditures of Federal Awards Year ended June 30, 2015

59 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Single Audit Report on Expenditures of Federal Awards Year ended June 30, 2015 TABLE OF CONTENTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1 Report on Compliance For Each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A Schedule of Expenditures of Federal Awards 6 Notes to the Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs 8 Summary Schedule of Prior Audit Findings 9 Page

60 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR S REPORT Board of Directors San Gabriel Basin Water Quality Authority West Covina, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the San Gabriel Basin Water Quality Authority (Authority), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements, and have issued our report thereon dated, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified

61 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California,

62 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 INDEPENDENT AUDITOR S REPORT Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Report on Compliance for Each Major Federal Program We have audited the San Gabriel Basin Water Quality Authority s (Authority s) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Authority s major federal programs for the year ended June 30, The Authority s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Authority s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Authority s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Authority s compliance

63 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Opinion on Each Major Federal Program In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Authority s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose

64 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the Authority as of and for the year ended June 30, 2015, and have issued our report thereon dated, 2016, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. Irvine, California,

65 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Schedule of Expenditures of Federal Awards Year Ended June 30, 2015 Catalog of Federal Pass-through Domestic Program Assistance Identification Federal Federal Grantor/Pass-through Grantor/Program Title Number Number Expenditures US Environmental Protection Agency Direct assistance: Superfund Support Agency Cooperative Agreement: South El Monte Operable Unit n/a $ 1,731,258 Total U.S. Environmental Protection Agency 1,731,258 Department of the Interior Bureau of Reclamation: Direct assistance: Title XVI Water Reclamation and Reuse Program: San Gabriel Basin Demonstration Project - El Monte Operable Unit Eastside Shallow Remedy n/a 626,448 San Gabriel Valley Ground Water Treatment and Remediation San Gabriel Basin Restoration Fund n/a 312 Total U.S. Department of the Interior Bureau of Reclamation Reclamation 626,760 Total expenditures of federal awards $ 2,358,018 n/a - Not applicable See notes to schedule of expenditures of federal awards - 6 -

66 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Notes to the Schedule of Expenditures of Federal Awards Year ended June 30, 2015 (1) Summary of Significant Accounting Policies Applicable to the Schedule of Expenditures of Federal Awards (a) Scope of Presentation The accompanying Schedule of Expenditures of Federal Awards (Schedule) presents only the expenditures incurred by the San Gabriel Basin Water Quality Authority (Authority) that are reimbursable under federal programs of federal financial assistance. For the purposes of this schedule, federal financial assistance includes both federal financial assistance received directly from a federal agency, as well as federal funds received indirectly by the Authority from a nonfederal agency or other organization. Only that portion of program expenditures reimbursable with such federal funds are reported in the accompanying schedule. Program expenditures in excess of the maximum federal reimbursement authorized or the portion of the program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. (b) Basis of Accounting The expenditures included in the accompanying schedule were reported on the modified accrual basis of accounting. Under the modified accrual basis of accounting, expenditures are recognized when the Authority becomes obligated for payment as a result of the receipt of the related goods and services. Expenditures reported include any property or equipment acquisitions incurred under the federal program. (c) Subrecipients There were no payments to subrecipients for the year ended June 30,

67 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Schedule of Findings and Questioned Costs Year ended June 30, 2015 (A) Summary of Auditor s Results 1. An unmodified report was issued by the auditors on the financial statements of the auditee. 2. No material weaknesses or significant deficiencies in internal control over financial reporting were reported. 3. The audit disclosed no instances of noncompliance which are material to the financial statements of the auditee. 4. No material weaknesses or significant deficiencies in internal control over compliance with the major programs of the auditee were reported. 5. An unmodified report was issued by the auditors on compliance for major programs. 6. The audit disclosed no audit findings required to be reported under paragraph.510(a) of OMB Circular A The major program of the auditee was CFDA No Department of the Interior Bureau of Reclamation, Title XVI Water Reclamation and Reuse Program. 8. The dollar threshold used to distinguish Type A and Type B programs was $300, The auditee met the criteria to be a low risk auditee as set forth in.530 of OMB Circular A- 133 for the year ended June 30, 2015, for purposes of major program determination. (B) Findings Related to the Financial Statements which are Required to be Reported in Accordance with Generally Accepted Government Auditing Standards (GAGAS) There were no findings required to be reported in accordance with GAGAS. (C) Findings and Questioned Costs Related to Federal Awards There are no findings required to be reported under paragraph.510(a) of OMB Circular A

68 SAN GABRIEL BASIN WATER QUALITY AUTHORITY Summary Schedule of Prior Audit Findings Year ended June 30, 2015 There were no prior audit findings requiring follow-up from the year ended June 30,

69 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California We have audited the financial statements of the San Gabriel Basin Water Quality Authority ( the Authority ) for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated June 8, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Authority are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during We noted no transactions entered into by the Authority during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the Authority s financial statements were: - Estimates involving which expenses to be accrued as of the year end. - Judgments concerning which capital projects present ordinary maintenance activities necessary to keep an asset operational for its originally intended useful life versus significant improvements, replacement, and life extending projects that should be capitalized as additions to capital assets. - Judgments concerning when a project under construction is operational and should be transferred to the water entity that will ultimately be responsible for ongoing maintenance of the asset. We evaluated the key factors and assumptions used to develop the estimates in determining that they are reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear.

70 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Difficulties Encountered in Performing the Audit We encountered no significant difficulties in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. There were no material misstatements detected as a result of audit procedures either individually or in the aggregate, to the Authority s financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to the Authority s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Authority s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the Management s Discussion and Analysis, which is required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.

71 Board of Directors San Gabriel Basin Water Quality Authority West Covina, California Restriction on Use This information is intended solely for the use of Board of Directors and management of the Authority and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California, 2016

72 Staff Report for WQA Board of Directors Request for Proposal for Audit Services Page 2 of 2 for the Fiscal Year Ended June 30, 2016 February 18, 2016 AGENDA SUBMITTAL To: WQA Board of Directors From: Kenneth R. Manning, Executive Director Date: February 18, 2016 Subject: Request for Proposal for Audit Services for the Fiscal Year Ended June 30, 2016 Recommendation / Proposed Action The Administrative/Finance Committee recommends that the WQA Board of Directors authorize staff to initiate a Request for Proposal process for the annual audit of FY and the subsequent two years. Background In January 2014 the WQA Board approved a two year extension of the contract with Mayer Hoffman McCann LLP (MHM) for audit services this extension was for FY and FY At the same time, the Board requested that staff issue a Request for Proposal (RFP) in 2016 for audit services for a three year term starting with FY through FY In May 2015 MHM notified WQA that its local government audit practice was departing MHM and leaving to form the firm Davis Farr, LLP. In June 2015 the WQA Board approved a one year contract with Davis Farr, LLP for the audit of FY Davis Farr, LLP agreed to fees consistent with the MHM contract. Discussion Staff has prepared an RFP for Audit Services and will be requesting proposals from several qualified audit firms, including our current and past auditors, to serve as the WQA s independent auditors for the next three fiscal years. Staff also plans to post the RFP on the WQA s website as well as the CSMFO website in order to attract as many proposals as possible. The proposals will initially be received by the Director of Finance, who will review the proposals, contact references and develop a preliminary evaluation of each of the proposals. The Director of Finance will then meet with the Executive Director and the Assistant Executive Director to perform an in depth evaluation and ranking of the firms under consideration. It is expected that this process will result in the selection of the top five firms. These will then be submitted to the Administrative Finance Committee for further review and evaluation, resulting in a recommendation to the Board.

73 Staff Report for WQA Board of Directors Request for Proposal for Audit Services Page 2 of 2 for the Fiscal Year Ended June 30, 2016 February 18, 2016 The proposed RFP schedule is as follows: February 18: Approval of the RFP and the list of qualified audit firms by the WQA Board of Directors. E mail the RFP to qualified audit firms as per approved list. March 18: March 25: March 25 to April 7: April 12: April 20: April 28: Deadline for requests for clarification from audit firms concerning RFP. Deadline for submittal of Audit Proposal by audit firms. Evaluation of proposals by staff. Submittal to Administrative Finance Committee for review of top five audit firms and preliminary selection of audit firm. Audit firm selected and approved by Board of Directors. Contract executed between WQA and audit firm. Attachments: Draft Request for Proposal List of Qualified Audit Firms Audit Firm Evaluation Criteria

74 San Gabriel Basin Water Quality Authority REQUEST FOR PROPOSALS FOR AUDIT SERVICES Proposal Issue Date February 18, 2016 Proposal Submittal Due Date 5:00 P.M March 25, 2016 Documents available online at:

75 WQA Auditing Services RFP February 18, 2016 REQUEST FOR PROPOSAL PROFESSIONAL AUDITING SERVICES The San Gabriel Basin Water Quality Authority is requesting proposals from qualified Certified Public Accounting firms (herein Auditor ) to perform an audit and issue opinions on the WQA s financial statements. This request is for a three (3) year contract term beginning with the fiscal year ending June 30, I. Background Information The San Gabriel Basin Water Quality Authority (the WQA ) was established by the State Legislature (SB The San Gabriel Basin Water Quality Authority Act) on February 11, 1993, to develop, finance and implement groundwater treatment programs in the San Gabriel Basin. The legislative act authorized the WQA to impose pumping right assessments and to seek cost recovery from potentially responsible parties to carry out its treatment activities. The WQA s accounting records are maintained on the accrual basis, and the accounting policies and procedures conform to generally accepted accounting principles. The financial statements are presented as required for enterprise funds a statement of net position, a statement of revenues, expenses and changes in net position, and a statement of cash flows. The WQA is under the direction and leadership of a seven-member Board. The Board is comprised of one member from each of the overlying municipal water districts, one member from a city with prescriptive water pumping rights, one member from a city without prescriptive water pumping rights and two members representing water providers in the San Gabriel Basin. The WQA has six employees. All qualified employees are covered by group life and health insurance, a defined contribution pension plan, sick leave, and paid vacations. Eligible employees may also participate in a 457(b) deferred compensation plan. Information regarding the WQA, including the WQA s San Gabriel Groundwater Quality Management Remediation Plan ( 406 Plan ) is available for review on our website, Additional information is available by request. The WQA will be more than happy to assist you in obtaining any information you may need. It is the proposing firm s responsibility to obtain a thorough understanding of the WQA, the scope of the audit(s), and the work to be performed in order to successfully complete the audit(s) prior to submitting your proposal and maximum price bid. II. Scope of Services A. Financial Audit Examine the basic financial statements, notes to the financial statements, and required supplemental information, if applicable. B. Single Audit Examine the schedule of expenditures of federal awards related to the WQA s federal grant programs

76 WQA Auditing Services RFP February 18, 2016 The auditor s reports will include the auditor s opinion on the basic financial statements; the auditor s opinion on the schedule of expenditures of federal awards; the auditor s report on internal control over financial reporting and on compliance in accordance with government auditing standards; and the auditor s report on the entity s compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A-133. C. If necessary, the auditor shall assist the WQA in preparing and filing all related reports required by state and federal agencies, including the State Controller s Report. D. The auditor will evaluate the adequacy of the internal control system and, where weaknesses are noted, make appropriate recommendations for improvements. E. The auditor will prepare a report to the Board of Directors and Management which identifies control deficiencies, significant deficiencies and material weaknesses, if any, and recommendations for improvements in accounting and administrative controls. F. The auditor shall be required to make an immediate, written report of all irregularities and illegal acts of which they become aware to the following parties: Board of Directors, Chairman San Gabriel Basin Water Quality Authority, Executive Director G. The auditing firm shall provide three (3) bound copies, one (1) unbound copy and one (1) electronic version of the auditor's report, the financial statements, supporting schedules, and management letters, if any. The partner in charge shall be available to attend the following meetings to discuss the audit and other reports required by this RFP: Meeting of WQA s Administrative and Finance Committee. Meeting of the WQA s Board of Directors. H. The auditing firm shall submit a draft of the financial statements to management no later than November 30. If necessary, the auditor shall file the State Controller s Report no later than the date prescribed by law. I. Additional Work - If it should become necessary for the WQA to request the auditor to render additional services to either supplement the services requested in this request for proposal or to perform additional work as a result of the specific recommendations included in any report issued with this engagement, then such additional work shall be performed only if set forth in a written addendum to the contract between the WQA and the auditor. Any such additional work agreed to between the WQA and the auditor shall be performed at the same rates set forth in the schedule of fees and expenses included in the formal bidding proposal

77 WQA Auditing Services RFP February 18, 2016 III. Accounting and Auditing Standards The audit shall be performed in accordance with generally accepted auditing standards; the standards set for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards as issued by the OMB (the UAR ); the State Controllers Minimum Audit Requirements for California Special Districts; and applicable laws and regulations. IV. Assistance Available to Auditor The auditor will be given access to the records of the WQA and reasonable access to staff for the purpose of interviews and the verification of items within the terms of the audit. Sufficient help will be made available to the auditor for such items as the pulling and re-filing of accounting records and the preparation and mailing of all confirmations. It is expected that the auditor will organize work in such a way as to minimize disruption of work of the WQA staff. V. Proposal Provisions Proposals must be received at San Gabriel Basin Water Quality Authority, 1720 West Cameron Avenue, Suite 100, West Covina, California, 91790, by 5:00 p.m., March 25, Proposals received after the above date and time will not be considered. Proposals must be ed to mary@wqa.com, or delivered in person, or mailed directly to San Gabriel Basin Water Quality Authority. is preferred. The WQA is under no obligation to return proposals and will not be responsible for submittals that are delinquent, lost, mismarked, or sent to an address other than that given, or sent by mail or courier service. Any unauthorized contact with any other official or employee in connection with this RFP is prohibited and shall be cause for disqualification of the Proposer. Proposals shall be signed by an authorized representative and shall be as thorough and detailed as possible so that the WQA may properly evaluate the auditor s capabilities to provide the required services. Submission of a proposal constitutes acceptance by the firm of the conditions contained in this request for proposals unless clearly and specially noted in the proposal submitted and confirmed in the contract between the WQA and the firm selected. The following material in the prescribed format outlined below is required to be received by 5:00 p.m. on March 25, 2016, for a proposing firm to be considered: - 4 -

78 WQA Auditing Services RFP February 18, Title Page Title page showing the request for proposals subject; the firm s name; the name, address, and telephone number of the contact person; and the date of the proposal. 2. Table of Contents 3. Transmittal Letter A signed letter of transmittal briefly stating the proposer s understanding of the work to be done, the commitment to perform the work within the time period, a statement why the firm believes itself to be best qualified to perform the engagement and a statement that the proposal is a firm and irrevocable offer for period not less than 180 days. 4. Detailed Proposal a. Firm Qualifications and Experience The proposer should state the size of the firm, the size of the firm s governmental audit staff, the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff to be employed in this engagement. The firm is also required to submit information on the report of its most recent peer review, with a statement whether the peer review included a review of specific government engagements. The firm shall also provide information on the circumstances and status of any disciplinary action taken or pending against the firm during the past three (3) years with any regulatory or professional organizations. b. Partner, Supervisory, and Staff Qualifications and Experience Identify the principal supervisory and management staff, including engagement partners, managers, other supervisors, and specialists, who would be assigned to the engagement. Indicate whether each such person is registered or licensed to practice as a certified public accountant in California. Provide as much information as possible regarding the number, qualifications and experience of the specific staff to be assigned to this engagement. Engagement partners, managers, or other supervisory staff may be changed only with the express prior written permission of the WQA. c. Similar Engagements With Other Government Entities - 5 -

79 WQA Auditing Services RFP February 18, 2016 For the firm s office that will be assigned responsibility for the audit, list the significant engagements (maximum 5) performed in the last three years that are similar to the engagement described in the request for proposal. Indicate the scope of work, date, engagement partners, total hours, and the name and telephone number of the principal client contact. 5. Affirmative Statements a. Independence The firm should provide an affirmative statement that it is independent of the WQA as defined by generally accepted auditing standards and generally accepted government auditing standards. b. License to Practice An affirmative statement should be included that the firm and all assigned key professional staff are properly licensed to practice in California. 6. Audit Approach The proposal should set forth a work plan, including an explanation of the audit methodology to be followed, as well as a schedule (by date and hours) of the work to be performed to meet the requirements of this request for proposals. 7. Fee Proposal The fee proposal should include all pricing information relative to performing the audit and related services as described in this request for proposal. The total allinclusive maximum price is to contain all direct and indirect costs, including all out-of-pocket-expenses. The fee proposal should include the following information: a. Name of the Firm. b. Certification that the person signing the proposal is entitled to represent the firm and authorized to sign a contract with the WQA. c. A Total All-Inclusive Maximum Price for each fiscal year. d. Rates for Additional Professional Services. Please provide a schedule of rates by partner, specialist, supervisory, and staff level. If it should become necessary for the WQA to request the auditor to render any additional services to either supplement the services requested in this - 6 -

80 WQA Auditing Services RFP February 18, 2016 RFP or to perform additional work as a result of the specific recommendations included in any report issued on this engagement, then such additional work agreed to between the WQA and the firm shall be performed at the rates included. VI. Evaluation and Award Criteria A. Proposals submitted will be evaluated by members of the Board of Directors, the Executive Director, the Assistant Executive Director and the Director of Finance. B. During the evaluation process, the Administrative and Finance Committee may, at its discretion, request any or all firms to make oral presentations and personal introduction of the proposed managing accountant and/or senior staff to be involved in the audit. Such presentations will provide firms with an opportunity to answer any questions the Administrative and Finance Committee may have on a firm's proposal. Not all firms may be selected to make such oral presentations. C. The WQA's Board of Directors will make a decision based on the Administrative and Finance Committee's recommendations. Final selection will be based on the firm's qualifications, experience, audit approach, and fee. Proposing firms should note that the lowest fee may not be the deciding factor in the final selection. D. It is anticipated that a firm will be selected by April 20, Following notification of the firm selected, it is expected that a contract will be executed between both parties by April 28, E. Request for Clarification All requests for clarification concerning the RFP shall be made in writing ( is preferable) by March 18, All requests for clarification shall be directed by , Mail, or Fax to: F. Effective period of Proposals Ms. Mary H. Saenz Director of Finance 1720 W. Cameron Avenue, Suite 100 West Covina, CA (626) x telephone (626) fax mary@wqa.com All proposals must state the period for which the proposal shall remain in effect. Such period shall not be less than 180 days

81 WQA Auditing Services RFP February 18, 2016 G. Proposal Reservations The WQA reserves the right to: Reject any or all proposals received in response to this RFP; Request clarification from any Proposer on any or all aspects of its proposal; Cancel and/or reissue the RFP at any time; Retain all proposals submitted in response to this RFP; and, Invite some, all, or none of proposers for interviews and further discussion. H. Award of Contract The selected firm shall be required to enter into a written contract with the WQA for auditing services in a form approved by WQA legal counsel following formal approval by the Board of Directors of the WQA. This RFP and the proposal, or any part thereof, may be incorporated into and made a part of the final contract. The WQA reserves the right to negotiate the terms and conditions of the contract with the selected firm. I. Contract Term It is the intent of the WQA to award the contract for an initial three year (3) period commencing with the fiscal year ending June 30, 2016, with the option to extend for two additional one-year periods, at WQA s sole discretion. J. Manner of Payment Progress payments will be made on the basis of hours of work completed during the course of the engagement. Interim billings shall cover a period of not less than one (1) calendar month. K. Termination of Agreement The WQA may terminate the agreement, with or without cause, by providing written notice of termination to proposer not less than thirty (30) working days prior to the effective termination date. The WQA s only obligation in the event of termination will be payment of fees and expenses incurred up to and including the date of termination as specified in the notice of termination. L. Use of Sub-Contractors The intent to use sub-contractors to perform any portion of the work described in this RFP must be clearly stated in proposer s response. The response must include a description of the work that will be sub-contracted out, cost of fees and services, and the names and addresses of potential sub-contractors. Proposer shall be responsible for all services performed under the Agreement with the WQA by sub-contractors. The selected firm shall not assign or transfer its interest - 8 -

82 WQA Auditing Services RFP February 18, 2016 in any contract or sub-contract for sub-contractor services without the prior written consent of the WQA. M. Indemnity Proposer assumes all risk of injury to its employees, agents, and sub-contractors, including loss of or damage to property, and shall defend, indemnify, and hold harmless the WQA, its Board of Directors, officers, employees, and agents from and against all claims, suits, or causes of action for injury to any person or damage to any property arising out of, or connected with, performance of work under the Agreement that does not result from the gross negligence or intentional misconduct of the WQA, its Board of Directors, officers, employees or agents. N. Insurance Proposer shall maintain such insurance as will protect it from claims under Workers' Compensation laws, and such liability insurance as will protect against claims for damages for bodily injury, including death, and damages to property in accordance with the terms of the Agreement. Coverage of which is to be no less than $1,000,000/$2,000,000 per occurrence/aggregate, with the WQA named as an additional insured. The proposing firm must be willing and able to obtain an errors and omissions insurance policy for coverage of no less than $1,000,000 per occurrence for the willful or negligent acts of the firm and its officers, employees and agents. Proposer shall maintain evidence of coverage in an updated form during the term of the Agreement. O. Non-Discrimination Practices Proposer shall not discriminate against any employee or applicant for employment because of race, sex (including pregnancy, childbirth, or related medical condition), creed, national origin, color, disability as defined by law, disabled veteran status, Vietnam veteran status, religion, age, medical condition, marital status, ancestry, or sexual orientation. P. Right to Audit Proposer shall be responsible for ensuring the accuracy and propriety of all billings and shall maintain all supporting documentation for the period of three (3) years following completion of performance of the services. The WQA will have the right to audit firm s and sub-contractors invoices and all supporting documentation for purposes of compliance with the Agreement. Proposer shall cooperate fully with any audit of its billings conducted by the WQA and permit access to its books, records, and accounts as may be necessary to conduct such audits

83 WQA Auditing Services RFP February 18, 2016 Q. Release of Information Proposer shall not make public information releases or otherwise publish any information obtained or produced by it as a result of, or in connection with, the performance of services under the Agreement without prior written consent of the WQA. R. Use of the WQA s Name Proposer shall not publish or use any advertising, sales promotion, or publicity in matters relating to services, equipment, products, reports, and material furnished by proposer in which the WQA's name is used, or its identity is implied, without prior written approval of the WQA. S. Conflict of Interest Proposers shall identify any existing or potential conflict of interest in its proposal that is related to or arises from this RFP or the work contemplated to be performed herein or under the Agreement. Proposer shall agree not to accept any employment from or perform services with or for any other person, firm, or corporation where such employment is a conflict of interest or where such employment or service is likely to lead to a conflict between the WQA's interests and the interests of such person, firm, corporation, or any other third party. When submitting any existing or potential conflict of interest information, such information shall be submitted on a colored paper different from the rest of the proposal and shall be clearly marked "Conflict of Interest." San Gabriel Basin Water Quality Authority Kenneth R. Manning Executive Director

84 SAN GABRIEL BASIN WATER QUALITY AUTHORITY LIST OF AUDITING FIRMS FOR RFP as of February 18, 2016 Contact Firm Name Street Address City State Zip Code Telephone Address Marc Davis Davis Farr LLP 2301 Dupont Drive, Ste 200Irvine CA Robert T. Dennis, CPA, Partner Dennis & Hart Accountancy Partners Highland Ave., #106 Rancho CucamonCA Mr. Craig Fechter Fechter & Company 1870 Avondale Ave., Ste 4 Sacramento CA (916) cfechter@fechtercpa.com Jason Russell Fritz Russell, CPAs 5530 Birdcage Street, SuiteCitrus Heights CA Jason@FritzRussellCPAs Wayne R. Pinnell, CPA Haskell & White LLP 8001 Irvine Center Drive, S Irvine CA wpinnell@hwcpa.com Stephen L. Larson Georger & Larson 4910 Campus Drive Newport Beach CA slarson@gandlcpas.com Bryan Gruber Lance, Soll & Lunghard, LLP 203 North Brea Blvd., Ste. 2Brea CA bryan.gruber@lslcpas.com Michael J. Zizzi Leaf & Cole 1843 Hotel Circle South, SuSan Diego CA mjzizzi@leaf-cole.com Richard Lopez Lopez and Company, LLP Pipeline Avenue, Su Chino Hills CA riopez@lopezllp.com Jay Siegel Moss, Levy & Hartzheim 5800 Hannum Avenue, Sui Culver City CA jsiegel@mlhcpas.com Scott Manno / Terry Shea Rogers, Anderson, Malody & Scott, LLP 735 E. Carnegie Drive, Ste San Bernardino CA smanno@ramscpa.net Larry Baker Shinault Baker & Company 5060 California Ave, Ste 65Bakersfield CA larry@shinaultbakercpa.com Michael Griffin Stack & Associates 600 West Broadway, Ste 3 San Diego CA michael@stackandassociates.com Paul Kaymark The Pun Group 200 E. Sandpointe Ave., SuSanta Ana CA paul.kaymark@pungroup.com Gilbert R. Vasquez Vasquez & Company LLP 801 S. Grand Avenue, Ste 4Los Angeles CA grv@vasquezcpa.com Kevin Pulliam Vavrinek Trine Day & Co., LLP 8270 Aspen Street Rancho CucamonCA kpulliam@vtdcpa.com Christy Gill Vicenti, Lloyd & Stutzman 2210 E. Route 66, Ste 100 Glendora CA cgill@vlsllp.com Nitin P. Patel White, Nelson, Diehl, Evans LLP 2875 Michelle Dr., Ste 300 Irvine CA npatel@wndecpa.com

85 Evaluate RFP for Audit Services under following Criteria & Weighted-Scoring System: 1-5 Experience w/ gov't agencies, including special districts (especially water districts.) & other WMs. SAN GABRIEL BASIN WATER QUALITY AUTHORITY Evaluation of Auditors FY Qualifications of proposed audit team. Reference and last peer review. Thoroughness of approach to conducting the audit Fees Total Score Other Comments

86 SAN GABRIEL BASIN WATER QUALITY AUTHORITY LEGISLATIVE/PUBLIC INFORMATION COMMITTEE AND SPECIAL MEETING OF THE BOARD OF DIRECTORS FEBRUARY 10, 2016 AT 10:00 A.M. CALL TO ORDER COMMITTEE MEMBERS PRESENT WATERMASTER LIASON PRESENT COMMITTEE MEMBERS ABSENT OTHER BOARD MEMBERS PRESENT STAFF MEMBERS PRESENT MEMBERS OF THE PUBLIC PRESENT PUBLIC COMMENT Discussion Regarding Next Advertorial The Chairman called the regular meeting of the San Gabriel Basin Water Quality Authority to order and reviewed the actions anticipated on the agenda for the meeting. Luis Ayala, Louie Aguiñaga and John Leung None. Bryan Urias None. Stephanie Moreno, Executive Assistant; Mary Saenz, Director of Finance; Dan Colby, Project Resource Manager Lenet Pacheco, Valley County Water District; Margarita Vargas, Valley County Water District None. Ms. Moreno reported that staff was working on finalizing the ad that would be published in the Civic Leadership publication later this month. She noted that the next advertorial would be in the Earth Day section that would be published in May of Mr. Aguiñaga requested that staff contact Hilda Solis s office to set up a briefing and tour for her to update her on the water issues within the San Gabriel Valley. Discussion Regarding Electronic Distribution of Advertorials Ms. Moreno reported that staff would like to look into having the advertorials that are published throughout the year also be posted on the newspapers websites. She noted that the printed ads are only reaching the readers that subscribe to the printed newspapers and that subscribers that only subscribe to an online subscription of the newspaper are not seeing these special sections of the paper. She indicated that staff would discuss this further with Mr. Lancaster to see what our options are.

87 Legislative Activities/Reports EXECUTIVE DIRECTOR S REPORT ADJOURNMENT Ms. Moreno reported that the state and federal legislative reports were enclosed for review. Ms. Moreno reported that Mr. Manning that Mr. Manning was ill so he could not make the trip to Washington, D.C. to discuss federal funding issues. He noted that Mr. Monares and Mr. Whitehead were already there and would continue with meetings. The Chairman asked if there were any other items of business to come before the Board. There being none, the Board meeting was adjourned. Bryan Urias, Chairman Luis Ayala, Secretary

88 2/11/2016 SGB Water Calendar SGB Water Calendar All Calendars Feb 11 - May 10, 2016 Access: Administrator SGVMWD TVMWD USGVMWD WM WQA Thu Feb 11 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Huntington Dr. Tue Feb 16 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Hungtington Dr. 6:30pm 7:30pm USGVMWD Board of Directors Meeting 602 E. Huntington Drive Wed Feb 17 8:00am 10:30am TVMWD Board Mtg E. Miramar Avenue, Claremont 11:30am 1:00pm SGV Water Association Quarterly Luncheon Meeting Swiss Park Restaurant Thu Feb 18 7:30am 9:00am Leadership Breakfast Sheraton Fairplex (Water Supply Present & Future Deven Upadhyay, MWD) 10:00am 11:00am WQA Board Meeting WQA Tue Feb 23 All day ACWA DC Conference Wed Feb 24 All day ACWA DC Conference 5:30pm 6:30pm USGVMWD Water Policy Committee Meeting 602 E. Huntington Dr. Thu Feb 25 All day ACWA DC Conference 11:30am 1:00pm SCWUA Meeting 5:30pm 6:30pm USGVMWD Administration and Finance Committee Meeting 602 E. Huntington Dr. Wed Mar 2 8:00am 10:30am TVMWD Board Mtg E. Miramar, Claremont 2:30pm 3:30pm Watermaster Board Meeting Tue Mar 8 12:00pm 1:00pm WQA Admin/Finance Committee WQA 1:00pm 2:00pm WQA Engineering Committee WQA Wed Mar 9 All day ACWA Legislative Symposium Sacramento 12:00pm 1:00pm WQA Leg/Pub Committee WQA Thu Mar 10 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Huntington Dr. Tue Mar 15 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Hungtington Dr. 6:30pm 7:30pm USGVMWD Board of Directors Meeting 602 E. Huntington Drive Wed Mar 16 8:00am 10:30am TVMWD Board Mtg E. Miramar Avenue, Claremont 12:00pm 1:00pm WQA Board Meeting WQA Thu Mar 17 11:30am 1:00pm SCWUA Mon Mar 21 All day CA NV Spring Conference, Sacramento Tue Mar 22 All day CA NV Spring Conference, Sacramento Wed Mar 23 All day CA NV Spring Conference, Sacramento 5:30pm 6:30pm USGVMWD Water Policy Committee Meeting 602 E. Huntington Dr. Thu Mar 24 All day CA NV Spring Conference, Sacramento 5:30pm 6:30pm USGVMWD Administration and Finance Committee Meeting 602 E. Huntington Dr. 1/2

89 2/11/2016 SGB Water Calendar Wed Apr 6 8:00am 10:30am TVMWD Board Mtg E. Miramar, Claremont 2:30pm 3:30pm Watermaster Board Meeting Tue Apr 12 12:00pm 1:00pm WQA Admin/Finance Committee WQA 1:00pm 2:00pm WQA Engineering Committee WQA 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Hungtington Dr. Wed Apr 13 12:00pm 1:00pm WQA Leg/Pub Committee WQA Thu Apr 14 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Huntington Dr. Tue Apr 19 6:30pm 7:30pm USGVMWD Board of Directors Meeting 602 E. Huntington Drive Wed Apr 20 8:00am 10:30am TVMWD Board Mtg E. Miramar Avenue, Claremont 12:00pm 1:00pm WQA Board Meeting WQA Thu Apr 21 11:30am 1:30pm SCWUA Meeting Sheraton Fairplex Wed Apr 27 5:30pm 6:30pm USGVMWD Water Policy Committee Meeting 602 E. Huntington Dr. Thu Apr 28 All day SCWUA Golf Tournament San Dimas 5:30pm 6:30pm USGVMWD Administration and Finance Committee Meeting 602 E. Huntington Dr. Tue May 3 All day ACWA Spring Conference in Monterey, CA Wed May 4 All day ACWA Spring Conference in Monterey, CA 2:30pm 3:30pm Watermaster Board Meeting Thu May 5 All day ACWA Spring Conference in Monterey, CA Fri May 6 All day ACWA Spring Conference in Monterey, CA Tue May 10 12:00pm 1:00pm WQA Admin/Finance Committee WQA 1:00pm 2:00pm WQA Engineering Committee WQA 5:30pm 6:30pm USGVMWD Gov Affairs Committee Meeting 602 E. Hungtington Dr. Previous Next 2/2

90 2016 LEGISLATIVE SYMPOSIUM March 9, 2016 Sacramento Convention Center Register Online at REGISTRATION & CANCELLATION DEADLINE IS FEBRUARY 26, 2016 PRICING REFERENCE SHEET REGISTRATION FEES REGULAR (ends 2/26/16) ONSITE Advantage (For ACWA public agency members, affiliates & associates ONLY) $225 $245 Standard (Applies to non-members of ACWA) $335 $355 Your registration fee includes: continental breakfast, lunch and materials. HOTEL INFORMATION You must be registered for the ACWA Legislative Symposium in order to make hotel reservations at the special room rate. Hyatt Regency Sacramento 1209 L Street, Sacramento, CA Special Hotel Rate: $189 per night + taxes & fees (The cut-off date to receive this special rate is February 16, 2016) Reservations can be made by one of the following ways: ONLINE: PHONE: Call (Please identify yourself as part of the Association of California Water Agencies) Any reservation made after February 16, 2016 is subject to the hotel s regular room rate and based on availability. Hotel Questions, Cancellation or Changes: Contact hotel directly at PAYMENT INFORMATION Check payable to ACWA 910 K Street, Ste. 100 Sacramento, CA Bill me Charge credit card: MasterCard or Visa If you select check or bill me payment option, to expedite the check-in process onsite, ACWA must receive payment two weeks prior to the event. Questions? Contact us at , toll free (Event terms and conditions available at acwa.com in the event section.)