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HomeMy WebLinkAbout06.a. Audited financial statements for fiscal year ended June 30, 2013Central Contra Costa Sanitary District
BOARD OF DIRECTORS 'a•
POSITION PAPER
Board Meeting Date: October 17, 2013
Subject: ACCEPT THE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDED JUNE 30, 2013
Submitted By. Initiating DeptJDiv.:
Thea Vassallo, CPA, CMA Administrative / Finance & Accounting
Finance Manager
REVIEWED AND RECOMMENDED FOR BOARD ACTION: �}
9 � e
K. Alm R. Baile
Counsel for the District General Man ger
ISSUE: The audited financial statements of the Central Contra Costa Sanitary District
for the Fiscal Year (FY) ended June 30, 2013, are being submitted to the Board of
Directors.
RECOMMENDATION: Accept the audited financial statements for the FY ended
June 30, 2013.
FINANCIAL IMPACTS: None.
ALTERNATIVES /CONSIDERATIONS: None.
BACKGROUND: The firm of Maze & Associates has completed its first examination of
the District's financial statements for the FY ended June 30, 2013, and has submitted
the audited financial statements and auditor's opinion thereon.
The objective of the audit is the expression of an opinion as to whether the basic
financial statements are fairly presented, in all material respects, in conformity with
United States generally accepted accounting principles and to report on the fairness of
the supplementary information in relation to the financial statements taken as a whole.
The audit is conducted in accordance with auditing standards generally accepted in the
United States of America and the standards for financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United
States, and includes tests of the accounting records of the District and other procedures
considered necessary to express such an opinion. The independent auditor's report for
the FY ending June 30, 2013 expresses an unqualified (clean) opinion.
In the performance of their examination of the financial statements, the auditors
evaluate the District's internal accounting controls related to the financial statements
and compliance with laws, regulations, and the provisions of contracts or grant
agreements, noncompliance with which could have a material effect on the financial
statements as required by Government Auditing Standards. Based on their
Page 1 of 2
POSITION PAPER
Board Meeting Date: October 17, 2013
subject: ACCEPT THE AUDITED FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDED JUNE 30, 2013
observations during the course of the examination, the auditors advise District
management of any significant deficiencies or material misstatements and any
recommendations to improve the system of internal accounting controls. See attached
"Memorandum on Internal Control and Required Communications" for the current year
recommendations and management's responses to the prior year significant
deficiencies.
In accordance with Government Code Section 53891, information from the audit will be
used to prepare a report to the State Controller's office. The report will be sent
electronically by the annual deadline of October 18, 2013. The audited financial
statements are also sent to the County Auditor - Controller, Contra Costa County Board
of Supervisors, and the Bond Rating Agencies.
The original contract with Maze & Associates is for a four -year term. This report from
Maze & Associates is their first audited financial statement report.
COMMITTEE RECOMMENDATION: The audited financial statements were reviewed
by David Alvey from Maze & Associates at the Budget and Finance Committee meeting
on September 30, 2013. The Committee recommends Board acceptance. See
Attachment 1.
The Memorandum on Internal Control and Required Communications will be reviewed
at the Committee meeting on October 14, 2013. See Attachment 2 and 3.
RECOMMENDED BOARD ACTION: Accept the basic audited financial statements
and memorandum on internal control and required communications for the FY ended
June 30, 2013.
Attached Supporting Documents:
1. Basic (audited) Financial Statements for the Year Ended June 30, 2013
2. Memorandum on Internal Control and Required Communications for the Year Ended June 30, 2013
3. Internal Audit of Material Supplies Building (MSB) and Cycle Counting for the Fiscal Year 2012 -13
Page 2 of 2
Attachment 1
Basic (audited) Financial Statements for the Year
Ended June 30, 2013
Central Contra Costa Sanitary District
October 17, 2013
TO: HONORABLE BOARD OF DIRECTORS
VIA: ROGER BAILEY, GENERAL MANAGER (�'A
FROM: THEA VASSALLO, FINANCE MANAGER
SUBJECT: JUNE 30, 2013 AUDITED FINANCIAL STATE ENTS AND
MEMORANDUM OF INTERNAL CONTROL AND REQUIRED
COMMUNICATIONS (AUDIT MANAGEMENT LETTER)
Attached is the final draft of the June 30, 2013 audited financial statements and the
memorandum on internal control and required communications as prepared by Maze &
Associates.
The results of the audit and management letter were presented by David Alvey of Maze
& Associates at the Budget and Finance Committee meeting on September 30, 2013.
Subsequent, to the Committee meeting, there was one minor receivables classification
change to the Statement of Cash Flows.
The memorandum on internal control and required communications will be reviewed at
the Budget and Finance Committee meeting on October 14, 2013.
Vikki Rodriguez of Maze & Associates will also provide a brief review of the results with
the full Board on October 17, 2013.
Please contact me if you have any questions or concerns at Extension 740.
C: \Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \LNU4C6EA \Cover memo June 30
2013 Audited Financial Statements 10- 17- 13.doc
Attachment 1
CENTRAL CONTRA COSTA SANITARY DISTRICT
BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
This Page Left Intentionally Blank
CENTRAL CONTRA COSTA SANITARY DISTRICT
BASIC FINANCIAL STATEMENTS
For the Year Ended June 30, 2013
Table of Contents
INTRODUCTORY SECTION
Tableof Contents ............................................................................................ ............................... i
FINANCIAL SECTION
INDEPENDENT AUDITOR'S REPORT .............................................................. ..............................1
MANAGEMENT'S DISCUSSION AND ANALYSIS ....................................... ............................... 3
BASIC FINANCIAL STATEMENTS
Statementof Net Position ................................................................................... .............................10
Statement of Revenues, Expenses and Changes in Net Position ..................... .............................11
Statementof Cash Flows .................................................................................... .............................12
NOTES TO BASIC FINANCIAL STATEMENTS ............................................ .............................15
SUPPLEMENTARY INFORMATION
Combining Schedule of Net Position —
EnterpriseSub - Funds ................................................................................ .............................41
Combining Schedule of Revenues,
Expenses and Changes in Net Position — Enterprise Sub -Funds ......... ............................... 42
Schedule of Running Expenses, Comparison of Budget and Actual
Expenses by Department ......................................................................... ............................... 43
Running Expense — Schedule of
Supplemental Net Position Analysis ....................................................... ............................... 44
This Page Left Intentionally Blank
tj MAZE
& ASSOCIATES
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Central Contra Costa Sanitary District
Martinez, California
Report on Financial Statements
We have audited the accompanying financial statements of the business -type activities of the Central Contra
Costa Sanitary District (District) as of and for the year ended June 30, 2013, and the related notes to the
financial statements, which collectively comprise the District'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 the 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 these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America. 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 District'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 District'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.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the business -type activities of the Central Contra Costa Sanitary District as
of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof
for the year then ended in conformity with accounting principles generally accepted in the United States of
America.
T 925.930.0902
Accountancy Corporation F 925.930.0135
3478 Buskirk Avenue, Suite 215 e maze @mazeassociates.com
Pleasant Hill, CA 94523 w mazeassociates.com
Emphasis of a Matter
Management adopted the provisions of Governmental Accounting Standards Board Statement No. 63-
Financial Reporting of Deferred Ouews of Resources, Deferred Inflows of Resources, and Net Position,
which became effective during the year ended June 30, 2013 and required certain title changes to the
Statement of Net Position and Statement of Changes in Net Position. See Note 1L to the financial
statements for relevant disclosures.
The emphasis of this matter does not constitute a modification to our opinion.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that 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 Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively
comprise the District's financial statements as a whole. The Supplementary Information listed in the Table
of Contents is presented for purposes of additional analysis and is not a required part of the financial
statements.
The Supplementary 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 Supplementary Information is fairly stated in
all material respects in relation to the financial statements as a whole.
Pleasant Hill, California
September 18, 2013
2
Jl Central Contra Costa Sanitary District
MANAGEMENT'S DISCUSSION AND ANALYSIS
This section of the District's annual financial report presents an analysis of the District's financial
performance during the fiscal year ended June 30, 2013. This information is presented in conjunction
with the audited financial statements, which follow this report.
FINANCIAL HIGHLIGHTS
The District's 2012 -13 financial highlights are listed below. These results are discussed in more detail
later in the report.
• The District's total ending net position increased by $9.1 million or 1.45% in 2012 -13 when
compared to fiscal year 2011 -12; when comparing 2012 -13 to 2010 -11, net position have
increased by $12.9 million or 2.07 %. This is mainly due to capital project asset additions.
• Total revenues in 2012 -13 increased by $8.8 million or 11.64% when compared to 2011 -12;
when comparing 2012 -13 to 2010 -11, total revenue has increased by $10.9 million or 14.85 %.
The total Sewer Service Charge (SSC) rate increased by 8.8 %; a larger portion of the internal
SSC allocation was shifted from Capital Contributions to Operating Revenues.
• Total 2012 -13 expenses increased by $3.1 million or 3.60% compared to 2011 -12; when
comparing 2012 -13 to 2010 -11, total expenses increased by $9.1 million or 11.23 %. This is
mainly due to higher cost of total labor and technical services.
• Capital Contributions decreased in 2012 -13 compared to 2011 -12 by -$0.4 million or - 2.42 %.
Capital Contributions increased by $6.0 million or 65.78% comparing 2012 -13 to 2010 -11. The
decrease in 2012 -13 was due to the SSC rate increase, with more being allocated to Operations
and Maintenance, and higher connection fees when comparing 2012 -13 to 2011 -12. The volatile
housing and construction markets caused swings in connection fee revenue. (Connection fee
revenue of $6.1 million in 2012 -13, $5.7 million in 2011 -12 and $3.5 million in 2010 -11).
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report includes the management's discussion and analysis report, the independent auditor's
report and the basic financial statements of the District. The financial statements also include notes that
explain information in the financial statements in more detail. This report also contains other
supplementary information in addition to the basic financial statements.
REQUIRED FINANCIAL STATEMENTS
The Financial Statements of the District report information utilizing methods similar to those used by
private sector companies. These statements offer short and long -term financial information about its
activities.
® Recycled Paper
Statement of Net Position — reports the District's current financial resources (short-term
spendable resources) with capital assets and long -term obligations
• Statement of Revenues, Expenses and Changes in Net Position — reports the District's
operating and non - operating revenues by major source along with operating and non - operating
expenses and capital contributions
• Statement of Cash Flows — reports the District's cash flows from operating activities, non-
capital financing activities, capital and related financing activities, investing activities, and non-
cash activities
STATEMENT OF NET POSITION
The following table shows the condensed statement of net position of the Central Contra Costa Sanitary
District for the past three years:
Condensed Statement of % Increase
Net Position Fiscal Year Ended June 30 (Decrease)
FY 12 -13 FY 12 -13
vs. vs.
2012 -13 2011 -12 2010 -11 FY 11 -12 10 -11
Current Assets
$ 78,006,233
$ 78,506,812
$ 80,407,120
-0.64%
-2.99%
Capital Assets
603,985,469
597,689,744
593,461,791
1.05%
1.77%
Other Non - current Assets
9,454,886
9,332,364
12,456,011
1.31%
- 24.09%
Total Assets
691,446,588
685,528,920
686,324,922
0.86%
-0.75%
Current Liabilities
11,704,101
11,128,540
10,682,746
5.17%
9.56%
Non - Current Liabilities
44,027,490
47,797,407
52,844,305
-7.89%
- 16.68%
Total Liabilities
55,731,591
58,925,947
63,527,051
-5.42%
- 12.27%
Invested in Capital Assets,
Net of Related Debt
559,523,642
549,462,506
541,613,208
1.83%
3.31%
Restricted - Debt Service
4,730,837
4,663,601
4,612,103
1.44%
2.57%
Unrestricted
71,460,518
72,476,866
76,572,560
-1.40%
-6.68%
Total Net Position
$ 635,714,997
$ 626,602,973
$ 622,797,871
1.45%
2.07%
The total net position of the District increased from $622.8 million in 2010 -11 to $626.6 million in
2011 -12 and to $635.7 million in 2012 -13. The increase in net position over the 3 -year period totals
$12.9 million and is the result of the combination of net income and capital contributions; comparing
2012 -13 to 2011 -12 net position increases by $9.1 million.
By far the largest portion of the District's net position (88.01% percent) reflects its investment in capital
assets (e.g. land, buildings, machinery, equipment, intangible assets, and sewer line infrastructure), less
any related debt used to acquire those assets that are still outstanding. The District uses these capital
assets to provide services to its ratepayers; consequently, these assets are not available for future
spending. Although the District's investment in its capital assets is reported net of debt, it should be
noted that the funds needed to repay this debt must be provided from other sources, since the capital
assets themselves cannot be used to liquidate these liabilities. There is currently $4.7 million restricted
for debt service. The remaining balance of $71.5 million in unrestricted net position may be used to
meet the District's ongoing obligations to its ratepayers and creditors. The unrestricted net position may
also be used for payment of long -term unfunded liabilities.
4
REVIEW OF REVENUES EXPENSES AND CHANGES IN NET POSITION
The table below shows the condensed statement of revenues, expenses, and changes in net position for
the Central Contra Costa Sanitary District for the past 3 years:
Condensed Statement of
Revenues, Expenses, and % Increase
Changes in Net Position Fiscal Year Ended June 30 (Decrease)
FY 12 -13 FY 12 -13
vs. vs.
2012 -13 2011 -12 2010 -11 FY 11 -12 10 -11
Sewer Service Charges SSC
$ 67,254,405
$ 59,771,237
$ 58,320,822
12.52%
15.32%
Other Service Charges and
Miscellaneous
1,828,281
1,845,402
1,575,738
- 0.93%
16.03%
Total Operating Revenue
69,082,686
61,616,639
59,896 560
12.12%
15.34%
Property Tax
13,010,477
12,047,169
12,213,624
8.00%
6.52%
Permit & Inspection Fees
1,169,809
903,810
895,825
29.43%
30.58%
Interest and All Other
1,356,574
1,226,598
673,990
10.60%
101.28%
Total Non - Operating
Revenues
15,536,860
14,177,577
13,783,439
9.59%
12.72%
Total Revenues
84 619,546
75,794,216
73,679 999
11.64%
14.85%
Total Labor and Benefits
49,811,218
45,562,430
41,705,131
9.33%
19.44%
Chemicals & Utilities
5,420,789
6,090,408
5,664,360
- 10.99%
-4.30%
Repairs and Maintenance
3,151,127
3,068,604
2,972,395
2.69%
6.01%
Professional, Legal and
Outside Services
2,836,638
4,099,876
2,425,612
- 30.81%
16.95%
Materials & Supplies
1,980,314
2,031,401
1,944,767
-2.51%
1.83%
Hauling and Disposal
1,088,294
1,009,137
944,394
7.84%
15.24%
Self - Insurance Expense
2,380,466
810,849
1,003,115
193.58%
137.31%
All Other
472,630
1,612,482
1,575,905
- 70.69%
- 70.01%
Depreciation Expense
21,596,266
21,190,059
20,580,061
1.92%
4.94%
Total Operating Expenses
88,737,742
85,475,246
78,815 740
3.82%
12.59%
Non - Operating Expense -
Interest Expense
1,802,084
1,919,375
2,585,112
-6.11%
- 30.29%
Total Expenses
90,539,826
87,394 621
81,400,852
3.60%
11.23%
Income Before Capital
Contributions
5,920,280
11,600,405
7,720,853
- 48.96%
- 23.32%
Customer Contributions SSC
8,001,147
8,888,663
5,018,092
-9.98%
59.45%
Contributed Sewer Lines
939,628
792,011
533,616
18.64%
76.09%
Capital Contributions -
Connection Fees
6,091,529
5,724,833
3,515,804
6.41%
73.26%
Total Capital Contributions
15,032,304
15,405,507
9,067,512
-2.42%
65.78%
Change in Net Position
9,112,024
3,805102
1,346,659
139.47%
576.64%
Beginning Net Position
626,602,973
622,797,871
621,451,212
0.61%
0.83%
Ending Net Position
$ 635,714,997
$ 626,602 973
$ 622,797,871
1.45%
2.07%
In 2012 -13, operating revenues increased by $7.5 million or 12.12% compared to 2011 -12 and increased
by $9.2 million or 15.34% comparing 2012 -13 to 2010 -11. Total non - operating revenue increased in
2012 -13 compared to 2011 -12 by $1.4 million or 9.59% and increased by $1.8 million or 12.72%
comparing 2012 -13 to 2010 -11. The change in total revenue resulted in an increase of $8.8 million or
11.64% comparing 2012 -13 to 2011 -12 and increased by $10.9 million or 14.85% comparing 2012 -13 to
2010 -11. There was an 8.8% SSC rate increase in 2012 -13, 9.65% SSC rate increase in 2011 -12 and no
increase in SSC for 2010 -11. Property Tax revenue increased in 2012 -13 and basically remained flat
during 2011 -12 and 2010 -2011 due to housing values remaining low.
In 2012 -13, total expenses increased by $3.1 million or 3.60% compared to 2011 -12. Comparing 2012-
13 to 2010 -11, total expenses were $9.1 million or 11.23% higher. Increases are mainly due to higher
labor and benefit costs along with technical services for temporary staff. Labor costs increased due to
employee benefit costs (primarily pension and healthcare costs), cost -of- living adjustments, merit
increases, and filling of vacant positions. Depreciation expense increased due to new capital additions.
Non - Operating Expense is mainly driven by debt service interest expense. Total income before capital
contributions went from -$7.7 million in 2010 -11 to -$11.6 million in 2011 -12 and -$5.9 million in
2012 -13.
Total capital contributions in 2012 -13 were $15.0 million compared to $15.4 million in 2011 -12 and
$9.1 million in 2010 -11. This was mainly due to higher customer contributions (SSC) in 2012 -13 due to
the 8.8% rate increase, shift of the internal SSC revenue allocation, and volatility in connection fees due
to the fluctuation of the housing and construction markets. The total change in net position increased by
$7.8 million or 576.64% when comparing 2012 -13 to 2010 -11.
CAPITAL ASSETS
Capital assets include the District's entire major infrastructure including wastewater treatment facilities,
sewers, land, buildings, pumping stations, vehicles, intangible assets and furniture and equipment
exceeding our capitalization policy limit of $5,000, net of depreciation. As of June 30, 2013, the
District's investment in capital assets totaled $604.0 million, which is an increase of $6.3 million or
1.05% over the capital asset balance of $597.7 million at June 30, 2012. Capital Assets increased by
$10.5 million or 1.77% comparing 2012 -13 to 2010 -11. A comparison of the District's capital assets
over the past 3 fiscal years is presented below:
% Increase
Capital Assets Fiscal Year Ended June 30 (Decrease)
FY 12 -13 FY 12 -13
VS. vs.
2012 -13 2011 -12 2010 -11 11 -12 10 -11
Land
$ 17,262,249
$ 17,114,720
$ 17,114,720
0.86%
0.86%
Sewage Collection System
311,633,989
303,693,519
290,317,724
2.61%
7.34%
Contributed Sewer Lines
150,834,930
149,895,302
149,110,351
0.63%
1.16%
Outfall Sewers
11,338,935
8,518,443
8,518,443
33.11%
33.11%
Sewage Treatment Plant
299,830,466
292,432,883
287,537,513
2.53%
4.28%
Recycled Water Infrastructure
13,515,026
13,335,295
12,300,131
1.35%
9.88%
Pumping Stations
54,412,730
54,412,730
54,412,730
-
-
Buildings
36,120,720
34,477,124
31,317,466
4.77%
15.34%
Intangible Assets
4,596,467
2,463,834
2,058,921
86.56%
123.25%
Furniture & Equipment
15,651,212
14,031,564
13,243,330
11.54%
18.18%
Motor Vehicles
6,558,065
6,010,773
6,038,527
9.11%
8.60%
Construction In Progress
24,533,254
22,469,694
22,632,142
9.18%
8.40%
Subtotal
946,288 043
918,855 881
894,601 998
2.99%
5.78%
Less Accumulated Depreciation
342,302,574
321,166,137
301,140,207
6.58%
13.67%
Total Capital Assets
net of depreciation)
$ 603 985,469
$ 597,689,744
$ 593 461,791
1.05%
1.77%
6
The major reasons for the increase in capital assets, net of depreciation, of $6.3 million from 2011 -12 to
2012 -13 and $10.5 million from 2010 -11 to 2012 -13, are as follows:
• Sewer pipe ongoing renovations, upgrades, expansion, pumping station improvements, and
contributed sewer lines increased by $8.9 million comparing 2012 -13 to 2011 -12 and $23.0
million comparing 2012 -13 to 2010 -11.
• Treatment plant infrastructure renovations, upgrades, equipment, and improvements increased by
$7.4 million comparing 2012 -13 to 2011 -12 and $12.3 million comparing 2012 -13 to 2010 -11.
• Buildings increased by $1.6 million comparing 2012 -13 to 2011 -12 and $4.8 million comparing
2012 -13 to 2010 -11.
• All other asset categories, including construction in progress, increased by $9.5 million
comparing 2012 -13 to 2011 -12 and increased by $11.5 million comparing 2012 -13 to 2010 -11.
• Capital Asset increases are offset by an increased subtraction of accumulated depreciation of
$21.1 million comparing 2012 -13 to 2011 -12 and $41.2 million comparing 2012 -13 to 2010 -11
due to our increasing capital asset investment and its associated depreciation expense.
See Note 5 in the audited fmancial statements.
DEBT ADMII-IISTRATION
The District has the following outstanding debt as of June 30, 2013:
Revenue Bonds $ 43,595,000
Water Reclamation Loan 866,827
$ 44,461,827
See Note 6 in the audited financial statements.
ECONOMIC AND OTHER FACTORS
The Federal and State of California economies continue to slowly recover from the 2008 recession. The
Federal economic challenges have resulted in budget sequestration. The State Budget Act reflects
California's most stable budget in years. With the State's tough spending, cuts enacted and new
temporary revenues provided by the passage of Proposition 30, the State's budget is projected to remain
balanced for the foreseeable future. However, substantial risks, uncertainties, and liabilities still remain.
Changes in the state budget have a significant impact on the District. Federal and State economic
challenges will continue into the future and will have a trickle -down effect on local government.
Items impacting the District are:
• Current Employee Memorandum of Understanding contracts end as of December 17, 2017.
• Current and future legislation impacting public employee pensions is in play, also calling for
higher employee contributions and lower pensions by eliminating spiking. A significant number
of anticipated early retirements may occur depending on the legislated changes to public
employee salary and benefits.
• Increased cost of employee benefits, mainly due to pension costs and healthcare.
• Housing market is still recovering and continues to impact development and user fees.
• Regulatory requirements becoming more stringent, causing the District to spend more on
compliance, both for operations and maintenance costs and capital projects. This may require
debt financing for large capital projects.
• Continued low interest rates negatively impact interest earnings for District temporary
investments as well as OPEB trust and pension plan assets.
In addition to making efforts to reduce spending and improve process efficiencies, the District has the
ability to raise the SSC to meet our long -term commitments. The District has a Standard and Poors
AAA rating, and can obtain bond financing if necessary.
FINANCIAL CONTACT
The financial report is designed to provide our customers and creditors with a general overview of the
District's finances and to demonstrate the District's accountability for the money it receives. If you
have questions about this report or need additional financial information, contact: Finance Manager
Thea Vassallo, Central Contra Costa Sanitary District, 5019 Imhoff Place, Martinez, CA 94553.
This Page Left Intentionally Blank
CENTRAL CONTRA COSTA SANITARY DISTRICT
STATEMENT OF NET POSITION
JUNE 30, 2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 2)
$46,714,788
Short term investments (Note 2)
10,498,624
Accounts receivable, net (Note 3)
16,517,549
Interest receivable
65,321
Parts and supplies
2,005,741
Prepaid expenses
2,204,210
Total current assets
78,006,233
NON - CURRENT ASSETS
Restricted cash and equivalents (Notes I.E. and 2)
100,000
Restricted investments (Note 2)
5,412,500
Assessment Districts receivable (Note 4)
2,089,461
Net OPEB asset (Note 10)
1,537,638
Revenue bonds issuance costs, net of amortization
315,287
Capital assets:
Nondepreciable (Note 5)
41,795,503
Depreciable, net of accumulated depreciation (Note 5)
562,189,966
Total capital assets, net
603,985,469
Total non - current assets
613,440,355
TOTAL ASSETS
691,446,588
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses
5,376,935
Interest payable
718,147
Refunding Water Revenue Bonds - current portion (Note 6)
3,720,000
Water Reclamation Loan Contract - current portion (Note 6)
164,582
Accrued compensated absences - current portion (Note M.)
383,000
Liability for uninsured claims (Note 7)
1,000,000
Refundable deposits
341,437
Total current liabilities
11,704,101
NON - CURRENT LIABILITIES
Refunding Water Revenue Bonds, noncurrent portion (Note 6)
39,875,000
Water Reclamation Loan Contract, noncurrent portion (Note 6)
702,245
Accrued compensated absences, noncurrent portion (Note 1.1.)
3,450,245
Total non - current liabilities
44,027,490
TOTAL LIABILITIES
55,731,591
NET POSITION (Note 11)
Net investment in capital assets
559,523,642
Restricted for debt service
4,730,837
Unrestricted
71,460,518
TOTAL NET POSITION
$635,714,997
See accompanying notes to financial statements
10
CENTRAL CONTRA COSTA SANITARY DISTRICT
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED JUNE 30, 2013
OPERATING REVENUES
Sewer service charges (SSC) $56,770,984
Service charges - City of Concord 10,483,421
Other services charges 1,076,401
Miscellaneous charges 751,880
Total operating revenues 69,082,686
OPERATING EXPENSES
Sewage collection and pumping stations
14,327,933
Sewage treatment
23,035,943
Engineering
8,680,934
Administrative and general
21,096,666
Depreciation
21,596,266
Total operating expenses
88,737,742
OPERATING INCOME (LOSS)
(19,655,056)
NONOPERATING REVENUES (EXPENSES)
Taxes 13,010,477
Permit and inspection fees 1,169,809
Interest earnings 405,474
Interest expense (1,802,084)
Other income (expense) 951,100
Total nonoperating revenues (expenses), net 13,734,776
INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS (5,920,280)
CAPITAL CONTRIBUTIONS
City of Concord contributions to capital costs 3,616,771
Customer contributions to capital cost (SSC) 4,384,376
Contributed sewer lines 939,628
Capital contributions - connection fees 6,091,529
Total capital contributions 15,032,304
CHANGE IN NET POSITION 9,112,024
NET POSITION, BEGINNING OF YEAR 626,602,973
NET POSITION, END OF YEAR $635,714,997
See accompanying notes to financial statements
11
CENTRAL CONTRA COSTA SANITARY DISTRICT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers
Payments to employees and related benefits
Net Cash Provided by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Receipt of taxes
Inspection/permit fees and other non - operating income
Cash Flows from Noncapital Financing Activities
$67,716,388
(36,581,237)
(29,929,031)
1,206,120
13,010,477
2,120,909
15,131,386
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Capital contributions 8,940,775
Connection fees 6,091,529
Acquisition and construction of capital assets (27,891,991)
Interest paid on long -term debt (1,838,134)
Principal payments on long -term debt (3,448,341)
Cash Flows (used for) Capital and Related Financing Activities (18,146,162)
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption and acquisition of investments, net $5,606,506
Interest received 395,301
Cash Flows from Investing Activities 6,001,807
NET INCREASE (DECREASE) IN CASH 4,193,151
Cash, beginning of year 42,621,637
Cash, end of year $46,814,788
(Continued)
See accompanying notes to financial statements
12
CENTRAL CONTRA COSTA SANITARY DISTRICT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2013
Reconciliation of operating (loss) to net cash provided by
operating activities:
Operating (loss)
($19,655,056)
Adjustments to reconcile operating loss to cash
flows from operating activities:
Depreciation
21,596,266
Change in assets and liabilities:
Receivables, net
(1,366,298)
Parts and supplies
1,704
Prepaid expenses
296,495
Accounts payable and accrued expenses
472,291
Accrued payroll and related expenses
122,665
Refundable deposits
12,149
Net OPEB asset
(274,096)
Net cash provided by operating activities $1,206,120
SCHEDULE OF NON CASH ACTIVITY
Developer pipe contributions $713,525
Change in fair value of investments 395,301
Total non cash activity $1,108,826
CASH AND CASH EQUIVALENTS, AS PRESENTED ON
STATEMENT OF NET POSITION:
Unrestricted cash and cash equivalents $46,714,788
Restricted cash and cash equivalents 100,000
Total cash and cash equivalents at end of year $46,814,788
See accompanying notes to financial statements
13
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CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A. Reporting Entity
The Central Contra Costa Sanitary District (District), a special district and a public entity
established under the Sanitary District Act of 1923, provides sewer service for the incorporated
and unincorporated areas under its jurisdiction. A Board of Directors comprised of five elected
members governs the District.
As required by accounting principles generally accepted in the United States of America, these
basic financial statements present the financial statements of Central Contra Costa Sanitary
District and its component unit. The component unit discussed in the following paragraph is
blended in the District's reporting entity because of the significance of its operational and
financial relationship with the District.
Blended Component Unit - Component units are legally separate organizations for which the
District is financially accountable. Component units may also include organizations that are
fiscally dependent on the District, in that the District approves their budget, the issuance of their
debt or the levying of their taxes. In addition, component units are other legally separate
organizations for which the District is not financially accountable but the nature and significance
of the organization's relationship with the District is such that exclusion would cause the District's
financial statements to be misleading or incomplete. For financial reporting purposes, the
component unit discussed below is reported in the District's financial statements because of the
significance of its relationship with the District. The component unit, although a legally separate
entity, is reported in the financial statements using the blended presentation method as if it were
part of the District's operations because the Governing Board of the component unit is the same
as of Governing Board of the District and because its purpose is to finance facilities to be used for
the direct benefit of the District. The Central Contra Costa Sanitary District Facilities Financing
Authority (Authority) was organized solely for the purpose of providing financial assistance to the
District. The Authority does this by acquiring, constructing, improving and financing various
facilities, land and equipment purchases, and by leasing or selling certain facilities, land and
equipment for the use, benefit and enjoyment of the public served by the District. The Authority
has no members and the Board of Directors of the Authority consists of the same persons who are
serving as the Board of Directors of the District. There are no separate basic financial statements
prepared for the Authority.
B. Basis ofAccounting
The District's financial statements are prepared on the accrual basis of accounting. The District
applies all applicable Governmental Accounting Standards Board (GASB) pronouncements for
certain accounting and financial reporting guidance.
15
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
The District is a proprietary entity; it uses an enterprise fund format to report its activities for
financial statement purposes. Enterprise funds are used to account for operations that are
fmanced and operated in a manner similar to private business enterprises, where the intent of the
governing body is that the cost and expenses, including depreciation, of providing, goods or
services to its customers be financed or recovered primarily through user charges; or where the
governing body has decided that periodic determination of revenues earned, expense incurred,
and net income is appropriate for capital maintenance, public policy, management control,
accountability, or other purposes.
Enterprise funds are used to account for activities similar to those in the private sector, where the
proper matching of revenues and costs is important and the full accrual basis of accounting is
required. With this measurement focus, all assets and liabilities of the enterprise are recorded on
its statement of net position, all revenues are recognized when earned and all expenses, including
depreciation, are recognized when incurred.
Enterprise funds distinguish operating revenues and expenses from non - operating items.
Operating revenues and expenses generally result from providing services and producing and
delivering goods in connection with an enterprise fund's principal ongoing operations. The
principal operating revenues of the District are charges to customers for services. Operating
expenses for the District include the costs of sales and services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition are reported
as non - operating revenues and expenses.
For internal operating purposes, the District's Board of Directors has established four separate
sub - funds, each of which includes a separate self - balancing set of accounts and a separate Board
approved budget for revenues and expenses. These sub -funds are combined into the single
enterprise fund presented in the accompanying financial statements. The nature and purpose of
these sub -funds are as follows:
Running Expense - Running Expense accounts for the general operations of the District.
Substantially all operating revenues and expenses are accounted for in this sub -fund.
Sewer Construction - Sewer Construction accounts for non - operating revenues, which are
to be used for acquisition or construction of plant, property and equipment.
Self - Insurance - Self- Insurance accounts for interest earnings on cash balances in this
sub -fund and cash allocations from other sub - funds, as well as for costs of insurance
premiums and claims not covered by the District's insurance coverage.
Debt Service - Debt Service accounts for activity associated with the payment of the
District's long term bonds and loans.
That portion of the District's net position which is allocable to each of these sub -funds has been
shown separately in the accompanying supplementary information to the financial statements.
The District's Board of Directors adopts annual budgets on a basis consistent with accounting
principles generally accepted in the United States of America.
16
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR TBE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
C. Investments
Investments held at June 30, 2013 with original maturities greater than one year, are stated at fair
value. Fair value is estimated based on quoted market prices at year -end. All investments not
required to be reported at fair value are stated at cost or amortized cost.
D. Prepaid Expenses
Certain payments to vendors reflect costs applicable to future accounting periods and are
recorded as prepaid items in the fmancial statements.
E. Bank Escrow Deposit
An escrow agreement was formed between the District and the National Park Service for the
right- of -way through the John Muir National Historic Site, in lieu of issuing a performance bond.
The current right -of -way permit is 10 years, but is renewable and must remain in effect so long as
there is sewage running through the area; therefore, it is unlikely that the escrow funds will ever
be released to the District. These funds are listed as restricted cash in the financial statements.
F. Parts and Supplies
Parts and supplies are valued at average cost and are used primarily for internal purposes.
G. Property, Plant, and Equipment
Purchased capital assets are stated at historical cost. Capital assets contributed to the District are
stated at estimated fair value at the time of contribution. The capitalization threshold for capital
assets is $5,000. Expenditures which materially increase the value or life of capital assets are
capitalized and depreciated over the remaining useful life of the asset. The term depreciation
includes amortization of intangible assets.
Depreciation of exhaustible capital assets has been provided using the straight -line method over
the asset's useful life as follows:
Sewage Collection Facilities
Intangible Assets
Sewage Treatment Plant and Pumping Plants
Buildings
Furniture and Equipment
Motor Vehicles
17
Years
75
75
40
50
5 -15
6 -15
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
H. Property Taxes
Property tax revenue is recognized in the fiscal year for which the tax is levied. The County of
Contra Costa levies, bills and collects property taxes for the District; all material amounts are
collected by June 30.
General County taxes collected are the same as the amount levied since the County participates in
California's alternative method of apportionment called the Teeter Plan. The Teeter Plan as
provided in Section 4701 at seq. of the State of Revenue and Taxation Code establishes a
mechanism for the County to advance the full amount of property tax and other levies to taxing
agencies based on the tax levy, rather than on the basis of actual tax collections. Although this
system is a simpler method to administer, the County assumes the risk of delinquencies. The
County in return retains the penalties and accrued interest thereon.
Secured property tax bills are mailed once a year, during the month of October on the current
secured tax roll, to the owner of the property as of the lien date (January 1). Payments can be
made in two installments, and are due on November 1 and February 1. Delinquent accounts are
assessed a penalty of 10 percent. Accounts which remain unpaid on June 30 are charged an
additional 1% percent per month. Unsecured property tax is due on July 1 and becomes
delinquent on August 31. The penalty percentage rates are the same as secured property tax.
L Compensated Absences
The liability for vested vacation, compensatory time, and sick pay is recorded as an expense when
earned. District employees have a vested interest in 100 percent of accrued vacation time and 85
percent of accrued sick time for employees hired before May 1, 1985. Employees hired after May
1, 1985 have a vested interest in up to 40 percent of their sick time, based upon length of
employment with the District.
The changes in compensated absences were as follows for fiscal year ended June 30, 2013:
Beginning Balance
Additions
Payments
$3,710,580
783,906
(661,241)
Ending Balance $3,833,245
Current Portion $383,000
The current portion of the liability to be used within the next year is estimated by management to
be approximately 10% of the ending balance.
18
CENTRAL CONTRA COSTA SANITARYDISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
J. Statement of Cash Flows
For purposes of the statement of cash flows, all highly liquid investments, including restricted
assets, with maturities of three months or less when purchased, are considered to be cash
equivalents. Included therein are petty cash, bank accounts, and the State of California Local
Agency Investment Fund (LAIF). Restricted assets are debt service amounts maintained by
fiduciaries and not available for general expenses.
K. 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 disclosures 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.
L. Implementation of Governmental Accounting Standards Board (GASB) Pronouncements
GASB Statement No. 60 — In November 2010, the GASB issued Statement No. 60, Accounting
and Financial Reporting for Service Concession Arrangements. The objective of this Statement
is to improve financial reporting by addressing issues related to service concession arrangements
(SCAB), which are a type of public - private or public - public partnerships. The requirements of
this Statement are effective for financial statements for periods beginning after December 15,
2011. This Statement had no impact on the District's financial statements for fiscal year ending
June 30, 2013.
GASB Statement No. 61 — In November 2010, the GASB issued Statement No. 61, The
Financial Reporting Entity: Omnibus — an amendment of GASB Statements No. 14 and No. 34.
The objective of this Statement is to improve financial reporting for a governmental financial
reporting entity. The provisions of this Statement are effective for financial statements for
periods beginning after June 15, 2012. This Statement did not have a material impact on the
District's financial statements for fiscal year ending June 30, 2013.
GASB Statement No. 62 — In December 2010, the GASB issued Statement No. 62, Codification
of Accounting and Financial Reporting guidance Contained in Pre - November 30, 1989 FASB
and AICPA Pronouncements. The objective of this Statement is to incorporate into the GASB's
authoritative literature certain accounting and financial reporting guidance that is included in the
FASB and AICPA pronouncements, which does not conflict with or contradict GASB
pronouncements. The requirements of this Statement are effective for financial statements for
periods beginning after December 15, 2011. This Statement did not have a material impact on the
District's financial statements for fiscal year ending June 30, 2013.
19
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR TBE YEAR ENDED JUNE 30, 2013
NOTE 1– DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
GASB Statement No. 63 – In June 2011, the GASB issued Statement No. 63, Financial
Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position.
This Statement provides financial reporting guidance for deferred outflows of resources and
deferred inflows of resources. In addition to assets, the statement of financial position or balance
sheet 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 or fund balance that applies to a future period(s) and so will not be recognized as an
outflow of resources (expense /expenditure) until then. In addition to liabilities, the statement of
financial position or balance sheet 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 or fund balance that applies to a future period(s) and so will not be
recognized as an inflow of resources (revenue) until that time.
The provisions of this Statement are effective for financial statements for periods beginning after
December 15, 2011. This Statement changed certain financial statement titles and nomenclature
on the District's financial statements for fiscal year ending June 30, 2013.
GASB Statement No. 65 – In March 2012, the GASB issued Statement No. 65, Items Previously
Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting
standards that reclassify, as deferred outflows of resources or deferred inflows of resources,
certain items that were previously reported as assets and liabilities and recognizes, as outflows of
resources or inflows of resources, certain items that were previously reported as assets and
liabilities. The provisions of this Statement are effective for financial statements for periods
beginning after December 15, 2012. This Statement will not have a material effect on the
financial statements.
GASB Statement No. 66 – In March 2012, the GASB issued Statement No. 66, Technical
Corrections-2012—an amendment of GASB Statements No. 10 and No. 62. The objective of
this Statement is to improve accounting and financial reporting for a governmental financial
reporting entity by resolving conflicting guidance that resulted from the issuance of two
pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type
Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance
Contained in Pre - November 30, 1989 FASB and AICPA Pronouncements. The provisions of this
Statement are effective for financial statements for periods beginning after December 15, 2012.
This Statement will not have a material effect on the financial statements.
GASB Statement No. 67 – In June 2012, the GASB issued Statement No. 67, Financial
Reporting for Pension Plans —an amendment of GASB Statement No. 25. The requirements of
this Statement will improve financial reporting primarily through enhanced note disclosures and
schedules of required supplementary information that will be presented by the pension plans that
are within its scope. The provisions of this Statement are effective for financial statements for
periods beginning after June 15, 2013. This Statement will not have a material effect on the
financial statements.
20
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 1— DESCRIPTION OF DISTRICT AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
GASB Statement No. 68 — In June 2012, the GASB issued Statement No. 68, Accounting and
Financial Reporting for Pensions --an amendment of GASB Statement No. 27. The requirements
of this Statement will improve the decision - usefulness of information in employer and
governmental nonemployer contributing entity financial reports and will enhance its value for
assessing accountability and interperiod equity by requiring recognition of the entire net pension
liability and a more comprehensive measure of pension expense. The provisions of this
Statement are effective for financial statements for periods beginning after June 15, 2014,
therefore, the District will implement this Statement in fiscal year ending June 30, 2015. This
Statement will have a material effect on the financial statements.
NOTE 2 — CASH AND INVESTMENTS
A. Summary of Cash and Investments
Investments as of June 30, 2013, are classified in the accompanying financial statements as follows:
Cash and cash equivalents
$46,714,788
Short term investments
10,498,624
Restricted cash and cash equivalents
100,000
Restricted investments
5,412,500
Total Cash and Investments
$62,725,912
B. Policies and Practices
The District is authorized under California Government Code to make direct investments in local
agency bonds, notes, or warrants within the State: U.S. Treasury instruments, registered State
warrants or treasury notes, securities of the U.S. Governments, or its agencies, commercial paper,
certificates of deposit placed with commercial banks and/or savings with loan companies, and
certificates of participation. State code and the District's investment policy prohibit the District
from investing in investments with a rating of less than A or equivalent.
21
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 2 — CASH AND INVESTMENTS (Continued)
C. General Authorizations
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are
indicated in the schedules below:
California State Limits
Maximum Maximum
Remaining Percentage
Authorized Investment Type Maturity of Portfolio
District
Policy
Maximum Maximum
Investment Percentage
In One Issuer of Portfolio
District
Policy
Minimum
Legal
Quality
U.S. Treasury Obligations
5 years
None
None
100%
N/A
Banker's Acceptances
180
40%
40%
10%
N/A
Commercial Paper (1)
270
25%
10%
10%
Aaa
Collateralized Certificates of Deposit (2)
5 years
30%
None
10%
Aaa
County Pooled Investment Funds
N/A
None
None
100%
N/A
Local Agency Investment Fund (LAIF)
N/A
None
None
100%
N/A
(1) Prime quality; limited to corporations with assets over $500,000,000
(2) Prior approval of the Board of Directors must be obtained to acquire maturities beyond one year, excluding Treasury Notes and LAIF.
D. 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 to changes in market interest rates. It is the District's policy to manage exposure to
interest rate risk by purchasing a combination of shorter term and longer term investments and by
timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to
maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
District policy is that investment maturities do not exceed one year, with the exception of Treasury
Notes or Local Agency Investment Fund; however, investments can be held longer with Board
approval.
The District's investments at year end with the exception of the U.S. Treasuries and Commercial
Paper below are held in external investment pools which are liquid investments.
22
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 2 — CASH AND INVESTMENTS (Continued)
E.
F.
Information about the sensitivity of the fair values of the District's investments to market interest
rate fluctuation is provided by the following schedule that shows the distribution of the District's
investments by maturity, as of June 30, 2013:
12 Months
Investment Type or less Maturity
Certificates of Deposit $7,000,136
Certificates of Deposit - Debt Reserve 5,412,500
Commercial Paper 3,498,488
California Local Agency Investment Fund 43,011,748
Total Investments 58,922,872
Cash in bank 3,803,040
Total Cash and Investments $62,725,912
Credit Risk
7/26/13
4/30/14
7/26/13
Not applicable
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 the assignment of a rating by a nationally recognized
statistical rating organization. Presented below is the actual rating as of the June 30, 2013 of each
investment type:
Investment Type
Certificates of Deposit
Commercial Paper
Totals
Not rated.•
California Local Agency Investment Fund
Cash in Bank
Total Cash and Investments
Concentration of Credit Risk
Aaa Total
$12,412,636 $12,412,636
3,498,488 3,498,488
$15,911,124 15,911,124
43,01 1,748
3,803,040
$62,725,912
The District is a voluntary participant in LAIF which is regulated by the California Government
Code under the oversight of the Treasurer of the State of California. LAIF is not registered with
the Securities and Exchange Commission. The fair value of the District's investment in this pool
is reported in the accompanying financial statements at amounts based upon the District'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. At June 30, 2013
these investments matured in an average of 278 days.
23
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 2 — CASH AND INVESTMENTS (Continued)
Investments in County Treasury — The District is considered to be a voluntary participant in an
external investment pool. The fair value of the District's investment in the pool is reported in the
financial statements in cash and cash equivalents at amounts based upon the District's pro -rata
share of the fair value provided by the County Treasurer for the entire portfolio (in relation to
amortized cost of that portfolio). The balance available for withdrawal is based on the accounting
records maintained by the County Treasurer, which is recorded on the amortized cost basis.
G Custodial Credit Risk - Investments
Custodial risk for investments is the risk that, in the event of the failure of the counterparty (e.g.
the broker - dealer) 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 does not contain legal or policy requirements that would limit the exposure to
custodial credit risk. The District's policy is to use the services of the Treasurer's Office of the
County of Contra Costa, which will transact the District's investment decisions in compliance
with the requirements of the District's policy. The County Treasurer's Office will execute the
District's investments through such broker - dealers and financial institutions as are approved by
the County Treasurer, and through the State Treasurer's Office for investment in the Local
Agency Investment Fund.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following at June 30, 2013:
City of Concord (see Note 8) $14,100,192
Household Hazardous Waste Partners 837,802
All Other 1,579,555
Total Accounts Receivable $16,517,549
NOTE 4 — ASSESSMENT DISTRICTS RECEIVABLE
The District established the Contractual Assessment District (CAD) program to help homeowners
finance the cost of connecting to the District. The construction costs associated with the project
within the program are capitalized and depreciated. Individual homeowners are assessed at an
amount equal to their share of the construction costs and connection fee. The assessments, plus
interest, are generally payable over 10 years. At June 30, 2013, the CAD receivable balance was
$434,396.
The District also established the Alhambra Valley Assessment District (AVAD) to provided
services to residents in the Alhambra Valley in Martinez. Residents have the choice to pay cash
or finance the construction costs and connection fees. At June 30, 2013, the AVAD receivable
balance was $1,655,065.
The total receivable balance at June 30 2013 for CAD and AVAD was $2,089,461, and is shown
as a non - current asset on the Statement of Net Position.
24
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 5 — CAPITAL ASSETS
Property, plant and equipment, and construction in progress are summarized below for the year
ended June 30, 2013:
NOTE 6 — LONG -TERM DEBT
A. 2009 Wastewater Revenue Certificates of Participation
On November 12, 2009 and December 3, 2009 the District issued two Certificates of Participation
(COP).
The 2009 Wastewater Revenue Certificates of Participation, Series A and Series B were issued
for $19,635,000 and $34,490,000, respectively. The Series A COP are federally taxable "Build
America Bonds" which have a direct 35% interest rate subsidy from the Federal Government.
Yields on this series range from 3.45% to 3.78 %, net of the subsidy. The Series B COP are tax
exempt bonds that were used to refund the 1998 and 2002 bond issues and raise an additional $30
million in new proceeds with yields ranging from .40% to 3.79 %.
25
Balance at
Transfer
Balance at
June 30, 2012
Additions
Retirements
from CIP
June 30, 2013
Capital assets not being depreciated:
Land
$17,114,720
$147,529
$17,262,249
Construction in Progress
22,469,694
$27,185,118
(25,121,558)
24,533,254
Total nondepreciated assets
39,584,414
27,185,118
(24,974,029)
41,795,503
Capital assets being depreciated:
Sewage collection system
303,693,519
7,940,470
311,633,989
Contributed sewer lines
149,895,302
706,873
232,755
150,834,930
Outfall sewers
8,518,443
2,820,492
11,338,935
Sewage treatment plant
292,432,883
($200,000)
7,597,583
299,830,466
Recycled water infrastructure
13,335,295
179,731
13,515,026
Pumping stations
54,412,730
54,412,730
Buildings
34,477,124
1,643,596
36,120,720
Intangibles
2,463,834
2,132,633
4,596,467
Furniture and equipment
14,031,564
(10,001)
1,629,649
15,651,212
Motor vehicles
6,010,773
(249,828)
797,120
6,558,065
Total depreciated assets
879,271,467
706,873
(459,829)
24,974,029
904,492,540
Less accumulated depreciation:
Sewage collection system
48,955,471
4,148,192
53,103,663
Contributed sewer lines
49,109,345
2,017,935
51,127,280
Outfall sewers
2,880,325
132,156
3,012,481
Sewage treatment plant
170,703,542
10,167,282
(200,000)
180,670,824
Recycled water infrastructure
5,362,386
535,957
5,898,343
Pumping stations
22,167,742
2,175,187
24,342,929
Buildings
7,019,734
1,039,434
8,059,168
Intangibles
88,247
47,069
135,316
Furniture and equipment
10,818,661
1,042,928
(10,001)
11,851,588
Motor vehicles
4,060,684
290,126
(249,828)
4,100,982
Total accumulated depreciation
321,166,137
21,596,266
(459,829)
342,302,574
Total capital assets being
depreciated, net
558,105,330
(20,889,393)
24,974,029
562,189,966
Capital assets, net
$597,689,744
$6,295,725
$603,985,469
NOTE 6 — LONG -TERM DEBT
A. 2009 Wastewater Revenue Certificates of Participation
On November 12, 2009 and December 3, 2009 the District issued two Certificates of Participation
(COP).
The 2009 Wastewater Revenue Certificates of Participation, Series A and Series B were issued
for $19,635,000 and $34,490,000, respectively. The Series A COP are federally taxable "Build
America Bonds" which have a direct 35% interest rate subsidy from the Federal Government.
Yields on this series range from 3.45% to 3.78 %, net of the subsidy. The Series B COP are tax
exempt bonds that were used to refund the 1998 and 2002 bond issues and raise an additional $30
million in new proceeds with yields ranging from .40% to 3.79 %.
25
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 6 — LONGTERM DEBT (Continued)
The two bonds total $54,125,000, and are secured by a pledge of revenue. Principal payments
began annually on September 1, 2010 with semi -annual payments due on September 1 and March
1 of each year. Both bonds will be fully amortized as of September 1, 2029. The refunded
portion of the original bonds will be paid off based on the original amortization schedule.
B. Summary of Activity
The changes in the District's long -term obligations during the year consisted of the following:
2009 Series A Certificates of Participation
Wastewater Revenue
3.45 - 3.78 %, due 9/1/2029
2009 Series B Certificates of Participation
Wastewater Revenue
.40- 3.79 %, due 9/1/2029
1999 State Water Resources Control Board
Water Reclamation Loan
2.60 %, due 3/31/2018
Total Long -Term Debt
Less current portion
C. Debt Service Requirements
Original Amount
Issue Balance Balance due within
Amount June 30, 2012 Retirements June 30, 2013 one year
$19,635,000 $19,635,000 $19,635,000 -
34,490,000 27,565,000 $3,605,000 23,960,000 $3,720,000
2,916,872 1,027,238 160,411 866,827 164,582
48,227,238 $3,765,411
(3,765,411)
$44,461,827
The 2009 Revenue COP debt service requirements are as follows:
44,461,827 $3,884,582
(3,884,582)
$40,577,245
Fiscal Year
Series A
Ending
Series
Series
Total
35 %Tax
Net
June 30,
Principal
Interest
Principal
Interest
Principal
Interest
Subsidy
Total
2014
$1,190,840
$3,720,000
$851,683
$3,720,000
$2,042,523
($416,794)
$5,345,729
2015
1,190,840
3,865,000
700,467
3,865,000
1,891,307
(416,794)
5,339,513
2016
1,190,840
2,210,000
601,033
2,210,000
1,791,873
(416,794)
3,585,079
2017
1,190,840
2,300,000
501,300
2,300,000
1,692,140
(416,794)
3,575,346
2018
1,190,840
2,405,000
424,175
2,405,000
1,615,015
(416,794)
3,603,221
2019-2023
$5,150,000
5,460,060
8,280,000
924,558
13,430,000
6,384,618
(1,911,021)
17,903,597
2024 -2028
9,920,000
2,931,816
1,180,000
9,833
11,100,000
2,941,649
(1,026,135)
13,015,514
2029 -2030
4,565,000
202,450
4,565,000
202,450
(70,858)
4,696,592
Total
$19,635,000
$14,548,526
$23,960,000
$4,013,049
$43,595,000
$18,561,575
($5,091,984)
$57,064,591
As part of the Federal budget sequestration, the Internal Revenue Service (IRS) has announced
that as of March 1, 2013, credit payments claimed by issuers of certain tax credit bonds,
including Build America Bonds, may be subject to a reduction of 8.7 %.
26
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 6 — LONGTERM DEBT (Continued)
D. Water Reclamation Loan Contract
The District entered into a contract with the State of California State Water Resources Control
Board (Board), which advanced the District $2,916,872 for design and construction costs for
projects related to recycled water treatment programs.
The District must repay advances from the Board over a 20 -year period beginning March 31,
1999, with an interest rate of 2.60 %. Debt service requirements are as follows:
Fiscal Year
Ending June 30
Principal
Interest
Total
2014
$164,582
$22,537
$187,119
2015
168,861
18,258
187,119
2016
173,251
13,868
187,119
2017
177,756
9,363
187,119
2018
182,377
4,742
187,119
Total
$866,827
$68,768
$935,595
NOTE 7 — RISK MANAGEMENT
The District is exposed to various risks of loss including torts, theft of, damage to, and
destruction of assets, errors and omissions, injuries to employees, and natural disasters. To
manage these risks, the District joined with other entities to form the California Sanitation Risk
Management Authority (CSRMA), a public entity risk pool currently operating as a common risk
management and insurance program for the member entities. The purpose of CSRMA is to
spread the adverse effects of losses among the member entities and to purchase excess insurance
as a group, thereby reducing its cost. Through CSRMA, the District purchases property
insurance and workers' compensation insurance.
27
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 7 — RISK MANAGEMENT (Continued)
A. Insurance Coverage
The District's insurance coverage is as follows:
Type of Coverage Insurer
All -Risk Property:
Fire Public Entity Property
Insurance Program ( PEPIP)
Boiler and Machinery PEPIP
(Shared Limits per Occurrence)
Crime Travelers
Liability:
Errors and Omissions
Employment Practices Liability
Employment Practices Liability
General Liability
Auto Liability
Pollution (General Aggregate)
General Liability (Occurrence)
Pollution (Legal Liability Aggregate)
Fiduciary Liability
Insurance Company of the
State of Pennsylvania
Chartis
Hiscox Insurance Company
Chartis
Chartis
Chartis Specialty Insurance Co.
Chartis Specialty Insurance Co.
RLI Insurance Company
Workers' Compensation: CSRMA
Excess Workers' Compensation Safety National Casualty
Corporation
B. Liability for Uninsured Claims
Self Insured
Deductible Per
Limits Occurrence
$556,015,744 $250,000
100,000,000 250,000
1,000,000
15,000,000
15,000,000
1,000,000
15,000,000
15,000,000
5,000,000
25,000
1,000,000
1,000,000
35,000
1,000,000
1,000,000
5,000
10,000,000
50,000
1,000,000
0
750,000
0
Statutory
750,000
The Governmental Accounting Standard Board (GASB) requires state and local governments to
record their liability for uninsured claims in their financial statements.
The District's uninsured claims activity and exposure relates primarily to its general and automobile
liability program. The District records its estimated liability for uninsured claims in this area based on
the results of periodic actuarial evaluations. The actuarial evaluations are typically performed every
two years. For intervening years, the liability for uninsured claims is reviewed for adequacy based on
claims activity during the intervening period.
28
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 7 — RISK MANAGEMENT (Continued)
For fiscal years ended June 30, 2013, 2012, and 2011, settlements have not exceeded insurance
coverage. Changes in the District's estimated liability for uninsured claims are summarized as
follows as of June 30:
2013 2012 2011
Beginning balance $1,000,000 $1,000,000 $1,000,000
Provisions for claims incurred in the current year
and changes in the liability for uninsured -
claims incurred in prior years
(1,659,291)
72,606
240,844
Claims paid and/or adjustments
1,659,291
(72,606)
(240,844)
Ending balance
$1,000,000
$1,000,000
$1,000,000
In March 2012, the District had an explosion in its Plant Operations Department Cogeneration
(Cogen) Unit. Expenses for the investigation, recovery, repair, extra energy, and staff time were
tracked by Risk Management and totaled $1,793,221. Of that $250,000 was charged to the District's
self-insurance and the balance was submitted to insurance as claims. After disallowing $179,024 in
claims, the District received $1,364,197 in recovery payments. All expenses and reimbursements
were completed in FY 2012 -13.
NOTE 8 — AGREEMENT WITH THE CITY OF CONCORD
In 1974, the District and the City of Concord (the City) entered into a cost - sharing agreement under
which the District became responsible for providing sewage treatment facilities and services to the
City. Under this agreement, the City pays a service charge for its share of operating, maintenance and
administrative costs and makes a contribution for its share of facilities and makes a contribution for its
share of facilities capital costs expended. Service charges and contributions to capital costs from the
City totaled $10,483,421 and $3,616,771, respectively, for the year ended June 30, 2013, for a total of
$14,100,192.
29
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 9 — PENSION PLANS
A. Contra Costa County Employee's Retirement Association Plan
Plan Description
Substantially all District permanent employees are required to participate in the Contra Costa
County Employees' Retirement Association (CCCERA), a cost - sharing multiple employer public
defined benefit retirement plan (Plan), governed by the County Employee's Retirement Law of
1937, as amended. The latest available actuarial and financial information for the Plan is for the
year ended December 31, 2012. The Contra Costa Employees' Retirement Association issues a
publicly available financial report that includes financial statements and supplemental information
of the Plan. That report is available by writing to Contra Costa County Employees' Retirement
Association, 1355 Willow Way, Suite 221, Concord, CA 94520 -5728 or by calling (925) 521 -3960.
The Plan provides for retirement,. disability, and death and survivor benefits. Annual cost of living
(COL) adjustments to retirement allowances can be granted by the Retirement Board as provided
by State statutes. Retirement benefits are based on age, length of service, date of membership and
final average salary.
Subject to vested status, employees can withdraw contributions plus interests credited, or leave
them as a deferred retirement when they terminate, or transfer to a reciprocal retirement system.
Plan Contribution Requirement
The Plan requires employees to pay a portion of the basic retirement benefit and a portion of future
COL costs. However, the District has paid the majority of the employees' basic contributions in
accordance with the Memorandum of Understanding (MOU). Employees must pay the COL
portion of the employee rate. The contribution requirement and payment from the District for the
plan years ended June 30, 2013, 2012 and 2011 was as follows:
The District pension plan covered 251 participants as of June 30, 2013.
2013
2012
2011
Covered Payroll for fiscal years ended June 30
$24,752,463
$24,305,548
$24,709,477
Employer required contributions to pension
14,029,374
10,961,853
8,950,938
Employee (COL) required contributions to pension
1,289,095
922,520
930,648
Total required contributions
$15,318,469
$11,884,373
$9,881,586
Percentage of payroll
62%
49%
40%
The District pension plan covered 251 participants as of June 30, 2013.
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 9 — PENSION PLAN (Continued)
CCCERA determines contribution requirements using a modification of the Entry Age Normal
Method. Under this method, the District's total normal benefit cost for each employee from date of
hire to date of retirement is expressed as a level percentage of the related total payroll cost. Normal
benefit cost under this method is the level amount the employer must pay annually to fund an
employee's projected retirement benefit. This level percentage of payroll method is used to amortize
any unfunded actuarial liabilities. The actuarial assumptions used to compute contribution
requirements are also used to compute the actuarially accrued liability. The District uses the
actuarially determined percentages of payroll to calculate and pay contributions to CCCERA. This
results in no net pension obligations or unpaid contributions. Annual Pension Costs, representing
the payment of all actuarially required contributions required by CCCERA, for the last three years
were as follows:
*Please note that CCCERA's fiscal year ends December 31.
The following is a summary of the actuarial assumptions and methods:
Valuation date
Annual
Actuarial cost method
Percentage
Amortization method
Pension Cost
Actual
of APC
- Fiscal Year*
(APC)
Contribution
Contributed
12/31/2011
$9,881,586
$9,881,586
100%
12/31/2012
11, 884,373
11,884,373
100%
12/31/2013
15,318,469
15,318,469
100%
*Please note that CCCERA's fiscal year ends December 31.
The following is a summary of the actuarial assumptions and methods:
Valuation date
December 31, 2012
Actuarial cost method
Entry Age Normal Cost Method
Amortization method
Level percent of payroll for total unfunded liability
(4.00% payroll growth assumed)
Remaining amortization period
Remaining balance of December 31, 2007 UAAL is amortized over
a fixed (decreasing or closed) period with 10 years remaining as of
December 31, 2012. Any changes in UAAL after December 31, 2007
will be separately amortized over a fixed 18 -year period effective with
that valuation.
Assets valuation method
Market value of assets less unrecognized returns in each of the last
of the last nine semi - annual accounting periods. Unrecognized return
is equal to the difference between the actual market return and the
expected return on the market value, and is recognized semi - annually
over a five -year period. The Actuarial Value of Assets is reduced by
the value of the non - valuation reserves and designations.
Actuarial assumptions:
Investment rate of return
7.75%
Inflation rate
3.25%
Cost -of- living adjustments
3.00%
31
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 9 — PENSION PLANS (Continued)
The schedule of funding progress presents multi -year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability
for benefits. CCCERA's latest actuarial value and funding progress for the pool are shown below:
The CCCERA Board took a depooling action in October, 2009 which yielded 12 separate cost
groups by employer, with the exception of smaller employers (those with less than 50 active
members) who continue to be pooled with the applicable county tier. The depooling action affected
employer rates effective July 1, 2011.
Public Employees' Pension Reform Act (PEPRA)
Assembly Bill 340 (AB 340) created the Public Employees' Pension Reform Act (PEPRA) that
implemented new benefit formulas and final compensation periods, as well as new contribution
requirements for most new employees with a membership date on or after January 1, 2013, who
meet the definition of new member under PEPRA.
The table below provides the details of the new provisions.
Benefit Formula
Final Compensation Period
Employer Contribution Rate
as a percentage payroll
Member Contribution Rate as
a percentage of payroll
2.5% at Age 67
Average of last 3 years
10.19% of Reportable
Compensation
10.25% of Reportable
Compensation
The employer contribution rate listed above is in effect until June 30, 2014. In accordance with the
provisions of AB 340, the member contribution rate shown above was set at 50 percent of expected
total normal cost rate, rounded to the nearest' /4 percent, for the benefits that will apply to new
members on January 1, 2013.
32
Unfunded
Unfunded
(Overfunded)
(Overfunded)
Actuarial Accrued
Actuarial
Liability as a
Entry Age
Accrued
Percentage of
Actuarial
Actuarial Asset
Actuarial Accrued
Liability (B -A),
Funded
Covered
Covered Payroll
Valuation Date
Value (A)
Liability (B)
(C)
Ratio (A/B)
Payroll (D)
(C/D)
12/31/2010
$5,341,821,711
$6,654,036,801
$1,312,215,090
80.28%
$687,443,206
190.88%
12/31/2011
5,426,719,066
6,915,311,649
1,488,592,583
78.47%
666,394,146
223.38%
12/31/2012
5,482,257,062
7,761,315,535
2,279,058,473
70.64%
652,312,180
349.38%
The CCCERA Board took a depooling action in October, 2009 which yielded 12 separate cost
groups by employer, with the exception of smaller employers (those with less than 50 active
members) who continue to be pooled with the applicable county tier. The depooling action affected
employer rates effective July 1, 2011.
Public Employees' Pension Reform Act (PEPRA)
Assembly Bill 340 (AB 340) created the Public Employees' Pension Reform Act (PEPRA) that
implemented new benefit formulas and final compensation periods, as well as new contribution
requirements for most new employees with a membership date on or after January 1, 2013, who
meet the definition of new member under PEPRA.
The table below provides the details of the new provisions.
Benefit Formula
Final Compensation Period
Employer Contribution Rate
as a percentage payroll
Member Contribution Rate as
a percentage of payroll
2.5% at Age 67
Average of last 3 years
10.19% of Reportable
Compensation
10.25% of Reportable
Compensation
The employer contribution rate listed above is in effect until June 30, 2014. In accordance with the
provisions of AB 340, the member contribution rate shown above was set at 50 percent of expected
total normal cost rate, rounded to the nearest' /4 percent, for the benefits that will apply to new
members on January 1, 2013.
32
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 9 — PENSION PLANS (Continued)
B. Deferred Compensation Plan
District employees may defer a portion of their compensation under a District sponsored Deferred
Compensation Plan created in accordance with Internal Revenue Code Section 457. Under this
plan, participants are not taxed on the deferred portion of their compensation until it is distributed to
them; distributions may be made only at termination, retirement, death, or in an emergency as
defined by the plan. The District does not make contributions to the plan.
The plan's 457 assets are held in trust for the exclusive benefit of the participants and are not
included in the District's financial statements.
C. 401 (a) Defined Contribution Plan
The District also contributes to a money purchase plan created in accordance with Internal Revenue
Code section 401(a). Contributions to the plan are made in accordance with a memorandum of
understanding stating that in lieu of making payments to Social Security, the District contributes to
the 401(a) Plan an amount equal to that which would have been contributed to Social Security on
behalf of its employees as long as the District is not required to participate in Social Security. The
assets are held in trust and are not recorded on the books of the District. The District contributed
$1,546,318 to the Plan during the year ended June 30, 2013.
NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS
A. Plan Description
The District's defined benefit post employment healthcare plan (DPBP) provides medical benefits
to eligible retired District employees and beneficiaries. DPBP is part of the Public Agency portion
of the Public Agency Retirement System (PARS), an agent multiple- employer plan administered by
PARS, which acts as a common investment and administrative agent for participating public
employees within the State of California. A menu of benefit provisions as well as other
requirements is established by the State statute with the Public Employees' Retirement Law. DPBP
selects optional benefit provisions from the benefit menu by contract with PARS and adopts those
benefits through District resolution. PARS issues a separate Comprehensive Annual Financial
Report. Copies of the PARS annual financial report may be obtained from PARS, 4350 Von
Karman Ave., Suite 100, Newport Beach, CA 92660, by calling 1(800) 540 -6369, or by emailing
info @pars.org.
B. Funding Policy
GASB Statement No. 45 set rules for computing the employer's expense for retiree benefits other
than pension, called OPEB. The expense, called the annual OPEB Cost (AOC), is determined
similarly to pensions. The annual required contribution (ARC) of the employer, represents a level
of funding that, if paid on an ongoing basis, is projected to cover normal annual costs each year and
amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.
33
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS (Continued)
When an agency contributes more than the ARC, there is a net OPEB asset (NOA); when the
contribution is less than the ARC, a net OPEB obligation (NOO) results. The District had a net
OPEB asset of $1,537,638 as of June 30, 2013.
Because of the volatility of the investment market, the District Board voted to make monthly
installments into the OPEB Trust to take advantage of dollar- cost - averaging.
C Annual OPEB Cost and Net OPEB Asset
For 2013, the District's annual OPEB cost (expense) was equal to the ARC of $8,300,000. The
District contributed $4,823,096 for retiree health care premiums and $3,767,000 to the PARS trust
for a total of $8,590,096. The following table summarizes the changes in the District's net OPEB
(Asset) at June 30, 2013:
Annual Required Contribution (ARC)
$8,300,000
Interest on NOA
(82,000)
Adjustment to ARC
98,000
Annual OPEB Cost (AOC)
8,316,000
Contributions Made:
June 30, 2012
Health care premiums paid
(4,823,096)
Contributions to PARS trust
(3,767,000)
Increase (decrease) in net OPEB obligation
(274,096)
Net OPEB Obligation (Asset) - Beginning of Year
(1,263,542)
Net OPEB Obligation (Asset) - End of Year
($1,537,638)
The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and
the OPEB asset for the past three years are presented below:
34
Percentage of
AOC
Contributed
102%
104%
103%
Current Year
AOC
Obligation
(Asset)
($169,805)
(346,806)
(274,096)
Net OPEB
Obligation
(Asset)
($916,736)
(1,263,542)
(1,537,638)
Annual OPEB
Actual
Fiscal Year
Cost (AOC)
Contribution
June 30, 2011
$6,976,364
$7,146,169
June 30, 2012
8,300,000
8,646,806
June 30, 2013
8,316,000
8,590,096
34
Percentage of
AOC
Contributed
102%
104%
103%
Current Year
AOC
Obligation
(Asset)
($169,805)
(346,806)
(274,096)
Net OPEB
Obligation
(Asset)
($916,736)
(1,263,542)
(1,537,638)
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS (Continued)
D. Funded Status and Funding Progress
Per PARS, actuarial assets as of June 30, 2013 and 2012, including trust contributions and interest,
total $29,352,833 and $22,718,524, respectively. Actuarial valuations of an ongoing plan involve
estimates of the value of reported amounts and assumptions about the probability of occurrence of
events far into the future. Examples include assumptions about future employment, mortality, and
the health care cost trend. The funded status of the plan and the annual required contributions of
the employer are subject to continual revision, as actual results are compared with past expectations
and new estimates are made about the future. The schedule of funding progress, presented below
presents multiyear trend information that shows whether the actuarial value of the plan assets is
increasing or decreasing over time, relative to the actuarial liabilities for benefits.
Projections for benefits for financial reporting purposes are based on the substantive plan (the plan
as understood by the employer and plan members) and include the types of benefits provided at the
time of each valuation as well as the historical pattern of sharing benefit costs between the
employer and plan members. The actuarial methods and assumptions used include techniques that
are designed to reduce short-term volatility in actuarial accrued liabilities and actuarial value of
assets, consistent with the long -term perspective of the calculations.
The District's most recent actuarial valuation was prepared as of July 1, 2012 and was finalized on
May 31, 2013. The June 30, 2012 actuarial valuation results will be budgeted in fiscal years 2013-
14 and 2014 -15. The ARC decreased from $8,300,000 to $8,103,000.
35
Unfunded
Unfunded
(Overfunded)
Cost Method
(Overfunded)
Actuarial
Actuarial
Actuarial
Actuarial
Covered Payroll
Liability as
Actuarial
Value of
Accrued
Accrued
Funded
(Active Plan
Percentage of
Valuation
Assets
Liability
Liability
Ratio
Members)
Covered Payroll
Date
(A)
(B)
(A — B) UAAL
(A/B)
(C)
((A — B) /Cl
June 30, 2009
$2,341,251
$68,769,305
($66,428,054)
3.40%
$25,080,233
265%
June 30, 2010
9,404,000
90,337,000
(80,933,000)
10.41%
25,080,233
323%
July 1, 2012
22,481,000
100,498,000
(78,017,000)
22.37%
24,305,548
321%
E. Actuarial
Methods and Assumptions
Projections for benefits for financial reporting purposes are based on the substantive plan (the plan
as understood by the employer and plan members) and include the types of benefits provided at the
time of each valuation as well as the historical pattern of sharing benefit costs between the
employer and plan members. The actuarial methods and assumptions used include techniques that
are designed to reduce short-term volatility in actuarial accrued liabilities and actuarial value of
assets, consistent with the long -term perspective of the calculations.
The District's most recent actuarial valuation was prepared as of July 1, 2012 and was finalized on
May 31, 2013. The June 30, 2012 actuarial valuation results will be budgeted in fiscal years 2013-
14 and 2014 -15. The ARC decreased from $8,300,000 to $8,103,000.
35
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 10 — POST EMPLOYMENT HEALTH CARE BENEFITS (Continued)
The following is a summary of the actuarial assumptions and methods:
Valuation Date
Actuarial Cost Method
Amortization Method
Average Remaining Period
Actuarial Assumptions:
Investment Rate of Return
Inflation Rate
NOTE 11— NET POSITION
July 1, 2012
Entry Age Normal Cost Method
Level Dollar /Closed
26 Years fixed
6.25%
3.00%
Medical - 9.4% grading to 5% in 2021 - 22
Medicare Part B - same as medical trend
Dental - 4%
Net Position is the excess of all the District's assets over all its liabilities, regardless of fund. Net
Position is divided into three captions:
Net Investment in Capital Assets describes the portion of Net Position which is represented by the
current net book value of the District's capital assets, less the outstanding balance of any debt
issued to finance these assets.
Restricted describes the portion of Net Position which is restricted as to use by the terms and
conditions of agreements with outside parties, governmental regulations, laws, or other restrictions
which the District cannot unilaterally alter.
Unrestricted describes the portion of Net Position which is not restricted as to use.
NOTE 12 — LEASE COIVIlVIITMENT5
The District leases various facilities and equipment under operating leases. Following is a summary
of operating lease commitments as of June 30, 2013:
Fiscal Year
Ending
2014
2015
2016
2017
Thereafter
Total
Office
Eauinment
Facilities Total
$249,924
$58,416
$308,340
249,924
60,096
310,020
249,924
61,827
311,751
-
63,610
63,610
-
33,922
33,922
$749,772
$277,871
$1,027,643
Total rental expense for the fiscal year ended June 30, 2013 was $306,708.
36
CENTRAL CONTRA COSTA SANITARY DISTRICT
NOTES TO THE BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2013
NOTE 13 — COMNITTMENTS AND CONTINGENCIES
Commitments and contingencies, undeterminable in amount, include normal recurring pending
claims and litigation. In the opinion of management, based upon discussion with legal counsel,
there is no pending litigation which is likely to have a material adverse effect on the fmancial
position of the District.
Claims and losses are recorded when they are reasonably probable of being incurred and the
amount is estimable. Insurance proceeds and settlements are recorded when received.
The District has a number of purchase commitments for ongoing operating and capital projects that
involve multi -year contracts. Purchase commitments related to these multi -year contracts are
approximately $11,808,184 as of June 30, 2013.
37
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SUPPLEMENTARY INFORMATION
This Page Left Intentionally Blank
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short term investments
Accounts receivable
Interest receivable
Due from other sub -funds
Parts and supplies
Prepaid expenses
Total current assets
NON - CURRENT ASSETS:
Restricted cash and equivalents
Restricted investments
Assessment Districts receivable
Net OPEB asset
Revenue bonds issuance costs, net of amortization
CAPITAL ASSETS
Nondepreciable
Depreciable, net of accumulated depreciation
Total capital assets, net
Total non - current assets
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Due to other sub -funds
Interest payable
Refunding Water Revenue Bonds - current portion
Water Reclamation Loan Contract - current portion
Accrued compensated absences - current portion
Liability for uninsured claims
Refundable deposits
Total current liabilities
NON - CURRENT LIABILITIES:
Refunding Water Revenue Bonds, noncurrent portion
Water Reclamation Loan Contract, noncurrent portion
Accrued compensated absences, noncurrent portion
Total noncurrent liabilities
TOTAL LIABILITIES
NETPOSITION
Net investment in capital assets
Restricted for debt service
Unrestricted
TOTAL NET POSITION
CENTRAL CONTRA COSTA SANITARY DISTRICT
COMBINING SCHEDULE OF NET POSITION
ENTERPRISE SUB -FUNDS
JANE 30, 2013
Running
Sewer
Self
Debt
5,376,935
Expense
Construction
Insurance
Service
Elimination
Total
718,147
$2,970,387
$39,891,572
$3,872,274
($19,445)
$46,714,788
10,498,624
10,498,624
11,789,066
3,760,182
968,301
16,517,549
26,488
2,349
36,484
1,000,000
65,321
118,416,830
89,775,752
1,700,940
55,110,409
($265,003,931)
-
2,005,741
341,437
133,626,086
119,942,733
2,861,223
2,005,741
2,204,210
11,704,101
2,204,210
137,386,234
143,952,618
6,543,864
55,127,448
(265,003,931)
78,006,233
100,000
2,089,461
1,537,638
41,795,503
562,189,966
603,985,469
5,412,500
315,287
100,000
5,412,500
2,089,461
1,537,638
315,287
41,795,503
562,189,966
603,985,469
605,623,107 2,089,461 5,727,787 613,440,355
743,009,341 146,042,079 6,543,864 60,855,235 (265,003,931) 691,446,588
2,782,414
2,540,088
54,433
5,376,935
130,277,654
117,244,226
1,806,790
15,675,261
(265,003,931)
718,147
718,147
3,720,000
3,720,000
164,582
164,582
383,000
383,000
1,000,000
1,000,000
183,018
158,419
341,437
133,626,086
119,942,733
2,861,223
20,277,990
(265,003,931)
11,704,101
39,875,000
39,875,000
702,245
702,245
3,450,245
3,450,245
3,450,245
-
40,577,245
44,027,490
137,076,331
119,942,733
2,861,223
60,855,235
(265,003,931)
55,731,591
603,985,469
(44,461,827)
559,523,642
4,730,837
4,730,837
1,947,541
26,099,346
3,682,641
39,730,990
71,460,518
$605,933,010
$26,099,346
$3,682,641
$635,714,997
41
CENTRAL CONTRA COSTA SANITARY DISTRICT
COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
ENTERPRISE SUB -FUNDS
FOR THE YEAR ENDING JUNE 30, 2013
OPERATING REVENUES
Sewer service charges (SSC)
Service charges - City of Concord
Other services charges
Miscellaneous charges
Total operating revenues
OPERATING EXPENSES
Sewage collection and pumping stations
Sewage treatment
Engineering
Administrative and general
Depreciation
Total operating expenses
OPERATING INCOME (LOSS)
NONOPERATING REVENUES (EXPENSES)
Taxes
Permit and inspection fees
Interest earnings
Interest expense
Other income (expense)
Total nonoperating revenues
NET INCOME (LOSS) BEFORE CAPITAL
CONTRIBUTIONS AND TRANSFERS
CAPITAL CONTRIBUTIONS AND TRANSFERS
City of Concord contributions to capital costs
Customer contributions to capital cost (SSC)
Contributed sewer lines
Capital contributions - connection fees
Transfers In (Out)
Total capital contributions and transfers
CHANGE IN NET POSITION
NET POSITION, BEGINNING OF YEAR
NET POSITION, END OF YEAR
Running
Sewer
Self
Debt
Expense
Construction
Insurance
Service
Elimination
Total
$56,770,984
$56,770,984
10,483,421
10,483,421
1,076,401
1,076,401
751,880
751,880
69,082,686
69,082,686
14,327,933
14,327,933
23,035,943
23,035,943
8,680,934
8,680,934
20,936,705
$2,380,466
($2,220,505)
21,096,666
21,596,266
21,596,266
88,577,781
2,380,466
(2,220,505)
88,737,742
(19,495,095)
(2,380,466)
2,220,505
(19,655,056)
$7,471,518
$5,538,959
13,010,477
967,576
202,233
1,169,809
131,614
230,054
15,269
28,537
405,474
(1,802,084)
(1,802,084)
665,939
285,161
2,220,505
(2,220,505)
951,100
1,765,129
8,188,966
2,235,774
3,765,412
(2,220,505)
13,734,776
(17,729,966)
8,188,966
(144,692)
3,765,412
(5,920,280)
3,616,771
3,616,771
4,384,376
4,384,376
939,628
939,628
6,091,529
6,091,529
27,185,118
(23,419,706)
(3,765,412)
28,124,746
(9,327,030)
-
(3,765,412)
15,032,304
10,394,780
(1,138,064)
(144,692)
9,112,024
595,538,230
27,237,410
3,827,333
626,602,973
$605,933,010
$26,099,346
$3,682,641
$635,714,997
42
CENTRAL CONTRA COSTA SANITARY DISTRICT
Schedule of Running Expenses
Comparison of Budget and Actual Expenses by Department
June 30, 2013
Less Capitalized
Overhead and Benefits
Total Salaries and Benefits
Directors' Fees and Expense
Chemicals
Utilities
Repairs and Maintenance
Hauling and Disposal
Professional and Legal Services
Outside Services
Self Insurance
Materials and Supplies
w Other
(21,699)
Sewage
(49,878)
Variance
Sewage
Treatment
Pumping
Favorable
Administration Engineering Collection
Plant
Stations Total
Budget (Unfavorable)
Salaries and Wages $4,412,199 $5,594,312 $5,074,422
$8,357,973
$894,930 $24,333,836
$23,891,546 ($442,290)
Employee Benefits 12,493,141 4,596,838 4,365,835
6,781,830
686,147 28,923,791
28,879,748 (44,043)
Less Capitalized
Overhead and Benefits
Total Salaries and Benefits
Directors' Fees and Expense
Chemicals
Utilities
Repairs and Maintenance
Hauling and Disposal
Professional and Legal Services
Outside Services
Self Insurance
Materials and Supplies
w Other
(21,699)
(3,255,448)
(49,878)
(119,384)
-
(3,446,409)
(3,756,000)
(309,591)
16,883,641
6,935,702
9,390,379
15,020,419
1,581,077
49,811,218
49,015,294
(795,924)
115,880
-
-
-
-
115,880
161,960
46,080
- _
-
-
1,144,675
430,279
1,574,954
1,581,000
6,046
149,283
67,422
136,388
3,013,348
479,394
3,845,835
3,906,150
60,315
429,567
81,522
623,001
1,614,895
402,142
3,151,127
3,644,811
493,684
-
570,665
109,788
388,707
19,134
1,088,294
1,039,800
(48,494)
549,980
122,722
2,036
3,307
-
678,045
590,900
(87,145)
1,094,797
534,715
58,230
417,899
52,952
2,158,593
3,248,970
1,090,377
850,000
-
-
-
-
850,000
850,000
-
149,507
203,936
784,056
790,840
51,975
1,980,314
1,970,805
(9,509)
714,050
164,250
174,781
641,853
32,321
1,727,255
2,296,774
569,519
$20,936,705
$8,680,934
$11,278,659
$23,035,943
$3,049,274
$66,981,515
$68,306,464
$1,324,949
CENTRAL CONTRA COSTA SANITARY DISTRICT
RUNNING EXPENSE
SCHEDULE OF SUPPLEMENTAL NET POSITION ANALYSIS
FOR THE FISCAL YEAR ENDED JUNE 30, 2013
Prior Year Balance
2012 -2013 Revenue
2012 - 2013 Expense
Add Back Depreciation Expense
Net Position Attributed to General Operations
Net Position Attributed to All Other
Running Expense Net Position
44
$70,847,815
(88,577,781)
21,596,266
$8,706,410
3,866,300
12,572,710
593,360,300
$605,933,010
Attachment 2
Memorandum on Internal Control and Required
Communications for the Year Ended June 30, 2013
Attachment 2
CENTRAL CONTRA COSTA SANITARY DISTRICT
MEMORANDUM ON INTERNAL CONTROL
AND
REQUIRED COMMUNICATIONS
FOR THE YEAR ENDED
JUNE 30, 2013
This Page Left Intentionally Blank
CENTRAL CONTRA COSTA SANITARY DISTRICT
MEMORANDUM ON INTERNAL CONTROL
AND
REQUIRED COMMUNICATIONS
For the Year Ended June 30, 2013
Table of Contents
Page
Memorandum on Internal Control ..................................................................... ..............................1
Scheduleof Other Matters .................................................................................. ............................... 3
Schedule of Current Status of Prior Year Significant Deficiencies ................ ............................... 5
Schedule of Current Status of Prior Year Other Matters ................................. ............................... 7
Required Communications ................................................................................. ............................... 9
Significant Audit Findings ........................................................................... ............................... 9
AccountingPolicies .................................................................................. ............................... 9
Unusual Transactions, Controversial or Emerging Areas ...................... ............................... 9
Estimates................................................................................................... .............................10
Disclosures................................................................................................ .............................10
Difficulties Encountered in Performing the Audit ................................. .............................10
Corrected and Uncorrected Misstatements ............................................. .............................10
Disagreements with Management ........................................................... .............................10
Management Representations .................................................................. .............................10
Management Consultations with Other Independent Accountants ....... .............................11
Other Audit Findings or Issues ................................................................ .............................11
OtherMatters ............................................................................................ .............................11
This Page Left Intentionally Blank
J\J MAZE
& ASSOCIATES
MEMORANDUM ON INTERNAL CONTROL
To the Board of Directors
Central Contra Costa Sanitary District
Martinez, California
We have audited the financial statements of the Central Contra Costa Sanitary District (District) for the year
ended June 30, 2013, and have issued our report thereon dated September 18, 2013. In planning and performing
our audit of the financial statements of the Central Contra Costa Sanitary District as of and for the year ended
June 30, 2013, in accordance with auditing standards generally accepted in the United States of America, we
considered the District's internal control over financial reporting (internal control) as a basis for designing our
auditing procedures 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 District's internal control. Accordingly, we do not
express an opinion on the effectiveness of the District'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 District's financial
statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control was for the limited purpose described in the first paragraph and was not
designed to identify all deficiencies in internal control that might be significant deficiencies or material
weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. In addition,
because of inherent limitations in internal control, including the possibility of management override of controls,
misstatements due to error or fraud may occur and not be detected by such controls. We did not identify any
deficiencies in internal control that we consider to be a material weaknesses. However, material weaknesses
may exist that have not been identified.
Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we
believe to be of potential benefit to the District.
The District's written responses included in this report have not been subjected to the audit procedures applied
in the audit of the financial statements and, accordingly, we express no opinion on them.
This communication is intended solely for the information and use of management, Board of Directors, others
within the organization, and agencies and pass - through entities requiring compliance with generally accepted
government auditing standards, and is not intended to be and should not be used by anyone other than these
specified parties.
September 18, 2013
T 925.930.0902
Accountancy Corporation a 925.930.0135
3478 Buskirk Avenue, Suite 215 e maze@rnazeassociates.corn
Pleasant Hill, CA 94523 w mazeassociates.com
This Page Left Intentionally Blank
CENTRAL CONTRA COSTA SANITARY DISTRICT
SCHEDULE OF OTHER MATTERS
FOR THE YEAR ENDED JUNE 30, 2013
2013 -01 Inventory — Procedures and Reconciliations
We did not enter into an audit contract with the District until July 2, 2013, and therefore, we were not
able to participate in or observe the annual physical inventory count that occurred on June 30, 2013. We
did, however, review the policies and procedures related to inventory, as well as the results of an
internal review performed by accounting staff. While all of the findings in the internal report should be
addressed, we wanted to focus on a few of the key issues that are of particular concern.
In reviewing that counters are signing and entering counts on count sheets, the internal review noted 17
instances in which the count sheet line items had been left blank. The internal review also noted that 6
out of 36 samples did not include exception reports. In order to be able to rely on the inventory counts,
the counter must sign off on all count sheets and make notations when there are discrepancies, and never
leave blanks; also, there must always be an exception report, or at least a notation that there were no
exceptions.
The Materials Services Cycle Count Inventory Procedures currently state that a monetary threshold of
negative $500 will be resolved by the supervisor. Shortages that exceed $500 must be reviewed and
signed by the Purchasing Manager and or the Director of Administration. The internal review found an
instance where a negative adjustment exceeding the $500 threshold was not approved or signed off by
the Purchasing Manager. It is important that all procedures are followed and the Purchasing Manager is
paying close attention to inventory adjustments. We agree with the recommendations made in the
internal audit to have + or - $500 adjustments be approved by the Purchasing Manager because it
provides for better separation of duties, thereby, increasing internal controls.
We also noted a recommendation was made to install additional security cameras in the warehouse.
Due to the nature of the assets being protected, which exceed $2 million in value as of June 30, 2013,
we concur with this recommendation.
We understand the District has not reviewed its obsolete inventory in two to three years, and therefore,
the value on the fmancial statements may be overstated as a result. We also understand the District has
budgeted for an outside party to conduct an evaluation of the inventory and warehouse procedures. We
recommend the District contract with an outside party to complete this evaluation, and in the meantime,
District staff outside of the inventory process should perform sample counts on a rotational basis. This
would provide better inventory controls as it would provide a separation of duties of warehouse
personnel (i.e. staff responsible for operating, recording, and maintaining the warehouse will not be the
same staff responsible for inventory taking).
Management's Response.
Procedural changes have been implemented so that warehouse staff is required to sign off on all
count sheets and make notations to items that cannot be located. Staff has been instructed not to
leave blanks by either indicating counts or making a notation for all line items on count sheets. The
Warehouse Supervisor will print exception reports or make a notation of why there is no exception
report.
2. Effective July 1, 2013 inventory adjustments +/- $500 are reviewed by the Warehouse Supervisor.
The exception reports with the +/- $500 adjustments will be forwarded to the Purchasing Manager
on a monthly basis for approval.
3. The District is in the process of working with Safety and Risk Management to determine the cost,
benefit, and location of cameras needed to safeguard and secure District inventory.
4. The Warehouse Supervisor and the maintenance division are in the process of reviewing the
inventory for potential obsolete items. The District plans to evaluate inventory and warehouse
processes and procedures which may include hiring a consultant during the current fiscal year.
Management is also considering possibly rotating staff quarterly to perform counts.
Effective July 2013 an Accounting Technician goes out to the warehouse monthly to review the prior
month cycle counts and exception reports to ensure open items are reviewed, cleared and updated on a
timely basis. We will follow up with you in detail during the 2014 -15 audit fieldwork.
4
CENTRAL CONTRA COSTA SANITARY DISTRICT
SCHEDULE OF CURRENT STATUS OF PRIOR YEAR SIGNIFICANT DEFICIENCES
FOR THE YEAR ENDED JUNE 30, 2013
2012 -01 Continuity of Personnel
As part of an audit, auditors do many risk assessments including the assessment of environmental
controls, which is defined as the tone of management toward controls. We deemed the environmental
controls to be very good. That said, this past year has been a year with an unusual amount of change,
including numerous management -level retirements. We observed some transitional risk as various long
time employees retired and their positions were replaced with other long time employees as well as
some new hires. We would expect fiscal 2013 to be a difficult one as job responsibilities are further
delineated and inherit risk increases.
We recommend the board monitor next year's ongoing transition in the accounting department since it
serves as a key role in the success and management of the District.
Current Status
The current auditors did not experience any difficulties with the current year's transition.
2012 -02 General Ledger System
The auditors have worked with the current general ledger for a several years. The system is difficult to
work with for the auditors. It is outdated and chunky. The accounting department works well with the
system but efficiency is lost as accounting staff members sometimes must use manual workarounds such
as pivot tables for inventory and the creation of special reports by the staff to download trial balances.
We feel a newer system would enhance the efforts of the newer staff and auditors to drill down into
accounts more efficiently. Efficiencies would be gained by both staff and others using or relying on the
system.
We understand the District is moving to replace the current general ledger system. We implement a new
system. We further recommend any system conversion be implemented at the beginning of a new fiscal
year and the District run the conversion parallel to the old HTE /SunGard system.
Current Status
The current auditors did not experience difficulties with the District's general ledger system.
2012 -03 Permit Counter
The permit counter receivable process was unknowingly a material problem for many years. The extent
of the problem was not known by the accounting department or its Districts auditors. Although we
believe that overall, the District has strong environmental controls, the permit collection process and its
accounts receivable system module were most likely known at some level of management.
We recommend that all District management involve the accounting department management at all
levels of internal controls surrounding accrual accounting issues and/or policy. Accounting management
is best suited to make judgments concerning the significance to the District's financial processes.
Furthermore, we agree with outside consultants that the District's primary control would be requiring
homeowners to show evidence of obtaining a sewage connection permit prior to issuing their City
permit.
Current Status
Starting January 1, 2013 staff began collecting fees for projects where there was an existing connection
to the CCCSD sewer upon review of plans at the permit counter. Fees for new construction are still
collected at the "roof and rough [plumbing]" stage of construction. Staff will review this approach with
the Board of Directors along with several proposed changes to CCCSD District Code later this fall.
Following the Bartle Wells audit, staff has been meeting regularly with local building departments to
review the process of CCCSD plan review and approval as well as the coordination of CCCSD fee
collection and final building permit sign -off.
Engineering has been working with Accounting to collect and clear the receivables recorded as a result
of the Bartle Wells audit. At June 30, 2013 the majority of the receivables had been collected.
6
CENTRAL CONTRA COSTA SANITARY DISTRICT
SCHEDULE OF CURRENT STATUS OF PRIOR YEAR OTHER MATTERS
FOR THE YEAR ENDED JUNE 30, 2013
2012 -04 Legal Costs
As part of our audit, we consult with staff about pending legal problems and review attorney letters to
insure that they are properly reserved in the general ledger. At the end of the fiscal year, management
was working to determine the total accrual needed for legal costs due to various legal issues the District
is currently faced with, but it was unable to accurately estimate the amount during the year end closing
process. As part of our audit, we passed a fairly significant journal entry of slightly over $80,000. The
journal entry was not recorded in the audited financials because it would have complicated the
accounting process in relation to the District's agreement with the City of Concord.
We recommend that accounting book all legal invoices (or book an estimate for invoices not received)
as part of the year end close to help avoid reconciliation issues with the attorney letters. Furthermore, if
applicable, we recommend accounting be updated on risk management estimates for the accrual of
necessary legal reserves.
Current Status
Legal bills payable at year end are accrued as part of the year end accrual process for invoices not
receive by the close of the year.
2012 -05 Inventory
We have great respect for the accuracy of the inventory counts we do on a rotation basis. However, in
the current year we had some fairly significant discrepancies regarding low cost items with high
turnover (such as safety glasses) which required us to perform some additional test counts. We have
been informed by Warren Gaines, Material Services Supervisor that as a result of our audit he is
instituting a procedure to perform more frequent test counts on high turnover items.
We recommend that the plan to perform more frequent test counts on the high turnover items should be
fully implemented and also recommended that procedures for issuing out inventory items to various
departments be tightened to eliminate items being released to departments but not recorded.
Current Status
As part of the continuous improvement process and in response to the 2012 audit finding and
recommendation, the following steps will be practiced and implemented.
Cycle count improvement process for low cost high turnover item:
1. Continue to exhort the importance of cycle counts meaning and purpose to Material Coordinators.
Ensuring that they recognize that other inventory actions can be triggered by bad and inaccurate
counts i.e., unnecessary procurements, bad information to maintenance personnel, recounts, wrong
adjustments to potentially several records, and even more important..... Wasted time recounting.
2. Review items which cause errors due to warehouse organizational and unit measure problems.
Correcting this could alleviate future errors. Note: root cause analysis is currently applied.
3. Report and discuss overall error rates along with individual error rates monthly.
4. Make sure the nature of the error rate is understood so that appropriate measures can be taken to
alleviate repeated miscounts.
5. Discuss inventory targets and goals with staff and brainstorm... again for better acceptance.
6. Finally, identify, review and spot check items issued on a weekly basis.
a & MAZE
ASSOCIATES
REQUIRED COAU�IUNICATIONS
To the Board of Directors
Central Contra Costa Sanitary District
Martinez, California
We have audited the basic financial statements of the Central Contra Costa Sanitary District (District) for
the year ended June 30, 2013. Professional standards require that we communicate to you the following
information related to our audit under generally accepted auditing standards.
Significant Audit Findings
Accounting Policies
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the District are included in Note 1 to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during the year.
The following Government Accounting Standards Board (GASB) pronouncements became effective, but
did not have a material effect on the financial statements:
GASB 60 - Accounting and Financial Reporting for Service Concession Arrangements
GASB 61 - The Financial Reporting Entity Omnibus, an amendment of GASB Statements No.
14 and No. 34.
GASB 62 - Codification ofAcco4nting and Financial Reporting Guidance Contained in Pre -
November 30 1989 FASB and AICPA Pronouncements
The following pronouncement became effective, and required a format change in the Statement of Net
Position and certain nomenclature revisions in the footnotes accompanying the financial statements:
GASB 63 - Financial Reporting of Deferred Ou ows of Resources, Deferred Inflows of
Resources, and Net Position
Unusual Transactions, Controversial or Emerging Areas
We noted no transactions entered into by District 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.
Accountancy Corporation
3478 Buskirk Avenue, Suite 215
Pleasant Hill, CA 94523
we
T 925.930.0902
F 925.930.0135
E maze @mazeassnciates.com
w mazeassociates.com
Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's current judgments. Those judgments are normally based on 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 District's financial statements are depreciation, claims liability and
actuarial estimates for other post - employment benefits.
Management's estimate of depreciation is based on the estimated useful lives of the capital assets, and its
estimate of claims is based on the District Attorney's estimates of current and potential litigation, as well
as actuary studies provided for the District as of June 30, 2013. We evaluated the key factors and
assumptions used to develop the depreciation expense, claims liability and reviewed the current actuary-
study and determined that they are reasonable in relation to the basic financial statements taken as a
whole. The value of the assets, liability and assumptions used to determine annual required contributions
for other post - employment benefits is determined by an actuary study provided to the District as of June
30, 2012.
Disclosures
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management 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. Management has corrected all/certain such misstatements. In addition, none of the
misstatements detected as a result of audit procedures and corrected by management were material, either
individually or in the aggregate, to each opinion unit'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 a management
representation letter dated September 18, 2013.
10
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 governmental unit'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 governmental unit'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
With respect to the supplementary information accompanying the financial statements, we made certain
inquiries of management and evaluated the form, content, and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United
States of America, the method of preparing it has not changed from the prior period, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the
financial statements or to the financial statements .themselves.
This information is intended solely for the use of the Board of Directors and management and is not
intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
September 18, 2013
11
This Page Left Intentionally Blank
Attachment 3
Internal Audit of Material Supplies Building (MSB)
and Cycle Counting for the Fiscal Year 2012 -13
Attachment 3
Central Contra Costa Sanitary District
July 16, 2013
TO CURT SWAN SON, STEPHANIE KING, AND WARREN GAINES
FROM: THEA VASSALLO
SUBJECT:- AUDIT OF MATERIAL: SUPPLIES BUILDING (MSB) AND CYCLE COUNTING
FOR FISCAL YEAR 2012 -13
Accounting Technician Nicole Marshall and I conducted an interim audit of the MSB cycle
counting process on Friday, June' 28, 2013, We worked with Materials Services Supervisor
(supervisor) Warren Gaines during the audit. Presented below is the audit plan and findings
summarized by section.
Audit Plan and Findings:
1. Reviewed cycle count files — The files were easily accessible and were organized by
month.
2. ,Determined number of counts since July 2012 Determined that cycle counts have
been performed from July 2012 — June 2013. There were thirty -six cycle counts done
during the year. See Table 1.
3. Reviewed that counters are sianina and enterina counts on the count sheets —
Confirmed that the counts sheets are being signed by the counters. It was noted in
seventeen instances where the count sheet tine item had been left blank. See Table 1.
4. Verified inventory exception reports are being produced — Exception reports are
produced subsequent to the cycle counts. There were thirty -six counts selected during
the Fiscal Year and six had missing exception reports. This appeared to be the case in
the months August, October, and April. There were no notations made on the inventory
cycle count sheets to indicate that there were no exceptions generated for that
particular month. See Tables 1 and 3.
Exception reports are generated by the system after several steps have been performed
by both the supervisor and staff. First, the supervisor submits a cycle inventory request,
which then generates cycle inventory worksheets. The supervisor then assigns the
sheets to the warehouse staff. The warehouse staff then takes the sheets and conducts
their counts. The counters' counts are then input into the system by the supervisor and
a Physical Inventory Exception Report is produced based on the differences between
the quantity counted and the perpetual system count. The supervisor reconciles the
discrepancies and makes adjustments as needed.
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It was noted during our review that the time between when a sample is run and when
the sample inventory items are cleared in the system range between 1-22 days. See
Table 3. This is significant because the inventory that is selected and sampled is frozen
in the system until it is cleared. Consequently, the warehouse staff switches to a
manual "Golden Rod System" for those inventory items sampled. Items are then
distributed, allocated, or returned upon request prior to the sample clearing in the
system. Once the inventory sample is cleared or unfrozen, the warehouse staff then
needs to enter the golden rod activity into the system to accurately adjust the inventory
in the system.
5. Determined exceptions are being reconciled and exceptions noted — The monthly
exception reports are filed with the cycle counts. It was noted that six of the thirty-six
cycle counts were missing an exception report as noted in Tables 1 and 3. The
supervisor keeps track of the + positive and — negative adjustment on the Excel Monthly
Physical Inventory Status Report per Table 4; however, during our review we were
unable to trace the total adjustments to the exception reports on file. See Table 3.
The supervisor sends Accounting an adjusting journal to adjust for the monthly
exception reports generated. The supervisor also sends Accounting the monthly
posting of inventory allocations and adjustments.
6. Verified the $500 exception signing limit is being observed — The Materials Services
Cycle Count Inventory Procedures are attached, and Item 15. states that a monetary
threshold of (-$500) will be resolved by the supervisor. Shortages that exceed $500
must be reviewed and signed by the Purchasing Manager and or the Director of
Administration. Based on the exception reports that were on hand and filed with the
monthly cycle count folders there was one negative line item adjustment of ($522.54)
that met this criteria. This adjustment required sign off and approval by the Purchasing
Manager (See Table 2). Nicole Marshall verified that the negative adjustment was not
approved or signed off by the Purchasing Manager. The Excel Monthly Physical
Inventory Status Report prepared by the supervisor summarizes - negative adjustments
as being $15,046.47 for Fiscal Year 2012-13 per Table 4. The difference in - negative
adjustments is $14,523.93 and is not supported by the exception reports on file. Table
2 summarizes all the individual line items +/- $500 noted on the filed exception reports.
7. Determined to date how many items have been cycle counted — Between July 2012 and
June 2013, approximately 7,346 items have been counted. It appeared that the "A" and
"B" items had been counted twice. Once through December 2012, and again for the
period January through June 2013. The "C" items appeared to have been counted
once during the year. It was noted that 65% (2,296) of the "C" items were counted in
June. See Table 1. The estimated ABC total class counts per the Monthly Physical
Inventory Status Report were used since that is the source document used by the
supervisor. See Table 4.
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8. Reviewed break-down by A, B, and C items — It was noted that 1,352 "A" items, 2,448
"B" items, and 3,546 "C" items had been counted and inventoried as of June 2013. See
Table 1,
Recommendations:
Effective Immediately
• An Accounting Technician will go out to the warehouse monthly and review the prior
month cycle counts and exception reports.
• Any inventory line item adjustment +/- $500 will be signed off by the Purchasing
Manager. Providing information on both overages and underages provides for tighter
internal controls, review and monitoring of actual inventory adjustments, and
accountability of activity through the inventory system. This change will be reviewed on
an annual basis. +/- adjustments are caused by the following:
+ Overages
1. Shipment received that is not entered into the system
2. Issued wrong part #, causes both overage & shortage
3. Inventory returned to shelf by unauthorized staff (as a favor)
4. PCard purchases not entered into the system
- Shortages
1. Unauthorized staff took inventory (issuance not entered into the system)
2. Theft
3. Shrinkage
Other
• Warehouse staff should be reminded periodically and the supervisor needs to make
sure all sheets are signed, dated, and counts indicated (including 0 or none).
• Exception reports should be run for all cycle counts.
• Cycle counts with no exceptions should be noted in the monthly folders.
• Material Services Cycle Count Inventory Procedures should be followed and updated
for procedural changes. Per subsequent review it appears that items 11. and 14.
through 17. are not being followed. See attached procedures.
• Cycle counts should be released timely to avoid using the manual Golden Rod System
which duplicates work processes.
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• The Excel Monthly Physical Inventory Status. Report +/- adjustments should agree or tie
to a report from the inventory system. During our review we were not able to verify the
+ $19,556 (410 items) or the - $15,046 (517 items) adjustments. See Tables 3 and 4.
• The Excel Monthly Physical Inventory Status Report inventory value as of June 2013
has a book value of $1,780,823 which should agree or closely tie to the monthly Period
12 financials of $2,003,639.
• Final monthly exception reports with detailed explanations on +/- $500 exceptions
should be submitted to and approved by the Purchasing Manager on a monthly basis as
needed. I verified with Nicole Marshall that the exception report for October 2012 had
not been approved; Per discussion with Stephanie and Warren in July of 2011, 1
suggested that Warren email or scan final exception reports with details on a timely
basis. Under the current procedures none of the inventory adjustments are being
approved.
• Current inventory balance is over $2,000,000 and has been increasing over the last
several years. These assets should be protected and safeguarded by installing
additional security cameras at the entrances, exit and roll up doors. Per discussion with
Risk and Safety there is currently one camera at the counter.
Need documented written procedures or updates for the following:
Items sent to auction
Review of obsolete inventory (Chapter 22 Surplus Equipment)
Recording of various types of purchases (PCard, PO, vendor donations, etc)
Issuance of MSB inventory
Open inventory purchases and recording of usage
Disposals
In conclusion, I have several concerns about the inventory value on the monthly financials,
procedures being followed, and completeness of records. As part of my final inquiry with
Warren it was discussed that obsolete inventory adjustments had not been done for 2 or 3
years. Per discussion with Purchasing Manager Stephanie King, Purchasing has budgeted for
a consultant and warehouse evaluation for several years. I support and recommend
contracting a consultant for Fiscal Year 2013 -14 to review the book value, accuracy and
completeness of records, provide written procedures, and evaluate processes of the
warehouse to improve internal controls, tracking, accountability, and safeguarding of the
District's inventory.
Please call if you have any questions.
Cc: N. Marshall
Maze & Associates (audit file)
N:\ACCQUNTING\GMTEMPI \MSB Inventory\MSB Cycle Count Audit 12- 13:doc
Table 1 Summary of Counts
Table 2 Summary of Exception Reports on File +/ -$500 Line Items
Month
Amount
+ Ad`imts
- Adimts
Quantity Item Description
9/2012
$915.29
$915.29
2 Flange, Adapter
9/2012
$679.73
$679.73
1 Flange, Adapter
9/2012
$3,763.86
$3,763.86
2 Motor, Hydraulic Repair
10/2012
($522.54)
($522.54)
3 Cartridge Housing
10/2012
$1,174.57
$1,174.57
7 Channel, $ -Line
03/2013
$1,666.98
$1,666.98
2 Seal, Assembly - Bottom
03/2013
$513.13
$513.13
4 Valve
04/2013
$985.08
$985.08
14 Battery, Nickel Cadmium
05/2013
$508.31
$508.31
2 Coupling
06/2013
$2,031.62
$2,031.62
4 Driven, Short Shaft
Total
41
$11,716.03
$12,238.57
($522.54)
Per Excel Inventory Worksheet
19,555.95
15,046.47
From Table 4
Variance
(7,311.38)
(15,569.01)
Comment
Approval Required
Table 3 Summary of Sample and Count Dates
Summary of Exception Reports on File
# Days
# pays
Total $ Per
Step
#1
#2
(1 to 2)
#3
(1 to 3)
Exception Rpt
Sannpies „Putted „
l Co ', gomwted
Samples Cleared
', _
7/31%2012
7/31/2012
8/15/2012
16
Partial rpt
augus,,t
8/30/2012
8/30/2012
1
8/31/2012
2
(227.43)
8/31/2012
8/31/2012
1
No Exceptn Report
None on file
8/31/2012
8/31/2012
1
No Exceptn Report
None on file
8/31/2012
8/31/2012
1
No Exceptn Report.
-
None on file
Stenbgr „
9/28/2012
1015/2012
9
10%9/2012
13
5,890.86
Cl+ctobi
10/22/2012
10/22/2012
1
10/2`6/2'712
5
374.84
10/26/2012
10/26/2012
1
10/30/2012
5
306.63
10/30/2012
10/30/2012
1
No Exceptn Report
-
None on file
10/31/2012
11/1/2012
2
No Exceptn Report
-
None on file
Nov` rn
Table 4 Monthly Physical Inventory Status Report
Book to Physical
5185
$1,780,823.15
Book Value
$1,785,332.80
Actual Count Value
_
- $4,509.65
Net Difference
$1,780,823.15
Book Value
2013 June
Count Accuracy% 82
Net Accuracy % 99
_Record Accuracy% 99
Record Accuracy
Items: 5185
$1,780,823.15
Book Value
S 19,555.95
(T Adjustment) 410
S15,046.47
( - Adjustment) 517
=
S34,602.42
Absolute Difference
$1,780,823.15
Book Value
Total Class
Total Count
A
678
$1,368,110.36
B
1263
$283,619.48
C
3552
$139,798.77
Total - ->
5493
$1,791,528.61
Class
Total Counted
Value Counted
A
676
$1,368,664.94
B
1263
$284,219.17
C
3246
$132,448.68
Total - ->
5185
$1,785,332.79
Class
A
B
C
Total - ->
Count Remaining
2
0
306
308
June -13
Physical Count
Ad'+
Ad"-
A
B
133
9
-14
C
2296
232
-313
Prepared By: Materials Services Supervisor Warren Gaines
Material Services
Cycle Count Inventory, Procedures
The cycle count inventory will be used in lieu of the annual physical inventory.
The benefits are fourfold: 1) line item accuracy will be updated during the course
of the years vs. year -end, preventing stock- outs of frequently used items. 2)
Adjustments made against the over /short account can be distributed to
expenditure account throughout the year making it more palatable to account
custodians. 3) Discrepant counts can be investigated fully without the pressures
of a time constraint. 4) By giving the inventory count responsibility back to those
who have a stake in its integrity, the district will save money by eliminating
outside agencies.
MSB personnel will conduct counts and reconcile discrepancies during the daily
MSB closure from 11:00 —12:00 pm. However, assistance with material issues
will still be addressed by Material, Services Staff.
The ABC Analysis Report is critical and is the initial step for the cycle count.
The ABC system is based on the presumption that inventoried items follow
Pareto's Law for the distribution of value in the population. Commonly known as
the 80/20 rule. It states that a majority of the cost of inventory is in a small
minority of the items. Typically, 80 percent of the cost of the inventory comes
from 20 percent of the items; conversely, 80 percent of the items represent only
20 % of the cost.
To establish an ABC system for managing inventory including cycle counts, an
analysis of all inventory items should be listed in descending order based on their
total annual dollar value. The total annual dollar value is the total quantity used
in one year times the unit price. A break point in the dollar values can be used to
establish the classification.
The good news is that Sungard accomplishes this task in its logical file;
therefore, no steps have to be taken by MSB personnel.
Step ACTIONS
The ABC report is a fantastic management tool used to control the investment in
inventory. It can also be used to analyze inventory usage.
Note: this report is essential and must be run prior to the execution of any
type of inventory in Sungard also an ABC classification code has to be
assigned to each line item.
1. On the Purchasing /Inventory Main Menu, select Demand Reports Menu.
Then select ABC analysis.
N:WDMINSUP\ADMIN\Accounting \Material Services Cycle Count Inventory Procedures 2011.doc
2. Indicate whether you want the rankings on the report based on:
• Usage value for the previous 12 months
• Value of the inventory
• Item unit cost
For cycle counts, sort on "Value of inventory
3. In the 'A', 'B', and `C' fields, assign a percentage to the 'A', 'B', and 'C' codes
to represent the proportionate amount of the inventory assigned to an 'A', 'B', or 'C'
item.
Also, indicate the quantity or percentage of which you want the inventory stratified.
Incidentally, the following percentages are the exact percentages used for the
cycle count process.
Example: You base item ranking on total value using the percentage criteria. You
assign the following percentage when you print the ABC Analysis Report: A = 80 %,
B = 15 % and C = 5 %.
With the above percentages set up, the ABC Analysis Report shows you which
items are rated in the top 80% for usage; these are your'A' items. The next 15%
have moderate usage; these are your'B' items. The bottom 5% for usage is your
'C' items.
4. Indicate Yes in the 'Print the report' field.
5. Do you want PI to update the ABC code assigned to the items in the item
description file based on the report?
Indicate Yes in the 'Update items with resulting ABC code' field.
Result: PI assigns an 'A', 'B' or 'C' code to the item based on its usage,
value, or unit cost based on the ABC Analysis Report. (Remember we
selected total value as the cycle count criteria).
Note: Currently Inventory Items are based upon Total Value.
6. In the 'Com' and 'Sub', 'From' and 'To' fields, indicate the range of
commodities and sub commodities for which you want to run an ABC analysis.
Note: If you want the report to include information about items in all
commodities and sub - commodities, leave these fields blank.
7. In the building range 'From' and 'To' fields, indicate the range of inventory
buildings for which you want inventory items analyzed.
2
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Note: If you want to complete an analysis of items in all inventory buildings,
leave these fields blank.
8. Use the 'Submit report' function.
Note: To process a cycle inventory of items that PI randomly selected, you must
leave those items frozen during the following steps:
• Printing cycle inventory worksheets
• Entering cycle inventory counts
Printing. the Physical inventory Exception Report
Changing the count and reprinting the exception report
• Adjusting the counts
9. Select Cycle inventory processing from the Physical Inventory Menu and
complete the preliminary cycle count information. Specify the quantity of items to
inventory and the days between of which these items' should be recounted.
Considerations should be based upon item class criteria, total quantity of items,
quantity of items already inventoried and current calendar date.
Note: When you select Cycle inventory processing from the Physical Inventory
Menu, PI randomly selects and freezes the items to be counted. Freezing
inventory items prevents users from receiving the items into stock or issuing the
items out of stock until you unfreeze the items.
10. Submit the Cycle inventory from the Physical Inventory Menu. The
Materials Servicing Supervisor will then distribute the count sheets to the Material
Coordinators. The-cycle inventory worksheets are sorted by location, and contain
'Item Numbers', 'description' and 'Unit of Measure'. Each Material Coordinator will
fully sign each sheet, first and last name and commence with the count. Entries
will be made in blue or black ink only. Annotations that are unclear and /or
mistakes will be examined or crossed out and initialed by the Materials Services
Supervisor.
11. Before the actual count the Material Services Supervisor will create an issue
sheet for items issued during the freeze before the count and items issued after the
count. This sheet will be used as part of the reconciliation process when the
counts are completed, this will allow for continued support to District personnel
during the inventory process. This sheet will also be maintained in the cycle count
folder.
12. After all inventory worksheets and issue sheets are collected the Materials
Services Supervisor will then begin the reconciliation process by including items
3
N:W DMINSUPWDMIN1AccountingWaterial Services Cycle Count Inventory Procedures 2011.doc
issued before the count to items on the actual inventory worksheet. Entries will
then be input into the 'Physical inventory count entry screen'; afterwards the
Physical Inventory Exception Report will be executed. Discrepant counts will be
fully investigated, however, before beginning the research compare worksheet
entries to the exception report, as this will in some instances capture data entry
errors thereby alleviating the need for further. investigation.
13. Once true discrepancies are identified, the Materials Services Supervisor will
then highlight or mark the discrepancy and forward duplicate count sheets with
discrepant items highlighted to a different counter. The new counter will again sign
or initial their name next to each researched item. These items will again be input
by the Materials Services Supervisor into the Physical inventory count entry screen
and the Physical inventory exception report will be executed once more.
14. If there is no resolution to the specified line item the Materials Services
Supervisor will then review each item beginning with transactional analysis from H
T E this includes reviewing: issues, receipts, adjustments, and procurement
activities, followed by discussion with Materials Coordinators and Maintenance
personnel as appropriate. If discrepancies still. exist after the aforementioned
research, the Materials Services Supervisor will create a final exception report with
detailed explanations regarding each item. This information will be kept in the
cycle count folder by date in descending order, - along with each inventory cycle
count performed.
15. A monetary threshold of - $500 will be resolved by the Materials Services
Supervisor. Shortages that exceed $500 must be reviewed and signed by the
Purchase Manager and or Director of Administration.
Note: The $500 limit will be evaluated as needed to determine its
appropriateness.
16. After appropriate signatures the Materials Services Supervisor will then go to
the Physical Inventory Menu, screen 3 and adjust inventory quantities.
17. A final copy of all adjustments along with exception notes will be sent to
accounting with copies maintained in the cycle count folder.
18. The Materials Services Supervisor will then release (unfreeze) the inventory
items in the Physical Inventory Menu screen.
4
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