HomeMy WebLinkAbout05.a. Follow up to Questions Asked at the December 19, 2022 Finance Committee Meeting Regarding One Specific ExpenditurePage 1 of 2
Item 5.a.
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January 24, 2023
TO: FINANCE COMMITTEE
FROM: KEVIN MIZUNO, FINANCE MANAGER
REVIEWED BY: PHI LI P LEI BER, DIRECTOR OF FINANCE AND ADMI NSTRATI ON
ROGER S. BAILEY, GENERAL MANAGER
SUBJECT: FOLLOW-UP TO QUESTIONS ASKED AT THE DECEMBER 19, 2022
FINANCE COMMITTEE MEETING REGARDING ONE SPECIFIC
EXPENDITURE
At the December 19, 2022 Finance Committee meeting, the Committee inquired about various
expenditures, and specifically requested more detail on the item listed below:
• Alfred Conhag►en Inc. - Check #307693 - $531,768.74
The Committee asked for additional information on what this bill was for. It was pointed out that the
invoice was being charged to the Operations and Maintenance (O&M) fund, and the committee
questioned if it was a capital expenditure that belonged in the Sewer Construction fund given the size
of the bill. During the meeting the invoice was reviewed and while it appeared to reference several
activities that generally are considered operational (i.e., cleaning, inspections, repair, etc.), some
activities could be considered capital (i.e., new equipment or parts installations). The Committee
asked staff to investigate the matter further and return with additional information.
Upon obtaining additional clarification from the Plant Maintenance Division and reading best practice
guidance issued by the Government Finance Officers Association (GFOA), staff has come to the
conclusion that the invoice is at least partially, but not fully capitalize -able. GFOA guidance outlined
that expenditures preserving an assets utility by returning a capital asset to its original condition,
regardless of the amount, should be expensed as incurred, and not capitalized and depreciated
over time. Inspection of the details on the invoice and additional analysis revealed that approximately
$407,990 in charges pertained to ordinary maintenance and repairs that did not add new value to the
asset extending its capacity and useful life significantly beyond its original useful life. The remaining
amount, totaling $123,779 was for the replacement of sub -component equipment, which could be
argued to partially increase the utility of the capital asset as a whole. With this this new
understanding, the invoice can be considered a "combination" expenditure. Accordingly, the
capitalize -able amount of the cost has been transferred from the O&M fund to the Sewer
Construction fund, and specifically to the Annual Infrastructure Replacement project (District
Project 7370).
January 24, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 10 of 87
Page 2 of 2
Strategic Plan Tie -In
GOAL FOUR: Governance and Fiscal Responsibility
Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility
January 24, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 11 of 87