HomeMy WebLinkAboutStaff Report 106-10TO:
FROM:
DATE:
REPORT TYPE:
SUBJECT:
HONORABLE CITY COUNCIL
CITY MANAGER
JANUARY 25, 2010
INFORMATIONAL
DEPARTMENT: UTILITIES
CMR: 106:10
Report of City Manager Action Pursuant to the City's Water
Contract with San Francisco on the Conduct of the Bay Area Water
Supply and Conservation Agency's Fiscal Year 2008-09 Audit of the
Suburban Revenue Requirement
This report is for the Council's information only. No action is required.
DISCUSSION
On December 12, 2005, the Council delegated to the City Manager the authority to execute
certain documents for the City of Palo Alto under the Settlement Agreement and Master Water
Sales Contract (Contract) with San Francisco when the City acts as a Suburban Representative
[CMR 434:05]. The City Manager exercised that authority when he signed a Memorandum of
Understanding on November 18, 2009 with the San Francisco Public Utilities Commission
(SFPUC) describing how the annual audit of the calculation of the Suburban Revenue
Requirement for FY 2008-09 shall be conducted.
The Suburban Revenue Requirement is the amount the Contract allows San Francisco to collect
from the Suburban Purchasers, the group of agencies that purchase water wholesale from the San
Francisco regional water system. These same agencies comprise the membership of the Bay
Area Water Supply and Conservation Agency (BAWSCA). The City of Palo Alto is one of the
five Suburban Representatives of the BAWSCA member agencies for the Contract
administration. The Contract requires that a "compliance audit" be performed on San
Francisco's calculation of the Suburban Revenue Requirement each fiscal year. Each year, the
Suburban Representatives may choose to conduct a "suburban review" of the compliance audit.
The Memorandum of Understanding (MOU) describes how the compliance audit of the
calculation of the Suburban Revenue Requirement for FY 2008-09 shall be conducted. The
MOU is identical to the MOU signed last year for the FY 2007-08 compliance audit
(CMR:105:09).
CMR: 106:10 Page 1 of 2
POIACY IMPLICATIONS
The attached MOU was executed in accordance with Council authority delegated to the City
Manager. If the issues raised by the audit cannot be resolved without going to arbitration, the
Council will be asked to approve that action.
ATTACHMENT
A. Memorandum of Understanding Fiscal Year 2008-09 Revenue Requirement Compliance
Audit
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
ANE RATCHYE
Utilities Assistant Director, Resource Management
Director of Utilities
JA . KEENE
Cit nager
CMR: 106:10 Page 2 of 2
ATTACHMENT A
MEMORANDUM OF UNDERSTANDING
FISCAL YEAR 2008-09 REVENUE REQUIREMENT
COMPLIANCE AUDIT
THIS MEMORANDUM OF UNDERSTANDING is made as of this /G day of
/1/04#'64,1140% 2009, by and between the SAN FRANCISCO PUBLIC UTILITIES
COMMISSION ("SFPUC") and the SUBURBAN REPRESENTATIVES.
RECITALS
1. The City and County of San Francisco, through the SFPUC, entered into a Settlement
Agreement and Master Water Sales Contract ("Contract") with 30 Suburban Purchasers in
1984.
2. Section 6.04 of the Contract requires a "compliance audit" be conducted of the SFPUC's
calculation of the Suburban Revenue Requirement for each fiscal year.
3. The SFPUC and Suburban Representatives modified certain audit procedures required in
section 6.04 (c) of the Contract for the FY 1995-96 compliance audit ["First MOU" j and
continued such modified audit procedures for FY 1996-97 through FY 2007-08.
4. The SFPUC and Suburban Representatives now desire to make certain revisions to the
current MOU, effective with the compliance audit of FY 2008-09.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. For the compliance audit of the Suburban Revenue Requirement for FY 2008-09, the
SFPUC and Suburban Representatives agree that the level of precision and audit procedures
set forth in section 6.04(c) of the contract are modified as follows: the compliance auditor shall
conduct the audit to achieve a two percent [2%j precision level and a ninety-five percent [95%j
confidence level, using probability proportional to size statistical sampling with a sample size of
320 items, based on the assumption of one error. For purposes of testing personnel costs, the
auditor shall select a judgmental sample of 30 payroll items. These items shall be tested for
errors as defined in Section 2 below. If the sample error exceeds 2% of the gross sample
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value, the auditor shall select additional personnel transactions in accordance with the statistical
sampling methodology used to test non -labor transactions.
2. For purposes of the compliance audit, an error exists if any one of the following
conditions is met and the result of the specific error, when projected to the population, exceeds
an adjustment of $1,000 or more:
♦ There is a lack of sufficient supporting documentation;
♦ The amount recorded is incorrect, based on supporting documentation;
♦ There was an incorrect classification of expenses/charges in accordance with the
Contract; and
♦ There was an out -of -period transaction except 1) a transaction that occurred in FY
2007-08 or an earlier year but was recorded in FY 2008-09 or 2) a transaction recorded
in FY 2008-09, but the expense will not be fully realized within twelve calendar months
of when it is recorded. If a portion of the expense would be realized within twelve
calendar months of when it is recorded, only the portion that occurs after twelve
calendar months shall be consider an error.
3. Prior to or concurrent with the commencement of the audit, the auditor will meet with
SFPUC staff and Bay Area Water Supply and Conservation Agency (BAWSCA) staff for the
purpose of reviewing audit work plan, schedule and staffing. The subject of this meeting shall
include, but is not limited to, a discussion of any proposed changes in audit standards and/or
procedures from the prior year, identification of key project milestones, progress reports and
the responsibilities of staff assigned to the audit.
4. The auditor will apprise SFPUC staff and BAWSCA if the 2% precision and 95%
confidence levels cannot be achieved and the reasons for such inability. The auditor will
quantify the actual precision and confidence levels achieved in the audit and include that
information in its report.
5. The SFPUC and the Suburban Representatives agree that the past practice of SFWD
and BAWSCA seeking agreement on water consumption data used in calculating each year's
Suburban Revenue Requirement and memorializing that agreement by having "J -Tables"
initialed by a representative of SFWD and BAWSCA is consistent with Section 6.04(d)(2) of the
2
BY:
Contract and should be continued. To that end, Suburban Representatives and SFPUC agree
that the compliance auditor should use water consumption data and percentages contained in
the J -Tables for the year FY 2008-09 if and when General Manager of SFPUC and the General
Manager of BAWSCA or their designees have initialed such Tables.
6. The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the
procedures to be used during the FY 2008-09 audit shall conform to the contents of this MOU.
7. Nothing in this MOU is intended to diminish the auditor's responsibility to employ the
procedures it would otherwise use to satisfactorily complete the compliance audit, including
additional sampling; nor preclude the auditor from performing additional analyses for purposes
of determining whether certain expenses have been fairly allocated per the provisions of the
Contract; and to perform the compliance audit and report its findings and conclusions;
exercising the same professional care it would use in conducting an audit.
ALAMEDA COUNTY WAITER DISTRICT • �o�� Date 11//7/°41
7/°41
CALIFORNIA WATER SERVICE COMPANY
BY: Date
CITY OF HAYWARD
BY:
Date
CITY OF PALO ALTO
BY: Date
CITY OF REDWOOD CITY
BY: Date
3
Contract and should be continued. To that end, Suburban Representatives and SFPUC agree
that the compliance auditor should use water consumption data and percentages contained in
the J -Tables for the year FY 2008-09 if and when General Manager of SFPUC and the General
Manager of BAWSCA or their designees have initialed such Tables.
6. The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the
procedures to be used during the FY 2008-09 audit shall conform to the contents of this MOU.
7. Nothing in this MOU is intended to diminish the auditor's responsibility to employ the
procedures it would otherwise use to satisfactorily complete the compliance audit, including
additional sampling; nor preclude the auditor from performing additional analyses for purposes
of determining whether certain expenses have been fairly allocated per the provisions of the
Contract; and to perform the compliance audit and report its findings and conclusions;
exercising the same professional care it would use in conducting an audit.
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
BY: Date
ALAMEDA COUNTY WATER DISTRICT
BY: Date
CALIFORNIA WAT R SERVICE COMPANY
BY: Date // fit
CITY OF HAYWARD
BY: Date
CITY OF PALO ALTO
BY:
Date
CITY OF REDWOOD CITY
BY: Date
3
Contract and should be continued. To that end, Suburban Representatives and SFPUC agree
that the compliance auditor should use water consumption data and percentages contained in
the J -Tables for the year FY 2008-09 if and when General Manager of SFPUC and the General
Manager of BAWSCA or their designees have initialed such Tables.
6. The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the
procedures to be used during the FY 2008-09 audit shall conform to the contents of this MOU.
7. Nothing in this MOU is intended to diminish the auditor's responsibility to employ the
procedures it would otherwise use to satisfactorily complete the compliance audit, including
additional sampling; nor preclude the auditor from performing additional analyses for purposes
of determining whether certain expenses have been fairly allocated per the provisions of the
Contract; and to perform the compliance audit and report its findings and conclusions;
exercising the same professional care it would use in conducting an audit.
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
BY: Date
ALAMEDA COUNTY WATER DISTRICT
BY: Date
CALIFORNIA WATER SERVICE COMPANY
BY: Date
CITY OF AYWWRD
BY: } e Date
CITY OF PALO ALTO
BY:
Date
CITY OF REDWOOD CITY
BY: Date
3
Contract and should be continued_ To that end, Suburban Representatives and SFPUC agree
that the compliance auditor should use water consumption data and percentages contained in
the J -Tables for the year FY 2008-09 if and when General Manager of SFPUC and the General
Manager of BAWSCA or their designees have initialed such Tables.
6. The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the
procedures to be used during the FY 2008-09 audit shall conform to the contents of this MOU.
7. Nothing in this MOU is intended to diminish the auditor's responsibility to employ the
procedures it would otherwise use to satisfactorily complete the compliance audit, including
additional sampling; nor preclude the auditor from performing additional analyses for purposes
of determining whether certain expenses have been fairly allocated per the provisions of the
Contract; and to perform the compliance audit and report its findings and conclusions;
exercising the same professional care it would use in conducting an audit.
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
BY: Date
ALAMEDA COUNTY WATER DISTRICT
BY: Date
CALIFORNIA WATER SERVICE COMPANY
BY: Date
CITY OF HAYWARD
BY:
Date
CITY OF PALO ALTO
BY: "7/ c.)
Date 013/7°
CIT REDWOOG.d TY
BY: Date
3
Contract and should be continued. To that end, Suburban Representatives and SFPUC agree
that the compliance auditor should use water consumption data and percentages contained in
the J -Tables for the year FY 2008-09 if and when General Manager of SFPUC and the General
Manager of BAWSCA or their designees have initialed such Tables.
6. The SFPUC will deliver a copy of this MOU to the auditor and notify the auditor that the
procedures to be used during the FY 2008-09 audit shall conform to the contents of this MOU.
7. Nothing in this MOU is intended to diminish the auditor's responsibility to employ the
procedures it would otherwise use to satisfactorily complete the compliance audit, including
additional sampling; nor preclude the auditor from performing additional analyses for purposes
of determining whether certain expenses have been fairly allocated per the provisions of the
Contract; and to perform the compliance audit and report its findings and conclusions;
exercising the same professional care it would use in conducting an audit.
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
BY: Date
ALAMEDA COUNTY WATER DISTRICT
BY: Date
CALIFORNIA WATER SERVICE COMPANY
BY: Date
CITY OF HAYWARD
BY:
Date
CITY OF PALO ALTO
BY: Date
CITY OF REDWOOD CITY
BY: rfj/
Date
3