Grand Jury Report*

District directors on the whole do not have financial or accounting backgrounds. They rely on their audit reports to ensure that their district's operation is fiscally sound. Response: This statement is generally true, but may be too broadly stated. As exceptions to this statement, FOWD has one board member with finance and accounting education and experience who understands detailed and technical financial issues very well. Further, several FOWD board members are employed at the executive level and thus comprehend fiscal matters quite well. Additionally, there are numerous practices FOWD employs to educate its board on financial matters. The district provides monthly financial statements to its board members for review purposes that provide opportunities for the board to ask questions and raise issues. Other information provided to the board includes a monthly check register detailing the monthly expenses paid and a monthly cash flow overview, providing information regarding cash received and payments made. FOWD staff periodically holds board workshops to review budget versus actual results and provide information on financial practices of the district, including the latest trends and developments. Staff reviews current cash flows as well as future expected cash flows for up to five years so that the board can be apprised of the district's financial position. Lastly, FOWD conducts an extensive public outreach process before adopting its budgets and water rates. This process spells out district needs and invites customer input about priorities, business practices and a host of financial issues.

The Grand Jury finds that an electorate, kept unaware by a district that fails to "give light" to its actions, cannot properly evaluate the performance of district personnel. These voters elect boards to oversee the operation of the district. The board in turn hires a general manager to manage the district. It is the close relationship between the board and the general manager that has potential for misuse of district funds. We find that the use of district credit cards may enable the misuse of district funds; however, it is the culture within the district that permits the abuse. District managers and board members should be aware of what is and what is not proper. Golf at district expense is not proper. Expensive restaurant meals charged to the district is not proper. Increasing the retirement benefits to a level primarily give to public safety personnel to benefit a retiring general manager is not proper. Response: This statement is generally true for some districts. There are specific actions and processes FOWD implements on a routine basis to mitigate some of the effects of the above statement. ...an electorate kept unaware: FOWD has always conducted its business openly and publicly. FOWD has made its financial records available publicly. Additionally, FOWD's budget practices and rate increase process have been an open and public process, providing substantial detail to customers who seek to avail themselves of this information. FOWD notifies customers about these processes using several communications methods (website, direct letters, mailing stuffers, brochures). FOWD has always given light to its actions at its monthly board meetings. ...It is the close relationship between the board and the general manager that has potential for misuse of district funds: We agree that close relationships between the board and the general manager or other individuals has the "potential" for misuse of district funds. However, close board/management relationships do not automatically create a "potential" for misuse of district funds. Board members take an oath of office to serve the district's interests and management has a similar charge which is not changed by virtue of a close relationship. Properly designed internal control procedures and well designed policies and practices help create a deterrent for misuse of district funds. FOWD employs numerous internal control procedures designed to ensure proper use of district funds. Segregation of duties exists for purchasing, approving, signing of checks, and reconciling accounting information. Expense and budget policies established by the board also provide for review opportunities by the board for expenditures. Additionally, the FOWD board is provided with financial reports on a monthly basis in the board agenda package for their review or the public's review. ...We find that the use of district credit cards may enable the misuse of district funds; however, it is the culture within the district that permits the abuse: We concur that organizational culture can permit abuse. We do not believe the use of credit cards is the "problem". In fact, the use of district issued credit cards within defined credit card policies and procedures allow an entity to operate much more effectively and efficiently in certain circumstances. FOWD uses credit cards as a payment method for district related expenses. To minimize cost and maximize internal controls, FOWD uses the California State sponsored Cal-Card program. The authority to make purchases or expenses comes from the adopted budget documents and from established policies. The use of credit cards still must follow the districts expense policy and budget plan. A credit card facilitates some of the following benefits to the FOWD rate payers: Allows the district to delay cash payments by up to 60 days versus typical 30 day payment cycle; Avoids construction crew work stoppage due to part or supply shortages with no timely • access to funds to pay for the necessary supplies; Allows coordination of travel and training at more favorable rates since reservation • booking these can be centrally coordinated versus relying on individuals booking their own reservations because they have to use their personal credit cards; and Reduces the number of checks to pay for invoices. • ...District managers and board members should be aware of what is and what is not proper. Golf at district expense is not proper. Expensive restaurant meals charged to the district is not proper. Increasing the retirement benefits to a level primarily given to public safety personnel to benefit a retiring general manager is not proper: Since 1996, FOWD has been on a plan to increase productivity, provide superior customer service, thoughtfully plan financial resources over five to fifteen year time horizons, to reach out to customers using progressive communication ideas, use incentive based pay systems, and employ non-bureaucratic techniques and processes to get more work done more effectively. The district has invested heavily in training its employees and board members and reinvented its culture so that it may serve the customer base more effectively and efficiently. FOWD's productivity statistics and customer satisfaction have increased dramatically, accomplishing more work with the same or fewer resources. Despite our work productivity success, the success we have had in building regional alliances and in obtaining millions of dollars in external funding, we have re-evaluated the appropriateness of golf and have discontinued this as a business practice. Though golf is an expected and understood part of business relationship building, the practice seems to suggest fiscal irresponsibility in public agencies, especially in light of recent events in the Sacramento region. Golf related expenses have been voluntarily reimbursed by the directors and managers for the last two years. FOWD agrees that excessively expensive meals are not proper. FOWD is in the process of reviewing the reasonableness of its travel and expense policies through a citizen's advisory committee. The current travel and expense policy allows for daily federal per diem rates or actual expenses, not both. Most likely this policy will be modified to a daily per diem rate or dollar limit, but the actual policy development is still in progress. FOWD did not change its staff retirement benefits to a level primarily given to public safety officers. Additionally, FOWD board members do not receive retirement benefits. Recommendation #2a. These practices should stop immediately. Response: We concur with this recommendation.

Some written practices and policies, which vary from district to district, may be outdated. Response: We generally concur with this finding. 1. FOWD is in continual review of its policies and practices. In fact, many policies have been modified numerous times since 1996 as noted by the Grand Jury Report. 2. Staffing and resources are often the only real challenge in accomplishing this goal. Currently, the district has about 60 policies. Additionally, there are several new policy ideas that have been identified and will be developed over the next twelve to eighteen months. FOWD believes an every three year review of policies may be a more realistic working solution. There are policies within FOWD that need current revisions and are slated for review 4. over the next three years. 5. District practices are derived from policy. These practices are modified on an as needed basis when situations or regulations change. District staff is responsible for establishing and carrying out practices which fulfill policy objectives.