Beaumont-Cherry Valley Water District

Audits: California Government Code §26909 requires special districts to submit annual audited financial statements to the County Auditor-Controller. Information obtained from the District’s management personnel revealed that “due to inadequate management practices, incomplete and mismanaged accounting records, outdated and unusable computer software, and unqualified accounting personnel, the District has not submitted audited financial statements for the years 2004, 2005, and 2006”. On June 12, 2007, the Riverside County Auditor-Controller (RCAC) sent a letter to the District regarding the overdue audited financial statements for the subject years. The District did not reply. RCAC sent a second letter in October 2007, to inform the District that RCAC would perform the audits if financial statements were not received in their office by December 31, 2007. The RCAC, General Manager and Legal Counsel for the District met in October 2007 to develop a work plan (see Board Minutes of November 8, 2007).

Unpaid Invoices: Review of records, invoices, and sworn testimony revealed that the District owes $3,073,410 to a local engineering firm. The unpaid invoices number approximately 428 and cover a period from April 2004 through October

Brown Act: The minutes of the Board Meeting of November 14, 2007, pages 3938 and 3939, revealed the Board’s admission of violations of the Brown Act. The following are examples: • On October 11, 2006, a substantial raise in salary for the General Manager was discussed and approved in closed session of the Board meeting. Investigation revealed that in that meeting, the General Manager requested an increase in salary to $177,648 that he wanted as part of his new contract. The General Manager’s salary increased 97% in two years. The Board discussed and voted for approval of the salary increase in closed session. This salary increase should have been voted on and disclosure made in open session. 2 • A change of leadership occurred at a Board meeting on October 10, 2007, and 3911. The outcome of the change was well known by the public prior to the meeting indicating an agreement had already been made by some Board members, and it had leaked to the public. This is evidenced by public comments made at the meeting prior to the agenda item coming to the floor. The public indicated they knew in advance that the current president and vice president were going to be replaced and were in disagreement with the action that was yet to take place. • Legal counsel reported that agreements had been reviewed for four housing units belonging to the District. The review dated back to the year 2000 and that there were amendments made to these agreements in 2004 and 2006, in closed session, without Board approval or public comment. Reference the Board Minutes of December 12, 2007, .

The District misused public funds. The following are examples: Education and Training: • Over $4,000 of District funds was paid for an employee, who is also the son of a management official, to attend pre-requisite courses leading to a degree in Civil Engineering, prior to executing a contract to cover the agreement. While attending school he is allowed to work hours ranging from 8 to 40 per week, while receiving full-time salary and benefits. The General Manager and the employee signed a contract in April 2007, without approval of the Board or public knowledge. Payment of these expenses is a violation of the Memorandum of Understanding (MOU) dated 2006-

Contracts: • The District does not have a written policy or procedure for obtaining Board approval for awarding of contracts. The practices of awarding and obtaining Board approval for contracts are inconsistent. Requests for proposals are issued for contracts involving, for example, Zone Tanks and Outfitting Wells, but not for landscaping and building contracts. • The District has an open-ended landscape agreement, dated August 2006, with a landscaping firm, the owner of which is the father of one of the District’s senior management officials, to landscape approximately 10-acres at the District’s 80-acre Recharge Facility, excluding cost of materials. From August 2006 to December 2007, the District paid the landscaping firm a cumulative amount of $1,627,325. • At the regular Board meeting of November 8, 2006, , a statement from the General Manager was recorded that this landscaping firm was the low bidder. The General Manager indicated a labor contract was negotiated with this landscaping firm to avoid paying prevailing wages. Investigation led to the fact that there was no Request for Proposals sent out by the District and no bids were received for the landscaping of the Recharge Facility. The District leased employees and equipment from the landscaping firm. 5 • A contract was issued on December 14, 2005, to an architectural firm for consulting services for the remodel/new construction of the District’s administration building. The minutes of the regular meeting of the Board on June 8, 2005, the Board approved a Master Plan for the building and, when asked if the project would go out to public bid, management replied in the affirmative. However, no competitive bidding occurred. Public Contract Code Section 20561 does not require public bidding when approved by the Board in advance, however, Board approval was not given. The Board did approve $1,500 for a Proposed Master Plan, $1,000 for a Master Plan and retainer of $37,000 for Phases I and II. The preliminary cost estimates were $2,743,675. Due to the discovery of unsafe conditions in the building to be remodeled, the scope of the work changed from remodel to new construction. The architectural firm said the cost would be different. A new contract was not issued and the new cost is unknown. • Under the architectural firm’s original contract of December 7, 2005, Phase III states in part: Bidding and Negotiation: a. Supply bidding Construction Documents to the various Plan Check rooms; b. Answer, in writing, all General Contractor Request for information questions, issue all project addendums; c. Assist Beaumont-Cherry Valley Water District with the Public Bidding process and review the General Contractor’s bidding forms and submittals; and d. Attend and Chair the Project bid Opening Meeting. Public bidding did not occur in the selection of the general contractor or any of the numerous subcontractors. • At a Special Board Meeting on April 30, 2008, the cost of the new administration building was reported to be between $3.8 and $4 million. However, review of invoices submitted for payment by contractors and sub-contractors, revealed a conservative estimate for the cost of the building is $5.3 million. 6

Investments: • The Local Agency Investment Fund (LAIF) is the only investment account in which the District participates. In May 2007, the closing balance for the month was $8,589,322.39. As of April 2008, the closing balance was $2,104,228.93, a difference of $6,485,093.46. There is no policy and procedure concerning District investments and the Board does not review the existing investment on a regular basis.

Nepotism: The District has a conspicuous presence of nepotism within the organization. Interviews revealed that nepotism has promoted an erosion of confidence within the District and the community regarding the integrity and efficiency of the Board, management, and its’ employees. Investigation revealed that most other water districts such as Rancho California Water District, Metropolitan Water District, and Eastern Municipal Water District, have a clear policy of no nepotism. Examples of nepotism: • A married couple working under the same supervisor with access to District funds. • A father supervising his son. • A father who is a superintendent and a son who is receiving a paid education.

Conflict of Duties and Errors: • The General Manager serves as Secretary and Treasurer to the Board and attends all closed meetings. This arrangement adds to the current atmosphere of mistrust that exists between the Board and the General Manager, see pages 3 and 6 of The Governance Report of November 14, 2007. This report was requested by the Board and District Manager to attempt to achieve an effective working relationship. In addition, the General Manager has neglected his Treasurer role by not recognizing numerous accounting errors made by staff personnel and failing to provide annual audits to the RCAC. Complaints from the public and within the Board have been made that meetings are too lengthy due to the many questions, explanations, and corrections being made. Reference minutes of the regular meeting of the Board of February 13, 2008, , and August 22, 2007, . • The General Manager does not always respond to Board members’ requests for inclusion of agenda items to the agenda, even when submitted on time. As of February 13, 2008, as recorded in the minutes, the Board members are not now allowed to request inclusion of agenda item to a Board’s agenda.

Policies and Procedures Manual: A Riverside County Grand Jury Report of 1998, recommended development of a policies and procedures manual. When the policies and procedures manual was requested on or about November 2, 2007, by the current Grand Jury, the District’s General Manager reported that they did not have a policies and procedures manual. On or about November 30, 2007, the Grand Jury, received the manual in the mail from the District without explanation. An interview revealed that the manual, dated 1998, was found and given, anonymously, to a Board director, see minutes of the regular Board meeting November 2007, . The Board and management have operated independently without access to their own policies and procedures and without updating or revising them since approximately January 2000.

Board/Employee Training: A District employee wrongly accused a Board Director of harassment. Harassment is a form of discrimination that violates Title VII of the Civil Rights Act of 1964, as amended. It is defined as unwelcome conduct that is based on race, color, sex, religion, national origin, disability, and/or age. The District’s harassment policy adopted August 1998 contains further definitions, guidelines and procedures for filing a complaint. The Director’s conduct did not meet the criteria of these directives. The District’s policy states, “all communications regarding any type of harassment are to be kept in strict confidence.” It further states, “each allegation of harassment will be thoroughly and confidentially investigated by the General Manager and will include a written statement from the alleged harasser”. The General Manager did not keep the communications of the alleged harassment in confidence and did not obtain a written statement from the Director; rather he requested that the complaint be read in a public meeting and required the Director to make a public apology. 8