Respondents*

Respondents disagree partially with this finding. Respondents agree the District faces significant issues involving its legacy accounting system and past financial reports. As the Grand Jury acknowledged, Respondents have taken the following actions to address these concerns: Serving the Community for over 30 years Board of Directors: Tim Maybee, President • Martin Pohll, Vice-President • Randy Jenco • Linda Butler • Martin Pohll • Stephen Booth General Manager • Mimi Morris 1. Respondents approved, and the District has begun to implement, the replacement of the District's legacy billing and accounting systems with an industry-standard Enterprise Resource Planning ("ERP") system. 2. Respondents retained municipal accounting experts with the Pun Group to unwind the District's legacy accounting issues and assist the District in preparing for future audits and addressing the District's capital reserve needs. Although Respondents have taken these actions, they are in process and take time to produce results. Respondents also agree that the District faces difficult decisions concerning making the best use of its limited resources. Respondents have taken the following actions to address these concerns: 1. In June 2022, Respondents proposed fee increases for water, wastewater, and solid waste services. However, District customers submitted a majority protest against these increases under Proposition 218 and Respondents could not adopt them. 2. In November 2022, Respondents proposed a security services special tax to ensure that District security operations would be funded in the future. However, District voters did not approve this measure. 3. Respondents are reviewing the continued viability of current security service levels in light of the insufficiency of existing special tax stream, competing priorities for limited property tax revenue, and District voters not approving new special tax revenues to support security.

The current accounting system is inadequate to meet the legal requirements related to financial reporting to the public which has resulted in two legally required financial audits being overdue. Respondents disagree partially with this finding. Due to extensive staff turnover in the accounting department, staff did not know how to use the accounting system properly.

The late audits, combined with the unreliable existing accounting system, have created an environment that exposes the District to a high risk of fraud. Respondents disagree wholly with this finding. Respondents agree the District faces significant financial challenges that Respondents have taken actions to address as described in response to Finding 1 above. However, there has been no evidence or allegations of fraud involving District funds. The District has taken steps to strengthen internal controls to protect against fraud.

The District Board cannot expect to recover public trust sufficient to propose any tax/fee increases until it replaces its antiquated billing and accounting system to produce reliable billings and financial records. Respondents disagree partially with this finding. Respondents agree the District faces significant financial challenges that Respondents have taken actions to address as 2 described in response to Finding 1 above. These actions take time to produce results. In the meantime, due to unprecedented inflation and increased costs, the cost to provide essential services has increased. Therefore, it is necessary for the District to propose a modest rate increase in FY 2024 to maintain operations while it continues working on implementing the actions described in response to Finding 1 above.

The District has at times taken actions against staff that has interfered with the operation of the District. This finding is vague. Based on statements in the report, Respondents interpret it to mean that the District has taken improper or ill-advised employment actions in the past that have affected District operations. Based on that interpretation, Respondents disagree wholly with this finding. It is important to clarify that Respondents only have employment authority over the District General Manager. Respondents have no employment authority over subordinate District employees as all such authority is delegated to the District General Manager. As to any employment actions taken against subordinate staff by past District General Managers, Respondents may not comment on confidential personnel matters, which includes all such employment actions.

High employee turnover indicates poor employee retention that has interfered with the operation of the District. Respondents agree with this finding. Employee turnover for a variety of reasons has been a significant challenge for the District.

The lack of an effective succession strategy has impaired the ability of the District to maintain adequate competent staff which has resulted in the loss of critical accounting system knowledge among the District staff. Respondents disagree partially with this finding. Although employee turnover within the accounting department has been a significant challenge for the District, Respondents believe there are systemic issues with the District's legacy accounting system that would need to be addressed regardless of turnover amongst District staff. The actions described in response to Finding 1 above are intended to address these issues. The lack of an updated Capital Reserve Policy has contributed to poor management

and inadequate Capital Reserve. Respondents disagree partially with this finding. As discussed in response to

The use of County Property Tax funds to subsidize its growing security costs without raising the security fees has jeopardized the financial stability of the District. Respondents disagree partially with this finding. Respondents agree that, in recent years, security costs have exceeded available existing security special tax revenues. However, Respondents disagree that this issue has jeopardized the financial stability of the District. As discussed in response to Finding 1 above, Respondents are reviewing the continued viability of current security service levels in light of the insufficiency of the 3 existing special tax stream, competing priorities for limited property tax revenue, and District voters not approving new special tax revenues to support security.

The Capital Reserves are underfunded by over $10 million, jeopardizing the financial stability of the District. Respondents disagree partially with this finding. Respondents agree that capital reserves are currently underfunded. However, Respondents disagree that this issue has jeopardized the financial stability of the District. As discussed in response to Finding 1 above, Respondents believe updating the District's capital reserves policy and adequately funding District reserves are priority issues, but it is not possible to address these issues until the District's larger legacy accounting issues have been addressed.

The District has inappropriately subsidized the cost of reclaimed water to RMCC. Respondents disagree wholly with this finding. The District's current reclaimed water operations are designed to comply with regulatory and legal requirements. First, the District's wastewater permit has long prohibited the District from discharging treated effluent from the District's wastewater treatment plant to waterways. The only approved disposal method for District treated effluent is irrigation within the authorized areas described in the permit. To remain in compliance with its wastewater permit, the District must have a reliable irrigation user for its treated effluent. The District addresses these constraints by disposing of its treated effluent by providing it to the country club for irrigation uses. Second, the District and country club are parties to a long-term agreement dated May 16, 1988 that requires the District to provide its treated effluent to the country club. The agreement does not contain terms authorizing Respondents to terminate the agreement, charge for the treated effluent, or sell the effluent to other parties.

A perceived conflict of interest exists in the community due to a close relationship between the District, the RMA and the RMCC and their respective Board members. Respondents disagree wholly with this finding. Respondents comply with the District's Policy No. 2005-6 which prescribes ethical rules for Respondents and prohibits conflicts of interest. Respondents are unaware of any legal conflicts of interest pertaining to Respondents, the homeowner association's Board of Directors, and the country club. Responses to Recommendations