MPRWA Agenda Packet 02-13-14

Agenda
Monterey Peninsula Regional Water Authority (MPRWA)

Regular Meeting

7:00 PM, Thursday, February 13, 2014
Council Chamber
580 Pacific Street
Monterey, California

ROLL CALL

PLEDGE OF ALLEGIANCE

REPORTS FROM BOARD DIRECTORS AND STAFF

PUBLIC COMMENTS
PUBLIC COMMENTS allows you, the public, to speak for a maximum of three minutes on any
subject which is within the jurisdiction of the MPRWA and which is not on the agenda. Any person
or group desiring to bring an item to the attention of the Authority may do so by addressing the
Authority during Public Comments or by addressing a letter of explanation to: MPRWA, Attn:
Monterey City Clerk, 580 Pacific St, Monterey, CA 93940. The appropriate staff person will contact
the sender concerning the details.

APPROVAL OF MINUTES

1. January 9, 2014 - Milton

AGENDA ITEMS

2. Receive Annual Financial Report and a Full Opinion Audit for FY 2012-13 and 2012 from
McGilloway, Ray, Brown and Kaufman (Kaufman) CPA; Approve a Modification to the
Kaufman Contract to Complete the FY 2013-2014 Audit with a Completion Date of October
1, 2014 at an additional fee not-to-exceed $6,000; Receive a Draft of Water Authority
Financial Policies and Practices; and Provide Direction to Staff. - Cullem

3. Accept and File Checks for the Period of December 31, 2013 through January, 31 2014 -
Milton

4. Receive Report, Discuss, Provide Direction and Approve Resolution 2014-XX and Letter of
Support for Senate Bill 936, and Authorize the Executive Director to Forward a Sample
Resolution and Sample Letter for Consideration by Member City Councils. - Cullem

5. Receive Verbal Report, Discuss and Provide Direction to Staff Regarding the Bore Hole
Permitting Process Cullem/Burnett

6. Discuss Governor Brown's Proclamation Declaring a Drought State of Emergency and the
Potential Local Implications - Cullem

ADJOURNMENT
Thursday, February 13, 2014
2

The Monterey Peninsula Regional Water Authority is committed to include the disabled in all of
its services, programs and activities. For disabled access, dial 711 to use the California Relay
Service (CRS) to speak to staff at the Monterey City Clerks Office, the Principal Office of the
Authority. CRS offers free text-to-speech, speech-to-speech, and Spanish-language services
24 hours a day, 7 days a week. If you require a hearing amplification device to attend a
meeting, dial 711 to use CRS to talk to staff at the Monterey City Clerks Office at
(831) 646-3935 to coordinate use of a device or for information on an agenda.

Agenda related writings or documents provided to the MPRWA are available for public
inspection during the meeting or may be requested from the Monterey City Clerks Office at 580
Pacific St, Room 6, Monterey, CA 93940. This agenda is posted in compliance with California
Government Code Section 54954.2(a) or Section 54956.

MI NUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)
Regular Meeting
7:00 PM, Thursday, January 9, 2014
COUNCIL CHAMBER
580 PACIFIC STREET
MONTEREY, CALIFORNIA

Directors Present: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala

Directors Absent:

None

Staff Present: Executive Director, Legal Counsel, Clerk

ROLL CALL

President Della Sala Called the meeting was called to order at 7:00 p.m.

PLEDGE OF ALLEGIANCE

REPORTS FROM BOARD DIRECTORS AND STAFF

Vice President Burnett spoke to the Special Meeting on December 9
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to give direction
regarding the contract award to CDM design build firm prior to the Governance Committee
meeting. He then reported that Cal Am has agreed to all the recommendations provided by the
Governance Committee for the contract. Finally he reported that the contract estimate came in
at $25 million lower than the estimate presented by SPI, which is a benefit for the ratepayers.
Legal Counsel Freeman spoke to the change of any board action, that there is a need to
identify for the record any dissentions to the vote.
Executive Cullem spoke to the test well permitting level and is exploring ways to expedite the
process. He also reported regarding the work plan for Outreach Contractor Environmental
Solutions and the interns preparing reports on storm water utilization and water supply and
brine disposal. Finally, he informed the Board he will be requesting the member cities to provide
some level of support for the securitization issue to leverage in our favor future legislation.

PUBLIC COMMENTS

Mayor Della Sala invited public comment for items not on the agenda.

Tom Rowley spoke representing the Tax Payers Association requesting an update from
the County of Monterey participation and requested the Authority to respond to the
initiative from Public Water Now.

Nelson Vega spoke to Mr. Rowley's comments about Public Water Nows recent Initiative citing
it as a distraction and expressed concern this will hinder finding a solution. Requested
agendizing this item as a concern on member city council meetings.
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APPROVAL OF MINUTES

1. December 9, 2013 Special Meeting
Action: Approved

On motion by Director Pendergrass, seconded by Director Kampe and approved by the
following vote the Authority approved the minutes of December 9, 2013 as presented.
AYES: 5 DIRECTORS: Burnett, Kampe, Pendergrass, Rubio, Della Sala
NOES: 0 DIRECTORS: None
ABSENT: 1 DIRECTORS: Edelen
ABSTAIN: 0 DIRECTORS: None
RECUSED: 0 DIRECTORS: None

AGENDA ITEMS

2. Approve Certificate of Appreciation to Deanna Allen of the City of Carmel for Financial Services
to the Authority
Action: Approved

Executive Director Cullem spoke to the item and the efforts on behalf of Deanna Allen, Finance
Specialist for the City of Carmel who had provided financial support to the Authority. He
indicated that through the Financial Audit it was recommended there be more control and
oversight of the finances and at this time, the City of Seaside has agreed to take over providing
the services.
Vice President Burnett spoke to the efforts of Ms. Allan and that the City of Carmel funded that
effort and spoke to the services contributed by each member city for this agency.
Director Edelen arrived at 7:24 p.m.
On motion by Director _____ and Seconded by Director ___ and passed by the Following vote
the Authority approved the Certificate of Appreciation to Ms. Deanna Allen of the City of Carmel
for her efforts to provide Financial Services to the Monterey Peninsula Regional Water
Authority.
AYES: 5 DIRECTORS: Burnett, Kampe, Pendergrass, Rubio, Della Sala
ABSENT: 0 DIRECTORS: None
ABSTAIN: 1 DIRECTORS: Edelen

3. Authorize Contract Extension for Brownstein, Hyatt, Farber and Schreck for Legal Services
Action: Authorized Extension and Budget Adjustment

Executive Director Cullem spoke to the item and requested that the Board extend the current
contract to Dec 21 2014, incorporating the included costs in the contract. He noted that at a
future meeting staff will prepare and present a resolution to distinguish the roles of McLaughlin
and Mr. Freemen. He noted that staff is also requesting to approve an additional $86,000 in the
FY 2013-2014 budget for Attorney of Record services.
Vice President Burnett spoke to the services that Mr. McGlothlin has been providing including
participating with the CPUC process and testimony, coordinating meeting with the State Water
Resources Control Board regarding ways to petition for a modification of the CDO, and finally
MPRWA Minutes Thursday, January 9, 2014

Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday, January 9, 2014
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monitoring the decisions with the settlement agreement and hosting meetings with the
settlement parties to build on and monitor progress toward what was agreed.
Legal Counsel Freeman clarified the rate discrepancy because of the intent to bring on an
associate attorney at a lower rate to offset his costs so an average rate will be billed.
President Della Sala invited public comment and had no requests to speak.
On motion by Director Rubio, seconded by Director Burnett and approved by the following vote
the Authority authorized the contract extension for Brownstein, Hyatt, Farber and Schreck for
legal services and to increase the budget line item for legal expenses to 186,000 for Fiscal Year
2013-14.
Director Rubio, speaking on the second in support of the motion, he spoke to the value that
Legal Counsel Russ McGlothlin brings to this Board and the quality of his work.
AYES: 6 DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala
ABSENT: 0 DIRECTORS:

4. Receive Update, Discuss and Provide Direction on the Pro-Rated Cost Share Requests from
the County of Monterey
Action: Update Received

Executive Director Cullem spoke to the item, and responded to Mr. Rowley's public question
regarding Monterey County representation. He reported that the Board of Supervisors approved
$83,300 as a fair share contribution for the Authority activities at this time, but was not billed
due to the legality of the JPA Agreement. The review of the Attorney General's office is still
outstanding.
Mr. Cullem reported that two letters have been sent to the County. The letter dated December
2, 2013 is requesting $12,000 in reimbursement for Costs incurred for Governance Committee
Axctivites to contract with SPI Consultants. The second letter dated January 6, 2014, requests
new funding for the Authority totaling $306,000 of which $83,300 had already been approved by
(but not yet invoiced to) the Board of Supervisors on September 11, 2012.
5. Approve and File Checks Through December 31, 2013
Action: Approved
Clerk Milton spoke to item noting that this is a new practice requested by the Directors. Director
Rubio requested this be brought before the Directors monthly and that it includes a budget to
actual report to keep the Board informed of fiscal spending. Staff agreed. There were no
requests to speak from the public.
On motion by Director Rubio, seconded by Director Burnett and approved by the following vote
the Authority accepted and filed the provided checks through December 31, 2013.
AYES: 6 DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala
ABSENT: 0 DIRECTORS:
MPRWA Minutes Thursday, January 9, 2014

Regular Meeting Minutes - Thursday, January 9, 2014
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6. Receive Update on The 2012-2013 Financial Audit Report
Action: Update Received

Executive Director Cullem spoke to the item indicating the schedule for receiving the 2012-13
Financial Audit.
President Della Sala invited public comments on the item.
Nelson Vega requested a brief history of the efforts and the expenses the Authority has
spent on obtaining a water supply solution noting that its important to know how much
money has been spent and is at risk of the distraction by the efforts to buy-out Cal Am.
The Board deemed the report received, no action was taken.

7. Receive, Discuss and Provide Direction on Year End Budget Review for Calendar Year 2013
Action: Report Received

Executive Director Cullem spoke to the item, and that staff has been working with the Auditor to
verify all financial transactions of the authority from inception through the end of Fiscal year
2013. He noted that the audit has been competed with no deficiencies or irregularities. The
finance subcommittee will meet to receive the final audit on January 23, 2014 and the final
version will be released to the Directors and the member cities at the next meeting February 13,
2014.
President Della Sala opened the item to public comment.
Tom Rowley thanked the Board for how far they have come collectively.
Director Rubio spoke to the desire to have more directors to participate in the Financial Review
process.
Report was accepted by the Directors.
ADJOURNMENT

The meeting was adjourned at

ATTEST:

Lesley Milton, Clerk of the Authority Chuck Della Sala, President
Agenda Report

Date: February 13, 2014
Item No: 2.

06/12
FROM: Executive Director Cullem

SUBJECT: Receive Annual Financial Report and a Full Opinion Audit for FY 2012-13 and
2012 from McGilloway, Ray, Brown and Kaufman (Kaufman) CPA; Approve a
Modification to the Kaufman Contract to Complete the FY 2013-2014 Audit with a
Completion Date of October 1, 2014 at an additional fee not-to-exceed $6000;
Receive a Draft of Water Authority Financial Policies and Practices; and Provide
Direction to Staff.

RECOMMENDATION:
It is recommended that the MPRWA receive the written audit for Fiscal Year 2012-2013 and for
2012 as well as a verbal presentation by Kaufman. It is further recommended that the Authority,
approve an amendment to the Kaufman contract to include completion of the audit for Fiscal
Year 2013-14 by October 1, 2014 at a fee not-to-exceed $6000. It is also recommended that the
Authority receive a draft of Water Authority Financial Policies and Procedures and provide staff
direction.
DISCUSSION:
At its meeting on June 13, 2013, the Water Authority Board approved a staff recommendation to
allow completion of the Financial Annual Report and a Full Opinion Audit for FY 2012-13 to be
completed concurrently with that of the Member City conducting the Authority audit. However,
staff subsequently determined it would create less of a potential conflict of interest to select a
firm not currently auditing member cities. This decision resulted in an initial delay in selecting an
audit firm.
Following an informal solicitation for proposals, the Executive Director selected McGilloway,
Ray, Brown and Kaufman for the audit. The Water Authority was advised of the selection at its
meeting of October 10
th
. The contract was executed on October 31, 2013.
A time extension for report completion to December 31, 2013 and an extension of the contract
completion date to March 31, 2014 was recommended by the Executive Director and approved
by the Water Authority on November 14, 2013.
The audit was completed in December 2013. During January 2014, Kaufman prepared a
management letter identifying areas that needed improvement in the Authoritys financial
management systems. Both the audit and management letter were presented and briefed to the
Ad Hoc Financial Committee on January 23, 2014.
In response to the suggestions from Kaufman with respect to areas in need of improvement,
staff has prepared draft Water Authority Financial Policies and Procedures for Authority review
and staff direction.

With the completion of this audit, the Authority now needs to select a firm for FY 2013-14.
Kaufman had offered to complete audits for fiscal years 2012 to 2015 in its initial proposal, but it
was decided to authorize only one year at a time. Kaufman has now offered to complete the FY
2013-14 for $6000.00. In the opinion of the Executive Director, $6000.00 would be a fair and
reasonable fee. In addition, since it now has extensive experience with the Authoritys financial
system, an amendment to Kaufmans contract for the additional work would be in the best
interest of the public.

ATTACHMENTS:
Fiscal Year 2012-2013 Audit and Letters
McGilloway, Ray, Brown and Kaufman contract dated October 31, 2013

Contract Amendment for Fiscal Year 2013-2014

Draft Water Authority Financial Policies and Procedures


MONTEREY PENINSULA REGIONAL
WATER AUTHORITY

BASIC FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2013 AND 2012

MCGILLOWAY, RAY, BROWN & KAUFMAN
ACCOUNTANTS & CONSULTANTS
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TABLE OF CONTENTS

Page

Independent Auditors Report 1

Managements Discussion and Analysis 3
(Required Supplementary Information)

Basic Financial statements
Statements of Net Position 7
Statements of Revenues, Expenses and Changes in Net Position 8
Statements of Cash Flows 9
Notes to Financial Statements 10

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INDEPENDENT AUDITOR'S REPORT

The Board of Directors
of Monterey Peninsula Regional Water Authority

We have audited the accompanying statements of net position of Monterey Peninsula Regional
Water Authority (the Authority), as of and for the years then ended June 30, 2013 and June 30,
2012, and the statements of revenues, expenses, and changes in net position, and cash flows for the
years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entitys preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entitys internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.

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Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Monterey Peninsula Regional Water Authority as of J une 30, 2013
and J une 30, 2012 and the changes in financial position and its cash flows for the years then
ended, in accordance with accounting principles generally accepted in the United States of
America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
managements discussion and analysis on pages 3 through 6 be presented to supplement the basic
financial statements. Such information, although not a part of the basic financial statements, is
required by the Governmental Accounting Standards Board, who considers it to be an essential
part of financial reporting for placing the basic financial statements in an appropriate operational,
economic, or historical context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards generally accepted in the
United States of America, which consisted of inquiries of management about the methods of
preparing the information and comparing the information for consistency with managements
responses to our inquiries, the basic financial statements, and other knowledge we obtained
during our audit of the basic financial statements. We do not express an opinion or provide any
assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.

Salinas, California
December 31, 2013

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MONTEREY PENINSULA REGIONAL WATER AUTHORITY
MANAGEMENTS DISCUSSION AND ANALYSIS
JUNE 30, 2013 AND 2012

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The management of Monterey Regional Water Authority (the Authority) is providing this
managements discussion and analysis of the financial activities for the fiscal years ended June 30,
2013 and 2012. This information presented should be considered in conjunction with the
Authoritys basic financial statements.
The accompanying audited financial statements are the first to be completed by the Authority since
its formation in February 2012. As such, no comparative analysis for the period prior to February
2012 is available.
Financial Highlights
The Authoritys total net position as of J une 30, 2013, was $7,286, and as of J une 30,
2012, was $12,006.
The change in net position for the fiscal year ended J une 30, 2013, was a decrease of
$4,738.
The Authority has operating expenses in excess of operating revenues in the amount of
$4,738.
Overview of Financial Statements
This discussion and analysis is intended to serve as an introduction to the Authoritys basic financial
statements. The Authoritys audit report is comprised of the financial statements and notes.
Measurement Focus and Basic Financial Statements
The basic financial statements consist of the Authoritys Statements of Net Position, Statements of
Revenues, Expenses and Changes in Net Position, Statements of Cash Flows, and Notes to the Basic
Financial Statements.
Measurement focus is a term used to describe which transactions are recorded within the various
financial statements. Basis of accounting refers to when transactions are recorded regardless of
the measurement focus applied. The accompanying financial statements are reported using the
economic resources measurement focus, and the accrual basis of accounting. Under the economic
measurement focus all assets and liabilities (whether current or noncurrent) associated with these
activities are included on the Statement of Net Position. The Statement of Revenues, Expenses and
Changes in Net Position present increases (revenues) and decreases (expenses) in total net position.
Under the accrual basis of accounting, revenues are recorded when earned and expenses are
recorded when a liability is incurred, regardless of the timing of related cash flows.
The Statements of Net Position presents information on all of the Authoritys assets, deferred
outflows of resources, and liabilities, deferred inflows of resources, with the difference between the
four reported as net position. Over time, increases and decreases in net position may serve as a
useful indicator of whether the financial position of the Authority is improving or deteriorating.
The Statements of Revenues, Expenses and Changes in Net Position presents information showing
how the Authoritys net position changed during the most recent fiscal year. All changes in net
position are reported as soon as the underlying event giving rise to the change occurs, regardless of
the timing of related cash flows. Thus, revenues and expenses are reported in this statement for
some items that will only result in cash flows in future fiscal periods.
The Statements of Cash Flows provides information regarding the Authoritys cash receipts and
cash disbursements during the fiscal year.
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JUNE 30, 2013 AND 2012

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The Notes to the Basic Financial Statements are included to provide more detailed data and explain
some of the information in the statements.
Authoritys Financial Analysis
Since the Authority was formed in February 2012, year-over-year analysis only incorporates three
months from the prior year. Thus, comparative analysis between fiscal year ended June 30, 2013
and June 30, 2012, is statistical insignificant and not included in this years management discussion
and analysis.
Statement of Net Position
A summary of the Authoritys Condensed Statement of Net Position is presented in Table 1 below.
Net Position may serve over time as an indicator of an Authoritys financial position. In the case of
this Authority, assets exceeded liabilities by $7,268 as of June 30, 2013.
The Authoritys current financial position is the product of the net result of revenues and expenses.
Table 1
2013 2012 Amount Percent
ASSETS
Cash and cash equivalents 120,839 $ 14,506 $ 106,333 $ 88.0%
Receivables 3,616 - 3,616 100.0%
Total assets 124,455 14,506 109,949 88.3%
LIABILITIES
Accounts payable 117,187 2,500 114,687 97.9%
Total liabilities 117,187 2,500 114,687 97.9%
NET POSITION
Unrestricted 7,268 12,006 (4,738) -65.2%
Total net position 7,268 $ 12,006 $ (4,738) $
-65.2%
CONDENSED STATEMENT OF NET POSITION
Year ended J une 30, Change

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Statement of Revenues, Expenses and Changes in Net Position
The following table represents a summary of the Statement of Revenues, Expenses and Changes in
Net Position.
Table 2
2013 2012 Amount Percent
417,445 $ 30,000 $ 387,445 $ 93%
Operating expenses 422,183 17,994 404,189 96%
Change in net position (4,738) $ 12,006 $ (16,744) $ 353%
CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET
POSITION
Operating revenues
Year ended J une 30, Change

Budget
The Authoritys governing body adopted a budget as an operating plan. Budgetary basis financial
statements are not presented because there is no legal requirement to do so.
On July 23, 2012, the Authority adopted a budget of $245,245 for the fiscal year ended June 30,
2013, with fair-share contributions requested from each member city. The budget was subsequently
increased to $476,726 to cover the cost of an Executive Director and an expanded legal contract to
support the Authoritys participation in the California Public Utilities Commission (CPUC)
settlement negotiations. These negotiations were related to the California American Waters
application for a Monterey Peninsula Water Supply Project (MPWSP).
Factors Bearing on the Authoritys Future
During fiscal year ended June 30, 2013, the focus of the Authority was to get organized, to provide
transparency in its deliberations, to insure elected officials retain oversight of proposed new water
supply projects for the Peninsula, and to establish a policy position that best served the needs of
Peninsula residents.
In early 2013, the Authority adopted a Position Statement supporting a portfolio water solution to
include Ground Water Replenishment (GWR), Aquifer Storage and Recovery (ASR), and Pacific
Grove Small Projects, all of which have public ownership, in addition to a desalination (Desal)
project.
The Position Statement also defined basic conditions that any project must satisfy to receive
Authority support. After intense analysis and public discussion of the Desal options available, the
Authority voted to support California American Water Companys (Cal-Am) MPWSP.
The future of the Water Authority depends upon how successful it can be in keeping the six
Peninsula Cities and Monterey County working together, focused on those components of the
portfolio water solution which comply with the basic conditions of its Position Statement.

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To that end, the Authority approved the following work plan for the upcoming fiscal year:
Completion of post-settlement activities and follow-up with settling parties regarding
Cal-Ams CPUC application for the MPWSP
Assist passage of legislation to implement securitization and work collaboratively
with MPWSP and Cal-Am to obtain Water Rate Relief Bonding and other public
funding to minimize costs to the ratepayer
Work collaboratively with Monterey Peninsula Water Management District
(MPWMD) and Monterey Regional Water Pollution Control Agency to move the
GWR project forward
Work with the MPWMD to develop a plan for engaging with the State Water
Resources Control Board regarding potential appropriate modifications to the Cease
and Desist Order
When appropriate, support Cal-Am in its effort to secure permits related to the
proposed source wells
Actively pursue public outreach and education efforts through our Water Authority
consultant in cooperation with MPWMD and its Public Outreach Committee
Pursue opportunities to increase the use of storm water in future water supply projects
Request for Information
This financial report is designed to provide citizens and taxpayers with a general overview of the
Authoritys finances and to demonstrate the Authoritys accountability for money it receives. If you
have any questions about this report or need any additional information, please contact the
Authoritys Executive Director, James Cullem, via telephone at 831-241-8503, or email at
cullem@monterey.org
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The accompanying notes are an integral part of these financial statements.
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2013 2012
ASSETS
Cash and cash equivalents 120,839 $ 14,506 $
Receivables 3,616 -
Total assets 124,455 14,506
LIABILITIES
Accounts payable 117,187 2,500
Total liabilities 117,187 2,500
NET POSITION
Unrestricted 7,268 12,006
Total net position 7,268 $ 12,006 $
STATEMENTS OF NET POSITION
J une 30, 2013 and 2012

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2013 2012
Membership fees 417,445 $ 30,000 $
Total operating revenue 417,445 30,000
OPERATING EXPENSES
Administration and clerical services 74,714 -
Legal services 226,597 17,700
Contract services 114,462 -
Insurance 5,746 -
Advertising and promotion - 264
Office supplies 652 -
Travel expenses 12 30
Total operating expenses 422,183 17,994
Operating income (loss) (4,738) 12,006
Change in net position (4,738) 12,006
Total net position, beginning of year 12,006 -
Total net position, end of year 7,268 $ 12,006 $
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEARS ENDED J UNE 30, 2013 AND 2012
OPERATING REVENUES
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2013 2012
Cash Flows from Operating Activities
Cash received from operations 413,829 $ 30,000 $
Cash payments to consultants (307,496) (15,494)
106,333 14,506
106,333 14,506
Cash and Cash Equivalents, Beginning of Year 14,506 -
Cash and Cash Equivalents, End of Year 120,839 $ 14,506 $
Operating income (loss) (4,738) $ 12,006 $
provided (used) by operating activities
(Increase) decrease in accounts receivables (3,616) -
Increase (decrease) in accounts payable 114,687 2,500
Net cash provided by operating activities 106,333 $ 14,506 $
Adjustments to reconcile operating income to net cash
Net increase in cash and cash equivalents
Net cash provided by operating activities
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED J UNE 30, 2013 AND 2012
Reconciliation of operating income (loss) to net cash provided
(used) by operating activities

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NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2013 AND 2012

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1. Organization and Summary of Significant Accounting Polices
Organization
The Monterey Peninsula Regional Water Authority (the Authority) was formed on February 25,
2012, pursuant to the Joint Exercise of Powers Act, set forth in Chapter 5 of Division 7 of Title 1 of
the Government Code, sections 6500, et seq. The Authority operates as a jointly governed
organization. The participants of the Authority are the City of Carmel-by-the-Sea, the City of Del
Rey Oaks, the City of Monterey, the City of Pacific Grove, the City of Sand City, and the City of
Seaside. The Authority operates under a governing body of six directors, one director from each
participant.
The purpose of the Authority is to jointly ensure the timely development, financing, construction,
operation, repair, and maintenance of one or more water projects and ensure that the governance of
such water projects includes representation that is directly accountable to the participants water
uses.
Basis of Accounting, Financial Presentation, and Measurement Focus
The Authoritys basic financial statements have been prepared using the accrual basis of accounting.
As such, revenue is recognized when earned, and expenses are recognized when they are incurred.
The Authority reports its activities as a single enterprise fund, which is used to account for
operations that are financed and operated in a manner similar to a private business enterprise.
An enterprise fund distinguishes operating revenues and expenses from non-operating items.
Operating revenues and expenses generally result from providing services and producing and
delivering goods in connection with the proprietarys fund principal ongoing operations. The
principle operating revenue for the Authority is membership fees from the Authoritys six member
agencies. Operating expenses for the Authority include the cost of services, and administrative
expenses. All revenues and expenses not meeting this definition are reported as non-operating
revenues and expenses.
The basic financial statements are prepared using an economic resources measurement focus. This
means all assets and liabilities associated with the Authoritys activities are included on the
Statement of Net Position. The Statement of Revenues, Expenses and Changes in Net Position
presents increases (revenues) and decreases (expenses) to total net position.
Accounting Changes
The Authority applies all applicable GASB pronouncements for certain accounting and financial
reporting guidance.
The Authority has implemented GASB Statement No. 63, Financial Reporting of Deferred
Outflows of Resources, Deferred Inflows of Resources, and Net Position. Thus, these financial
statements now contain Statements of Net Position and the implementation of this statement did not
have a significant effect on the financial statements of the Authority.

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Budget
The Authority annually adopts an operating budget for the ensuing fiscal year effective July 1 with a
mid-year review as a financial plan for the year. The governing body adopts said budget as an
operating plan. Budgetary basis financial statements are not presented because the Authority is not
legally required to do so.
Cash Equivalents
The Authority presents its cash flow statements using the direct method. For purposes of cash flow
presentation, the Authority considers demand deposits with financial institutions to be cash
equivalents.
Accounts Receivable
The primary source of accounts receivable is from membership fees paid annually by the six
member agencies. No allowance is established for membership fees as management considers them
fully collectible.
Deferred Outflows/Inflows of Resources
In addition to assets, the statement of financial position will sometimes report a separate section for
deferred outflows of resources. This separate financial statement element, deferred outflows of
resources, represents a consumption of net position that applies to a future period(s) and so will not
be recognized as an outflow of resources (expenses) until then. For this reporting period, the
Authority has no items that qualify for reporting in this category.
In addition to liabilities, the statement of net position will sometimes report a separate section for
deferred inflows of resources. This separate financial statement element, deferred inflows of
resources, represents an acquisition of net position that applies to a future period(s) and so will not
be recognized as an inflow of resources (revenue) until that time. For this reporting period, the
Authority has no items that qualify for reporting in this category.
Net Position
The statement of net position reports all financial and capital resources. The difference between
assets and liabilities is net position. The Authoritys net position is classified as follows:
Invested in Capital Assets Net of Related Debt This represents the total investment in capital
assets, net of outstanding debt obligations related to those capital assets. Currently, the Authority
does not have any capital assets or outstanding debt.
Restricted Net Position This represents amounts that are subject to restrictions that are imposed by
external groups such as creditors, contributors or laws and regulations of other Governments or law
through constitutional provisions or enabling legislation. Currently, the Authority does not have a
restricted net position.
Unrestricted Net Position Unrestricted net position includes resources derived from membership
fees.

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Revenue Recognition
Revenues are recognized when earned. Revenues for the Authority are recognized when billed to
each of the six member agencies.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements in accordance with
generally accepted accounting principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results may differ from these estimates.
2. Cash Held with Financial Institutions
The Authority maintains cash balances at Wells Fargo Bank, N.A, a commercial bank with branches
in Carmel-by-the-Sea, CA with federal depository insurance coverage of $250,000. The bank
balance at June 30, 2013 was $155,086; the book balance was $120,839. At June 30, 2012, the
bank balance was $14,506; the book balance was $14,506.
3. Related Parties
The Authority currently contracts out for administrative and clerical services and executive director
services. These two contracts are between the Authority and the City of Monterey (one of six
member agencies). The administrative and clerical services contract states that the Authority is
contractually obligated to pay the City of Monterey for administrative and clerical services with an
annual payment rendered at the beginning of each fiscal year. For the fiscal year ended June 30,
2012, this contract was not in place; therefore, no payments were made to the City of Monterey for
administrative and clerical services during the abovementioned fiscal year. For the fiscal year
ended June 30, 2013, a fee of $35,000 was paid to the City of Monterey for administrative and
clerical services.
The executive director services contract states the Authority is liable for all services rendered to the
Authority by the Executive Director and fees are to be paid on a monthly basis. For the fiscal year
ended June 30, 2012, this contract was not in place; therefore, no payments were made to the City of
Monterey for executive director services during the abovementioned fiscal year. For the fiscal year
ended June 30, 2013, $39,714 was paid to the City of Monterey for executive director services.
These contracts are in place to provide the Authority with all necessary services that would
otherwise be handled by an operational staff. As such, the Authority does not retain a staff to fulfill
these duties and does not have payroll or any other related liabilities.
4. Risk Management
The Authority is exposed to various risks of loss related to torts, theft of, damage to, or destruction
of assets; errors and omissions; injuries to employees; employee health claims; unemployment
compensation claims and environmental damage for which the Authority purchases commercial
insurance. There has been no reduction in insurance coverage from the prior year. Insurance
settlements for claims resulting from the risks covered by commercial insurance have not exceeded
the insurance coverage in the past year. The Authority has obtained coverage from commercial
insurance companies.

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5. New Pronouncements
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement
establishes accounting and financial reporting standards that reclassify, as deferred outflows of
resources or deferred inflows of resources, certain items that were previously reported as assets and
liabilities and recognizes as outflows of resources or inflows of resources, certain items that were
previously reported as assets and liabilities. The provisions of this Statement are effective for
financial statements for periods beginning after December 15, 2012. Management will complete its
assessment of this pronouncement and its potential material effect on the overall financial
statements for the Authority prior to implementation in future financial statements.
6. Subsequent Events
Management has performed an analysis of the activities and transactions subsequent to June 30,
2013, to determine the need for any adjustments to and/or disclosures within the audited financial
statements for the year ended June 30, 2013. Management has performed their analysis through
December 31, 2013, the date the financial statements were available to be issued. No subsequent
events as defined by the standard were found.
Subsequent events were evaluated through December 31, 2013 which is the date the financial
statements were available to be issued.

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580 PACIFIC ST, ROOM 6 MONTEREY CALIFORNIA 93940 www.mprwa.org

J anuary 14, 2014

McGilloway, Ray, Brown & Kaufman
379 West Market Street
Salinas, California 93904

Directors:
Chuck Della Sala, President
J ason Burnett, Vice President
Ralph Rubio, Secretary
J erry Edelen, Treasurer
Bill Kampe, Director
David Pendergrass, Director

Executive Director:
J im Cullem, P.E.

This representation letter is provided in connection with your audit(s) of the financial statements of Monterey
Peninsula Regional Water Authority, which comprises the financial position of the business-type activities as of
J une 30, 2013 and J une 30, 2012, and the respective changes in financial position and, where applicable, cash
flows for the period then ended, and the related notes to the financial statements, for the purpose of expressing
opinions as to whether the financial statements are presented fairly, in all material respects, in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP).
Certain representations in this letter are described as being limited to matters that are material. Items are
considered material, regardless of size, if they involve an omission or misstatement of accounting information that,
in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the
information would be changed or influenced by the omission or misstatement. An omission or misstatement that is
monetarily small in amount could be considered material as a result of qualitative factors.
I confirm, to the best of my knowledge and belief, as of December 31, 2013, the following representations made to
you during your audit.
Financial Statements
1) I have fulfilled my responsibilities, as set out in the terms of the audit engagement letter dated October 15,
2013, including our responsibility for the preparation and fair presentation of the financial statements and
for preparation of the supplementary information in accordance with the applicable criteria.
2) The financial statements referred to above are fairly presented in conformity with U.S. GAAP and include
all properly classified funds and other financial information of the primary government and all component
units required by generally accepted accounting principles to be included in the financial reporting entity.
3) I acknowledge my responsibility for the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error.
4) I acknowledge my responsibility for the design, implementation, and maintenance of internal control to
prevent and detect fraud.
5) Significant assumptions I used in making accounting estimates are reasonable.
6) Related party relationships and transactions, including revenues, expenditures/expenses, loans, transfers,
leasing arrangements, and guarantees, and amounts receivable from or payable to related parties have
been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP.
7) All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment
or disclosure have been adjusted or disclosed. No events, including instances of noncompliance, have
occurred subsequent to the balance sheet date and through the date of this letter that would require
adjustment to or disclosure in the aforementioned financial statements.

J anuary 14, 2014
2

8) I am not aware of any pending or threatened litigation, claims or assessments, or unasserted claims or
assessments that are required to be accrued or disclosed in the financial statements, and I have not
consulted a lawyer concerning litigation, claims, or assessments.
9) Guarantees, whether written or oral, under which the Monterey Peninsula Regional Water Authority is
contingently liable, if any, have been properly recorded or disclosed.
Information Provided
10) I have provided you with:
a) Access to all information, of which I am aware, that is relevant to the preparation and fair presentation
of the financial statements, such as records, documentation, and other matters.
b) Additional information that you have requested from us for the purpose of the audit.
c) Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit
evidence.
d) Minutes of the meetings of Board of Directors or summaries of actions of recent meetings for which
minutes have not yet been prepared.
11) All material transactions have been recorded in the accounting records and are reflected in the financial
statements.
12) I have disclosed to you the results of my assessment of the risk that the financial statements may be
materially misstated as a result of fraud.
13) I have no knowledge of any fraud or suspected fraud that affects the entity and involves:
a) Management,
b) Employees who have significant roles in internal control, or
c) Others where the fraud could have a material effect on the financial statements.
14) I have no knowledge of any allegations of fraud or suspected fraud affecting the entitys financial
statements communicated by employees, former employees, regulators, or others.
15) I have no knowledge of instances of noncompliance or suspected noncompliance with provisions of laws,
regulations, contracts, or grant agreements, or abuse, whose effects should be considered when preparing
financial statements.
16) I am not aware of any pending or threatened litigation, claims or assessments, or unasserted claims or
assessments that are required to be accrued or disclosed in the financial statements, and I have not
consulted a lawyer concerning litigation, claims, or assessments.
17) I have disclosed to you the identity of the entitys related parties and all the related party relationships and
transactions of which I am aware.
Governmentspecific
18) I have made available to you all financial records and related data.
19) There have been no communications from regulatory agencies concerning noncompliance with, or
deficiencies in, financial reporting practices.
20) The Monterey Peninsula Regional Water Authority has no plans or intentions that may materially affect the
carrying value or classification of assets, liabilities, or equity.
21) I am responsible for compliance with the laws, regulations, and provisions of contracts and grant
agreements applicable to us, including tax or debt limits and debt contracts; and I have identified and
disclosed to you all laws, regulations and provisions of contracts and grant agreements that I believe have
a direct and material effect on the determination of financial statement amounts or other financial data
significant to the audit objectives, including legal and contractual provisions for reporting specific activities
in separate funds.
22) There are no violations or possible violations of budget ordinances, laws and regulations (including those
pertaining to adopting, approving, and amending budgets), provisions of contracts and grant agreements,
tax or debt limits, and any related debt covenants whose effects should be considered for disclosure in the
financial statements, or as a basis for recording a loss contingency, or for reporting on noncompliance.
J anuary 14, 2014
3

23) As part of your audit, you assisted with preparation of the financial statements and related notes. I have
designated an individual with suitable skill, knowledge, or experience to oversee your services and have
assumed all management responsibilities. I have reviewed, approved, and accepted responsibility for those
financial statements and related notes.
24) The Monterey Peninsula Regional Water Authority has satisfactory title to all owned assets, and there are
no liens or encumbrances on such assets nor has any asset been pledged as collateral.
25) The Monterey Peninsula Regional Water Authority has complied with all aspects of contractual agreements
that would have a material effect on the financial statements in the event of noncompliance.
26) I have followed all applicable laws and regulations in adopting, approving, and amending budgets.
27) The financial statements include all component units as well as joint ventures with an equity interest, and
properly disclose all other joint ventures and other related organizations.
28) The financial statements properly classify all funds and activities.
29) Components of net position (net investment in capital assets; restricted; and unrestricted) and equity
amounts are properly classified and, if applicable, approved.
30) Provisions for uncollectible receivables have been properly identified and recorded.
31) Expenses have been appropriately classified in or allocated to functions and programs in the statement of
activities, and allocations have been made on a reasonable basis.
32) Revenues are appropriately classified in the statement of activities within program revenues, general
revenues, contributions to term or permanent endowments, or contributions to permanent fund principal.
33) Interfund, internal, and intra-entity activity and balances have been appropriately classified and reported.
34) Deposits and investment securities and derivative instruments are properly classified as to risk and are
properly disclosed.
35) Capital assets, including infrastructure and intangible assets, are properly capitalized, reported, and, if
applicable, depreciated.
36) I have appropriately disclosed the Monterey Peninsula Regional Water Authoritys policy regarding whether
to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both
restricted and unrestricted net position is available and have determined that net position is properly
recognized under the policy.
37) I acknowledge my responsibility for the required supplementary information, i.e. the Management
Discussion and Analysis (RSI). The RSI is measured and presented within prescribed guidelines and the
methods of measurement and presentation have not changed from those used in the prior period. I have
disclosed to you any significant assumptions and interpretations underlying the measurement and
presentation of the RSI.

Signature:
J ames Cullem
Executive Director


December 31, 2013

Board of Directors and Management of

We have audited the financial statements of Monterey Peninsula Regional Water Authority for
the year ended J une 30, 2013, and J une 30, 2012. Professional standards require that we provide
you with information about our responsibilities under generally accepted auditing standards, as
well as certain information related to the planned scope and timing of our audit. We have
communicated such information in our letter to you dated October 15, 2013. Professional
standards also require that we communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The
significant accounting policies used by Monterey Peninsula Regional Water Authority are
described in Note 1 to the financial statements. No new accounting policies were adopted and
the application of existing policies was not changed during the fiscal years ending J une 30, 2013
and J une 30, 2012. We noted no transactions entered into by the governmental unit during the
year for which there is a lack of authoritative guidance or consensus. All significant transactions
have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management
and are based on managements knowledge and experience about past and current events and
assumptions about future events. Certain accounting estimates are particularly sensitive because
of their significance to the financial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive estimate
affecting the financial statements was:
Managements estimate for allowance of doubtful accounts receivables is zero.
This decision is based on managements assumptions and historical experience
with collection of membership fees, and these assumptions appear reasonable.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and
completing our audit.

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Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified
during the audit, other than those that are clearly trivial, and communicate them to the
appropriate level of management. Management has corrected all such misstatements. In
addition, none of the misstatements detected as a result of audit procedures and corrected by
management were material, either individually or in the aggregate, to each opinion units
financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting,
or auditing matter, whether or not resolved to our satisfaction, that could be significant to the
financial statements or the auditors report. We are pleased to report that no such disagreements
arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the
management representation letter dated December 31, 2013.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a second opinion on certain situations. If a
consultation involves application of an accounting principle to the governmental units financial
statements or a determination of the type of auditors opinion that may be expressed on those
statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such
consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the governmental units
auditors. However, these discussions occurred in the normal course of our professional
relationship and our responses were not a condition to our retention.
This information is intended solely for the use of Board of Directors and Management of
Monterey Peninsula Regional Water Authority and is not intended to be, and should not be, used
by anyone other than these specified parties.

Very truly yours,


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To the Board of Directors and Management
of Monterey Peninsula Regional Water Authority

In planning and performing our audit of the basic financial statements of Monterey Peninsula
Regional Water Authority (the Authority) as of and for the year ended J une 30, 2013, and J une
30, 2012, in accordance with auditing standards generally accepted in the United States of
America, we considered Monterey Peninsula Regional Water Authoritys internal control over
financial reporting (internal control) as a basis for designing audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinion on the financial statements, but
not for the purpose of expressing an opinion on the effectiveness of the Monterey Peninsula
Regional Water Authoritys internal control. Accordingly, we do not express an opinion on the
effectiveness of the Monterey Peninsula Regional Water Authoritys internal control.
Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and, therefore, material weaknesses or significant
deficiencies may exist that were not identified. However, as discussed below, we identified
certain deficiencies in internal control that we consider to be material weaknesses and other
deficiencies that we consider to be significant deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, misstatements on a timely basis. A material weakness is a
deficiency or a combination of deficiencies in internal control, such that there is a reasonable
possibility that a material misstatement of the entitys financial statements will not be prevented,
or detected and corrected, on a timely basis. We consider the following deficiencies in Monterey
Peninsula Regional Water Authoritys internal control to be material weaknesses:
Tracking of Maximum Funds Allowed per Contractual Agreements
Deficiency: Our audit revealed there was no tracking of funds paid per contract as part of the
cash disbursement approval process to make sure the all inclusive maximum, per contract, was
not exceeded.
Recommendation: We recommend the Authority track all amounts paid per contractual
agreements as part of the cash disbursement approval process to ensure contractual agreements
are followed and the Authority has the sufficient funds to operate the joint effort effectively.
Check Signing Policy
Deficiency: The Authoritys current check signing policy requires two signatures on checks
above $5,000 and the Treasurers signature on checks below $5,000. Upon review and inquiry
of the policy, we found noncompliance.
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Recommendation: We recommend the Authority make the following changes to their policy to
help streamline the process:
Name an alternate authorized signer for checks below $5,000.
Add a third authorized signer to ensure at least two authorized signers are available when
necessary.

Additionally, we recommend the Authority make a more concerted effort to follow both aspects
of the check signing policy.
Bank Reconciliations
Deficiency: During the audit, we noted various bank statements for the Authoritys checking
account were not reconciled to the general ledger in a timely manner.
Recommendation: We recommend the bank account be reconciled on a monthly basis and, if
any reconciling items are noted, they are promptly reviewed and adjusted with adequate
explanations.
Cash Disbursement Approval Process
Deficiency: While conducting our audit, we noted an informal cash disbursement approval
process was communicated to all parties involved; however, the audit revealed inconsistent
compliance. This situation allows for errors to exist within the general ledger for some time and
could ultimately lead to irregularities, including fraud, to continue without notice.
Recommendation: We recommend the Authority develop and implement a formal cash
disbursement approval process. The following procedure is an example of a formal process
(similar to the informal process communicated) that should be implemented to ensure there are
efficient internal controls over cash disbursements:
The Financial Analyst should open the mail, review the invoices, and send it to the
appropriate party who worked directly with the consultant.
Once the party receives the invoice, they should review the invoice to ensure the services
mentioned were rendered and the fee is accurate. If the invoice is accurate, said party
should approve payment of the invoice via signature or email approval.
When the Financial Analyst receives approval, she should generate a packet including
invoice, approval, and check for payment, and send it the Authority Clerk and Executive
Director for a secondary review (a review of the invoice and contractual amount paid
including invoice). Once the review is complete, the Authority Clerk and Executive
Director should approve payment via signature and send the packet to an authorized
signer for final review and signature.
Once the authorized signer receives the packet for approval, the authorized signer should
review the packet for proper approvals and calculation. If the packet has all necessary
approvals and payment is accurate, authorized signer should sign the check and EITHER
(a) send the packet back to the Financial Analyst for final processing OR (b) send it to an
additional authorized signer for second signature. If second signature is required, the
additional authorized signer should review packet for proper approvals, and calculation
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and sign the check. Once the check is signed, the additional authorized signer should
send packet to Financial Analyst for final processing.
Once the Financial Analyst receives the packet, she should review the packet and check
for completion of all required components. If all required components are complete, the
Financial Analyst can then send payment to consultant to render payment.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that
is less severe than a material weakness, yet important enough to merit attention by those charged
with governance. We consider the following deficiencies in Monterey Peninsula Regional Water
Authoritys internal control to be significant deficiencies:
General Journal Entry Process
Deficiency: Currently, the interim financial statements are generated through QuickBooks.
While the current financial statements did not require adjustments, as the Authority grows in
complexity, adjustments for various matters may be necessary.
Recommendation: We believe it would be beneficial for the Authority to develop a process for
making adjusting journal entries on an annual basis (at minimum). We recommend this process
to include procedures for both standard and nonstandard journal entries. For nonstandard journal
entries, we recommend the Executive Director review and approve all nonstandard journal
entries and initial the support for the entries to document approval. This process will improve
controls over necessary adjustments made to the general ledger.
Final Close Process
Deficiency: Our audit procedures revealed there was no systemic method of ensuring that timely
monthly reconciliations and closing procedures take place. This situation could lead to a backlog
of transactions and journal entries that need to be posted in QuickBooks. This can ultimately
cause errors in the financial records and financial statements as well as allow possible
irregularities, including fraud, to exist and continue without notice.
Recommendation: We recommend this procedure be corrected as soon as possible by
establishing a consistent monthly reconciliation and closing procedures.
Annual Budget
Deficiency: It was noted during the audit that the Authoritys annual budget does not easily
compare to the actual financial statements.
Recommendation: We strongly recommend the structure of the annual budget be modified to
more close resemble the format of the financial statements. This will allow for more useful
comparisons between the budgeted and annual financial information as well as more meaningful
and precise analysis of budget variances.
Budget to Actual Review
Deficiency: Presently, the Authority completes a semi-annual budget to actual review to assess
the need for adjustments. During our audit, we noted the necessity to complete this process more
frequently.
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Recommendation: Due to the Authoritys reliance on the budget for liquidity, we recommend
completing a quarterly budget to actual review to make sure the Authority has the flexibility to
fulfill their mission statement with little to no financial constraints.
Accounts Receivable (AR) Aging Report Review and Collection Process
Deficiency: We reviewed the accounts receivable aging report and noticed one payment was
over 120 days old. Upon further investigation, we determined this has become a trend.
Recommendation: We recommend the implementation of a monthly managerial review of the
AR aging report and the establishment of a collections process. On a monthly basis, the
Financial Analyst should complete an initial review of the aging report and then send it to the
Executive Director for a managerial review. Once the managerial review is complete, the
Financial Analyst should prepare monthly statements for each member agency indicating amount
owed and forward it to the appropriate party. This continuous review of the accounts receivable
ledger along with the implementation of a collection process will reduce the amount of
delinquent receivables, and provide much greater control over the accounts receivable.
Managerial Review of Accounting Reports
Deficiency: While conducting our audit, we noted no supervisory review of accounting
transactions, reports, and reconciliations are performed. This situation allows for potential errors
to exist within the general ledger for some time, and without subsequent correction, they will
continue to grow in magnitude.
Recommendation: We recommend this procedure be corrected as soon as possible by
establishing a regular supervisory review of accounting transactions, reports, and reconciliations.
Whistleblower Policy
Deficiency: During our audit, we noted the Authority does not have a formal policy for whistle
blowing. The purpose of such a policy is to create safeguard against improper actions being
taken against a whistleblower.
Recommendation: We recommend the Authority implement a whistleblower policy to ensure no
retaliation occurs if and when an individual makes a good-faith report of fraud or any other
illegal action.

This communication is intended solely for the information and use of management, Board of
Directors, and others within the organization, and is not intended to be, and should not be, used
by anyone other than these specified parties.

Salinas, California
December 31, 2013

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January 13, 2014
Ms. Patricia M. Kaufman CPA
McGilloway, Ray, Brown, Kaufman
2511 Garden Road, Suite A180
Monterey, CA 93940-3437

Subject: Amendment to Contract for Audit Services

Dear Ms. Kaufman:
The Water Authority has accepted your proposal to amend the current contract for Audit
Services for The Monterey Peninsula Regional Water Authority.
The current contract dated 15 October 2013 is amended as follows:
The scope of work will now include Audit Services as described in Kaufman Proposal dated
October 7, 2013, Exhibit A of the contract, for fiscal year 2013-2014 at an additional price not-
to-exceed $6000.00 for a total contract price not to exceed $11,900.00. The 2013-2014 Audit is
to be completed by October 1, 2014 and the amended contract completion date is December 31,
2014.
The Authority retains the option of negotiating a future amendment to the contract for FY 2014-
2015 as included in Exhibit A to the contract.
Should you have any questions, please do not hesitate to contact me at cullem@monterey.org or
contact me on my cell phone 831-241-8503.
Sincerely,

James M. Cullem P.E.
Executive Director
MPRWA

Encl: Amended Contract
October 15, 2013
Ms. Patricia M. Kaufman CPA
McGinoway, Ray, Brown, Kaufman
2511 Garden Road, Suite A180
Subject: Selection of Audit Services
Directors:
Chuck Della Sala, President
Jason Burneft, Vice President
Ralph Rubio, Secretary
Jerry Edelen, Treasurer
Bill Kemp; Director
David Pendergrass, Director
Executive Director:
ARKS M. Cullom, P.E
Dear Ms. Kaufman:
Congratulations! The Water Authority has accepted your proposal to provide Audit Services for The Monterey
Peninsula Regional Water Authority.
The Authority received three proposals, yours included. However, we believe your firm is best positioned to
support to complete its first audit in a timely manner and at a reasonable cost,
Although the current deadline for a CPA prepared certified anoint report and a Full Opinion Audit for FY 2013
is December e t , I am hopeful of getting that deadline extended until January l Accordingly, I have adjusted
the contract completion date to Dec 6 1h so we have time to review the documents at the staff level and to
prepare a staff report for the Water Authority Board meeting later in December.
A draft copy of the contract is enclosed herewith. Please review and return with your engagement letter. Please
identify any issues between the two that we need to resolve before executing the contract. If possible, I would
like to sign off by Oct 18.
Should you have any questions, please do not hesitate to contact me at cullem monterey.org or contact me on
my cell phone 831-241-8503.
Sigcerely,
SAWN& Cullem P.E.
yExecutive Director
MPRWA
End: Contract
580 PACIFIC ST, ROOM 6 MONTEREY CALIFORNIA 03040
www.mprwa.org
CONDUCT FOR PROFESSIONAL SERVICES
Water Authority Audit Agreement
THIS AGREEMENT is executed this I b day of CM/3612 --
.2011 by and between
the Monterey Peninsula Regional Water Authority, a municipal corporation, hereinafter called
"Authority, and McGilloway, Ray, Brown, Kaufman, hereinafter called "Consultant".
IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. Scope. Consultant hereby agrees to provide to the Authority, as the scope of
services under this Agreement, the following services: Audit Services, as further described on
the following attachment: the Consultant's Proposal dated October 7, 2013 (attached hereto as
Exhibit "A").
2. Timely Wort. Consultant shall perform all tasks in a timely fashion, as set forth
more specifically in paragraph 3 below. Failure to so perform is hereby deemed a material
breach of this Agreement, and Authority may terminate this Agreement with no further liability
hereunder, or may agree in writing with Consultant to an extension of time.
3. Term. The work under this Agreement shall commence October 15, 2013 and
shall be completed by December 6, 2013 unless Authority grants a written extension of time as
forth in paragraph 2 above.
4. Compensation. Authority agrees to pay and Consultant agrees to accept as full
and fair consideration for the performance of this Agreement, an hourly fee as set forth in
Consultant's Proposal (Exhibit A), In a total amount not to exceed Five Thousand Nine Hundred
Dollars ($5900.00). Compensation under this Agreement shall become due and payable 30
days after Authority's approval of Consultant's submission of a written invoice to the Authority
Executive Director. Written Invoices shall clearly show the account numbers for each project
and shall include a copy of limesheets or Invoices from sub-consultants. The payment of any
compensation to Consultant hereunder shall be contingent upon perforrnance of the terms and
conditions of this Agreement to the satisfaction of the Authority. If Authority determines that the
work set forth in the written invoice has not been performed in accordance with the terms of this
Agreement, Authority shall not be responsible for payment until such time as the work has been
satisfactorily performed.
5. Additional Services. In the event that Authority should request additional
services not covered by the terms of this Agreement, said services will be provided by
Consultant and paid for by Authority only after a fee for said services has been agreed upon
between Consultant and Authority Executfve Director and the Authority Director provides written
authorization for the additional work.
6. Schedule for Perfonino Services. For the project subject to this Agreement,
Consultant shall perform the services in accordance with the following phases and/or milestone
dates: Completion of 2013 Audit by close of business December 6, 2013.
T00008-CA (v. - 0W04/2013)
7. Staffing Plan. Consuftant shall provide Authority with the names of the key
professional personnel assigned to perform the services under this Agreement as well as a
general description of the services they will be assigned to perform.
8. Subconsultant Plan. N/A
9. Meet and Confer. Consultant agrees to meet and confer with Authority or its
agents or employees with regard to services as set forth herein as may be required by Authority
to Insure timely and adequate performance of this Agreement
10. Indemnification. Consultant hereby agrees to the following Indemnification
clause:
To the fullest extent permitted by law (including, without limitation, California Civil Code
Sections 2782 and 2782.6), Consultant shall defend (with legal counsel reasonably
acceptable to the Authority), indemnify and hold harmless the Authority and its officers,
designated agents, departments, officials, representatives and employees (collectively
"Indemnitees") from and against claims, loss, cost, damage, injury expense and liability
(Including incidental and consequential damages, court costs, reasonable attorneys' fees,
litigation expenses and fees of expert consultants or expert witnesses Incurred in connection
therewith and costs of investigation) to the extent they arise out of, pertain to, or relate to, the
negligence, recklessness, or willful misconduct of Consultant, any Subconsultant, anyone
directly or indirectly employed by them, or anyone that they control (collectively "Liabilities").
Such obligations to defend, hold harmless and Indemnify any Indemnitee shall not apply to the
extent that such Liabilities are caused in part by the negligence, or willful misconduct of such
Indemnitee.
Notwithstanding the provisions of the above paragraph, Consultant agrees to indemnify
and hold harmless the Authority from and against any and all claims, demands, defense costs,
Debility, expense, or damages arising out of or in connection with damage to or loss of any
property belonging to Consultant or Consultants employees, contractors, representatives,
patrons, guests or invitees.
Consultant further agrees to indemnify Authority for damage to or loss of Authority
property to the proportionate extent they arise out of Consultants negligent performance of
the work associated with this agreement or to the proportionate extent they arise out of any
negligent act or omission of Consultant or any of Consultant's employees, agents, contractors,
representatives, patrons, guests or Imams: excepting such damage or loss arising out of the
negligence of the Authority
11. Insurance. Consultant shall submit and maintain in full force all insurance as
described herein. Without altering or limiting Consultant's duty to indemnify, Consultant shall
maintain in effect throughout the term of this Agreement a policy or policies of insurance with
the following minimum limits of liability:
Commercial general liability insurance including but not limited to premises, personal
Injuries, bodily Injuries, products, and completed operations, with a combined single limit
of not less than $1,000,000 per occurrence and $2,000,000 In the aggregate.
Professional Liability Insurance. Consultant shall maintain in effect throughout the term
of this Agreement professional liability insurance with limits of not less than $1,000,000
2
per claim and $2,000,000 In the aggregate. Consultant will either maintain or cause to be
maintained professional liability coverage in full force or obtain extended reporting (tail)
coverage (with the same liability limits) for at least three years following City's
acceptance of the work.
Commercial automobile liability insurance covering all automobiles, Including owned,
leased, non-owned, and hired automobiles, used in providing services under this
Agreement, with a combined single limit of not less than $1,000,000 per occurrence.
WoSers' Compensation Insurance. If Consultant employs others in the performance of
this Agreement, Consultant shall maintain workers' compensation insurance in
accordance with California Labor Code section 3700 and with a minimum of $100,000
per occurrence for employer's liability.
Other insurance Requirements
A. All insurance required under this Agreement must be written by an Insurance
company either:
admitted to do business in California with a current A.M. Best rating of no
less than A:VI;
Or
an insurance company with a current A.M. B rating of no less than A:
VII.
Exception may be made for the State Compensation Insurance Fund when
not specifically rated.
B. Each insurance policy required by this agreement shall be endorsed to state
that City of Monterey shall be given notice in writing at least thirty days in
advance of any cancellation thereof, except 10-day notice for nonpayment of
the premium.
C. The general liability and auto policies shall:
Provide an endorsement naming the Authority, Its officers, officials, and
employees as additional insureds under an ISO CG 20 10 07 04 or ISO 20 37
07 04 or their equivalent.
Provide that such insurance is primary and non-contributing insurance to any
insurance or self4nsurance maintained by the Authority.
Contain a "Separation of Insureds* provision substantially equivalent
to that used in the ISO form CO 00 01 10 01 or their equivalent
Provide for a waiver of any subrogation rights against the Authority via an
ISO CG 24 01 10 93 or its equivalent.
D. Prior to the start of work under this Agreement, Consultant shall file
certificates of insurance and endorsements evidencing the coverage required
by this agreement with the Authority. Consultant shalt file a new or amended
certificate of insurance promptly after any change is made in any insurance
policy which would after the information on the certificate then on file.
E.
Neither the insurance requirements hereunder, nor acceptance or approval of
Consultant's insurance, nor whether any claims are covered under any
Insurance, shall in any way modify or change Consultant's obligations under
the indemnification clause in this Agreement, which shall continue in full force
and effect. Notwithstanding the insurance requirements contained herein,
Consultant is financially liable for its indemnity obligations under this
Agreement.
My deductibles or self-Insured retentions must be declared to and approved
by the Authority. At the option of the Authority, either: the insured shall
reduce or eliminate such deductibles or self-insured retentions as respects
the Authority, its officers, officials, employees and volunteers; or Consultant
shall provide a financial guarantee satisfactory to the Authority guaranteeing
payment of losses and related investigations, claim administration, and
defense expenses.
12, Ownership of Work and Coravriohts. Upon completion of the work under this
Agreement, ovmershlp, title and copyrights to all materials and deliverables produced as part of
this Agreement will automatically be vested in the Authority and no further agreement will be
necessary to transfer ownership to Authority.
13. Licensing Standard of Cam. Consultant represents as follows: that It Is
experienced in the professional services and a specialist in the work performed under this
Agreement; is duly organized, existing and In good standing under applicable state law; and Is
properly licensed and/or certified to perform the work specified under this Agreement, including
but not limited to possession of a current City of Monterey business license, and will only
employ persons and subconsultants with all required licenses and certifications.
14. Substitution of Consultant Personnel. The key personnel of Consultant or any
subconsultants listed in Consultant's proposal and assigned to perform the work under this
Agreement may not be substituted with or replaced by other personnel or subconsuttants
without the advance written consent of Authority.
15. Termination. Authority may terminate this Agreement upon ten days' written
notice. The amount of damages, if any, as a result of such termination may be decided by
negotiations between the parties or before a court of competent jurisdiction.
16. Mena/. In performing the services specified under this Agreement, Consultant
is hereby deemed to be an Independent Consultant and not an agent or employee of Authority.
17. Entire Aareement. This Agreement constitutes the entire Agreement between the
parties hereto and supersedes any and all prior agreements, whether oral or written, relating to
the subject matter thereof. My modification of this Agreement will be effective only if it is in
writing signed by both parties hereto.
4
CONSULTANT
AUTHORITY
/
Ain Cullem, Executive Director
18. Validity. If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions WIN continue In full
force without being impaired or Invalidated in any way.
19. Assienm nt of interest. The duties under this Agreement shall not be assignable,
delegable, or transferable without the prior mitten consent of Authority. Any such purported
assignment, delegation, or transfer shall constitute a material breach of this Agreement upon
which Authority may terminate this Agreement and be entitled to damages.
20. Conflict of Interest. Consultant hereby certifies that it does not now have, nor
shall it acquire any financial or business interest that would conflict with the performance of
services under this Agreement
21. Counterparts. This Agreement may be executed in multiple originals, each of
which is deemed to be an original, and may be signed in counterparts.
22. Laws, Consultant agrees that in the performance of this Agreement it will
reasonably comply with all applicable State, Federal and local laws and regulations. This
Agreement shall be governed by and construed In accordance with the laws of the State of
California and the City of Monterey.
IN WITNESS WHEREOF, this Agreement is entered into by the parties hereto on the
day and year first above written in Monterey, California.
Rbtricia Kaufrrfan,
McGilloway, Ray, Brown, Kaufman
MeGILLO WAY,
RAY, BROWN & KAUFMAN
Accountants & Consultants
2511 Garden Road, Sate A180
831-373-3337 Pt v 831-373-3437
Toll Free 864-373-2511
379 West Market Saw
Salinas, CA 93901
831-424-2737
Far 832-424-7936
EXHIBIT A
October 21,-2013
James M. Cullem, RE., Executive Director
580 Pacific Street, Room 6
Monterey, California 93940
We are pleased to confirm our understanding of the services we are to provide Monterey
Peninsula Regional Water Authority for the years ending June 30, 2013, 2014, and 2015:
We will audit the basic financial statements of Monterey Peninsula Regional Water Authority as
of and for the years ending June 30, 2013-20+4 7-and-204-5.Thecounting standards generally
accepted in the United States of America provide for certain Squired supplementary information
(RSI), such as management's discussion and analysis (MD&A), to supplement Monterey
Peninsula Regional Water Authority's basic financial statements. Such information, although
not a part of the basic financial statements, is required by the Governmental Accounting
Standards Board who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. As part
of our engagement, we will apply certain limited procedures to Monterey Peninsula Regional
Water Authority's RSI in accordance with auditing standards generally accepted in the United
States of America. These limited procedures will consist of inquiries of management regarding
the methods of preparing the information and comparing the information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge we
obtained during our audit of the basic financial statements. We will not express an opinion or
provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance. The following RSI is
required by generally accepted accounting principles and will be subjected to certain limited
procedures, but will not be audited:
1) Management's Discussion and Analysis
Daniel Al, MeGilloWay, in, CPA, CM, Gould C. Ray, CPA, Clyde W Brown, CPA. Patricia M. Kaufman, CPA,
Larry Iv. Rollins, CPA. Relen Grace if Rodriguez, CPA, CFE
Sarno C. Shannon, CPA, Deanna Lozano, CPA, Whitney Ernest CPA. Denyn Maefleth, CPA,
Money It Rimberg, CPA, Jena Mmuenwpior, CPA, &writ( Shrestha CPA
October 21, 2013
Page 2
Audit Objective
The objective of our audit is the expression of opinions as to whether your basic financial
statements are fairly presented, in all material respects, in conformity with generally accepted
accounting principles and to report on the fairness of the supplementary infoimati on refuled to
in the second paragraph when considered in relation to the financial statements as a whole. Our
audit will be conducted in accordance with auditing standards generally accepted in the United
States of America and will include tests of the accounting records and other procedures we
consider necessary to enable us to express such opinions. We cannot provide assurance that
unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us
to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on
the financial statements are other than unmodified, we will discuss the reasons with you in
advance. If, for any reason, we are unable to complete the audit or are unable to form or have
not formed opinions, we may decline to express opinions or to issue a report as a result of this
engagement.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information
as well as all representations contained therein. You agree to assume all management
responsibilities for any nonattest services we provide; oversee the services by designating an
individual, preferably from senior management, with suitable skill, knowledge, or experience;
evaluate the adequacy and results of the services; and accept responsibility for them.
Management is responsible for establishing and maintaining effective internal controls, including
monitoring ongoing activities; for the selection and application of accounting principles; and for
the preparation and fair presentation of the financial statements in conformity with U.S.
generally accepted accounting principles.
Management is also responsible for making all financial records and related information
available to us and for the accuracy and completeness of that information. You are also
responsible for providing us with (1) access to all information of which you are aware that is
relevant to the preparation and fair presentation of the financial statements, (2) additional
information that we may request for the purpose of the audit, and (3) unrestricted access to
persons within the government from whom we determine it necessary to obtain audit evidence.
Your responsibilities include adjusting the financial statements to correct material misstatements
and confirming to us in the written representation letter that the effects of any uncorrected
misstatements aggregated by us during the current engagement and pertaining to thefl latest period
presented are immaterial, both individually and in the aggregate, to the financial statements taken
as a whole.
October 21, 2013
Page 3
You are responsible for the design and implementation of programs and controls to prevent and
detect fraud, and for informing us about all known or suspected fraud affecting the government
involving (I) management, (2) employees who have significant roles in internal control, and (3)
others where the fraud could have a material effect on the financial statements. Your
responsibilities include informing us of your knowledge of any allegations of fraud or suspected
fraud affecting the government received in communications from employees, former employees,
regulators, or others. In addition, you are responsible for identifying and ensuring that the entity
complies with applicable laws and regulations.
You are responsible for the preparation of the supplementary information in conformity with
U.S. generally accepted accounting principles. You agree to include our report on the
supplementary information in any document that contains and indicates that we have reported on
the supplementary information. You also agree to include the audited financial with any
presentation of the supplementary information that includes our report thereon. Your
responsibilities include acknowledging to us in the representation letter that (1) you are
responsible for presentation of the supplementary information in accordance with GAAP; (2) that
you believe the supplementary information, including its form and content, is fairly presented in
accordance with GAAP; (3) that the methods of measurement or presentation have not changed
from those used in the prior period (or, if they have changed, the reasons for such changes); and
(4) you have disclosed to us any significant assumptions or interpretations underlying the
measurement or presentation of the supplementary information.
Audit ProceduresGeneral
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements; therefore, our audit will involve judgment about the number of
transactions to be examined and the areas to be tested. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements. We will plan and perform the audit to obtain reasonable rather than absolute
assurance about whether the financial statements are free of material misstatement, whether from
(1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of
laws or governmental regulations that are attributable to the entity or to acts by management or
employees acting on behalf of the entity.
Because of the inherent limitations of an audit, combined with the inherent limitations of internal
control, and because we will not perform a detailed examination of all transactions, there is a risk
that material misstatements may exist and not be detected by us, even though the audit is
properly planned and performed in accordance with U.S. generally accepted auditing standards.
In addition, an audit is not designed to detect immaterial misstatements, or violations of laws or
governmental regulations that do not have a direct and material effect on the financial
statements. However, we will inform the appropriate level of management of any material
errors, any fraudulent financial reporting, or misappropriation of assets that come to our
attention. We will also inform the appropriate level of management of any violations of laws or
October 21, 2013
Page 4
governmental regulations that come to our attention, -unless clearly inconsequential. Our
responsibility as auditors is limited to the period covered by our audit and does not extend to any
later periods for which we are not engaged as auditors.
Our procedures will include tests of documentary evidence supporting the transactions recorded
in the accounts, and may include tests of the physical existence of inventories, and direct
confirmation of receivables and certain other assets and liabilities by correspondence with
selected individuals, funding sources, creditors, and financial institutions. We will request
written representations from your attorneys as part of the engagement, and they may bill you for
responding to this inquiry. At the conclusion of our audit, we will require certain written
representations from you about the financial statements and related matters.
Audit ProceduresInternal Control
Our audit will include obtaining an understanding of the entity and its environment, including
internal control, sufficient to assess the risks of material misstatement of the financial statements
and to design the nature, timing, and extent of further audit procedures. An audit is not designed
to provide assurance on internal control or to identify deficiencies in internal control. However,
during the audit, we will communicate to management and those charged with governance
internal control related matters that are required to be communicated under AICPA professional
standards.
Audit ProceduresCompliance
As part of obtaining reasonable assurance about whether the financial statements are free of
material misstatement, we will perform tests of Monterey Peninsula Regional Water Authority's
compliance with the provisions of applicable laws, regulations, contracts, and agreements.
However, the objective of our audit will not be to provide an opinion on overall compliance and
we will not express such an opinion.
Engagement Administration, Fees, and Other
We understand that your employees will prepare all cash or other confirmations we request and
will locate any documents selected by us for testing.
Patricia M. Kaufman is the engagement partner and is responsible for supervising the
engagement and signing the report or authorizing another individual to sign it.
We estimate our fees for these services to be $5,900 for the year ended June 30, 2013. A
detailed breakdown of our fees for the audit services for the year ended June 30, 2013, and two
subsequent years is provided below:
October 21, 2013
Page 5
For the Years Ending June 30,
Segments Hours 2013 2014
2015
Planning
8
Preliminary Fieldwork
8
Fieldwork and Workpaper Review
12
Reports and Management Later
10
Report Presentation and Exit Conference 2
Subtotal Audit 40 $ 4,900 $ 5,100 $ 5,400
Out of pockM expenses
100 105 110
Additional Services - Initial Drafting of Report and
Footnotes
900
Total Audit
5,900 $
5,205 $
5,510
Currently, our rates range from $85 per hour for clerical to $250 per hour for partners. This fee
estimate is based on anticipated cooperation from your personnel, and the assumption that
unexpected circumstances will not be encountered during the engagement. Our invoices are
submitted monthly and are payable upon receipt by you. Our invoices for these fees will be
rendered each month as work progresses and are payable on presentation.
Aeathusts=pest.due=over--30-days-ar-e-considered--delinquent-and--3411-be-subject-te-an-annual
faun e,pereent4444). There will be a
minimum finance charge of $1.00. Payments received on account will first be credited against
any delinquency charges. Further, we will cease performing services on delinquent accounts if
the account becomes 60 days or more overdue and will not be resumed until your account is paid
in full. All expenses incurred to collect past due accounts, including collection fees will be
added to any amount due. If we elect to terminate our services for nonpayment, our engagement
will be deemed to have been completed upon written notification of termination, even if we have
not completed our report. You will be obligated to compensate us for all time expended and to
reimburse us for all out-of-pocket expenditures through the date of termination.
If any dispute arises among the parties, they agree to try first in good faith to settle the dispute by
mediation administered by the American Arbitration Association (AAA) under its Commercial
Mediation Rules. All unresolved disputes shall then be decided by final and binding arbitration
in accordance with the Commercial Arbitration Rules of the AAA. Fees charged by any
mediators, arbitrators, or the AAA shall be shared equally by all parties. In agreeing to
arbitration, we both acknowledge that in the event of .a dispute, each of us is giving up the right
to have the dispute decided in a court of law before a judge or jury and instead we accept the use
of arbitration for resolution.
October 21, 2013
Page 6
We appreciate the opportunity to be of service to Monterey Peninsula Regional Water Authority
and believe this letter accurately summarizes the significant terms of our engagement. If you
have any questions, please let us know. If you agree with the terms of our engagement as
described in this letter, please sign the enclosed copy, and return it to us.
Very truly yours,
1 4 C. PICWOJ
PC)0 s %XVI 1,
1 W e a t Q W 2 '1'
Accountants & Consultants
RESPONSE:
This letter correctly sets forth the understanding of Monterey Peninsula Regional Water
Authority.
Management signature:
Title: &roiT7W jti>7v,
Date: 3/ de-i- za31
7
Governance signature: WiRiotrAilAc44 -`
Title:

Date:


Agenda Report

Item No: 3.

06/12
FROM: Authority Clerk Milton

SUBJECT: Approve and File Checks Through January 31, 2014

RECOMMENDATION:
It is recommended that the MPRWA approve and file the accounts payable payments
made during the period of January 1, 2014 through January 31, 2014. Total Accounts
Payable for the above referenced period is $71,273.85. It is recommended that the
Authority approve and file the below checks.
DISCUSSION:
At its meeting on September 12, 2013, the Authority Board approved a staff
recommendation to provide the Directors a listing of general checks issued since the last
report so that it can inspect and confirm these checks. Each invoiced expense has been
reviewed and approved by the Executive Director and Finance personnel and confirmed
by the President or Vice President prior to payment to insure that it conforms to the
approved budget.
The following checks are hereby submitted to the Authority for inspection and
confirmation.
$4,500 to Perry and Freeman For Legal Services for January and February
$4,720 to McGilloway, Ray, Brown & Kaufman for Financial Audit
$4,648.35 to Environmental Relations for Public Outreach Services
$29,562.17 for Special Legal Counsel of Brownstein, Hyatt, Farber and Schreck
$27,843.43 to Separation Processes for Project Evaluation/Consulting testimony
& participation on Design Build Selection Team

FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds, as appropriate
and the Budget to Actual is below and lists all checks issued to date. The line item for
Consulting Services has been exceeded due to the approval to contract with Separation
Processes Inc to participate in the Design Build Selection Process for the Monterey
Peninsula Water Supply Project. On November 14, 2013, The Board approved the
Authority to contract with SPI for a Not to Exceed Cost of 36,000 and the total costs
shared between the three Governance Committee agencies. To date, both the

Monterey Peninsula Water Management District and the County of Monterey have been
invoiced for their share of the costs, but no payment has been received.
Budget to Actual (as of 2/10/2014)

ADOPTED Budget FY 2013-14

Approved
Budget
13-14
Expended
To Date
Remaining
Balance
Professional Services

Legal Counsel $63,000 $18,000 $45,000
Attorney of Record $186,000 $76,532 $109,468
Staff $35,000 $35,000 $0
Executive Director $94,680 $11,664 $83,016
Studies $10,000 $0 $10,000
Project Evaluation $20,000 $34,610 -$14,610
Contract Assistance $15,000 $0 $15,000
Travel $5,000 $0 $5,000
Public Outreach $49,000 $6,761 $42,239
Insurance $7,000 $6,702 $298
Audit $5,000 $4,720 $280
Contingency $20,000 $1,197 $18,803
Total Budget FY 13-14 $509,680 $195,185 $314,495

Agenda Report

Item No: 4.

06/12
FROM: Executive Director Cullem

SUBJECT: Receive Report, Discuss, Provide Direction and Approve Resolution 2014-XX
and Letter of Support for Senate Bill 936, and Authorize the Executive Director to
Forward a Sample Resolution and Sample Letter for Consideration by Member
City Councils.

RECOMMENDATION:
The Executive Director recommends that the Water Authority receive, discuss, revise, and
approve the attached Resolution 2014-XX and letter to be sent to State Senator Bill Monning in
support of SB 936. It is further recommended that the Authority authorize the Executive Director
to forward a sample resolution and sample letter of support to the member Cities for
consideration by their Councils.
DISCUSSION:
State Senator Bill Monning has now introduced Senate Bill 936, Ratepayers Savings
Legislation, allowing for Securitization of funding for the California American Water Company
(Cal-Am) Desalination Project (desal). Securitization was a major concession by Cal-Am in the
Comprehensive (Large) Settlement Agreement on its application to the California Public
Utilities Commission (CPUC) for the Monterey Peninsula Water Supply Project (MPWSP). It
allows for a reduction in Cal-Am equity (investor funds) from 53% to 27%, to be replaced by
public financing (State bonds and state loans). That replacement is expected to save tens of
millions of dollars for Cal-Am ratepayers in the future cost of desal water.
Attached is draft Resolution 2014-XX and a draft letter of support to Senator Monning for
consideration by the Water Authority. If so directed by the Authority, these documents would be
forwarded to the member cities for consideration by their Councils.

ATTACHMENTS:
Draft Resolution 2014-XX
Draft Water Authority Letter of Support

RESOLUTION 2014-xx

RESOLUTION OF THE ( ) IN SUPPORT OF WATER RATE RELIEF BONDS
FOR THE MONTEREY PENINSULA WATER SUPPLY PROJECT

WHEREAS, the Monterey Peninsula receives its water supply from surface and sub-surface water
in the Carmel River and water in the Seaside Groundwater Basin; and

WHEREAS, by State Water Resources Control Board (SWRCB) Order No. WR 95-10 dated July 6,
1995,the SWRCB determined that California American Water (Cal-Am) did not possess the right to divert
from the Carmel River system the amount of water historically (and presently) being diverted and
ordered Cal-Am to terminate its unpermitted diversions from the Carmel River, to maximize its
production from the Seaside Groundwater Basin, and to diligently pursue a substitute water supply; and

WHEREAS the SWRCB issued a Cease and Desist Order (CDO) WR 2009-0060 in October 2009
which prescribes a series of significant cutbacks to Cal-Ams production from the Carmel River through
December 2016 and subjects Cal-Ams customers to a moratorium on water permits for new
construction and remodels, and may subject customers to water rationing and/or fines if Cal-Am
production limits are exceeded; and

WHEREAS, Cal-Ams ability to produce water from the Seaside Groundwater Basin has also been
limited by the adjudication of the Monterey County Superior Courtwhich, in a final judgment in 2006,
imposed a series of pumping reductions designed to limit production of natural basin water; and

WHEREAS, In order to meet the mandated reductions in water supply, Cal-Am has submitted an
application to the California Public Utilities Commission (CPUC) to build a desalination plant plus
conveyance and storage facilities that are estimated to cost $277 to $320 million; and

WHEREAS, SB 936 authorizes the California Public Utilities Commission to allow Cal-Am to
collaborate with the Monterey Peninsula Water Management District on the issuance of Water Rate
Relief Bonds to the public for the purpose of financing a portion of the Cal-Am Monterey Peninsula
Water Supply Project; and

WHEREAS, the use of Water Rate Relief Bonds will result in lower costs to customers of Cal-Am
as compared to traditional utility financing mechanisms;

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors (City Council) of ____________
hereby supports SB 936 and encourages its adoption by the California Legislature and Governor.

On a motion by Director (Council Member) ________________ and second by Director (Council
Member) __________________ the foregoing resolution is duly adopted this __
th
day of ____ 2014 by
the following votes.

Ayes:
Nays:
Absent:

February __, 2014 SAMPLE

The Honorable William Monning
California State Senator
State Capitol, Room 4066
Sacramento, CA 95814

Dear Senator Monning:

The need for infrastructure to expand sources of water on the Monterey Peninsula has been
heightened by the lack of legal water supplies resulting from a State Cease and Desist Order
(CDO), the State Water Resources Control Board (SWRCB) Order WR 95-10, the listing of the
California red-legged frog and the steelhead trout as threatened species under the federal
Endangered Species Act, and the limitations on water from the Seaside Groundwater Basin
adjudication. California American Water Company (Cal-Am) has proposed the Monterey
Peninsula Water Supply Project, including a sizable desalination facility, to address the need for
new supply.

In order to meet the mandated reductions in water supply, Cal-Am has proposed a desalination
plant, plus conveyance and storage facilities that are estimated to cost $277 to $320 million.

SB 936 authorizes the California Public Utilities Commission to allow Cal-Am to collaborate
with the Monterey Peninsula Water Management District on the issuance of Water Rate Relief
Bonds to the public for the purpose of financing a portion of the Cal-Am Monterey Peninsula
Water Supply Project. Such use of Water Rate Relief Bonds will result in lower costs to
customers of Cal-Am as compared to traditional utility financing mechanisms.

Therefore, the Board of Directors (City Council) of ____________ supports SB 936 and
encourages its adoption by the California Legislature and Governor.

We appreciate all that you do to assist the Monterey Peninsula, including this effort to solve our
water supply needs at the lowest cost to our rate paying citizens.

On behalf of our entire Board of Directors (City Council), yours sincerely,

__________________
President (Mayor)


Agenda Report

Item No: 5.

06/12

SUBJECT: Receive Verbal Report, Discuss and Provide Direction to Staff Regarding
the Bore Hole Permitting Process

DISCUSSION:
There is no written Report for this item. A verbal discussion will take place at the
meeting.

Agenda Report

Item No: 6.

06/12

SUBJECT: Discuss Governor Brown's Proclamation Declaring a Drought State of
Emergency and the Potential Local Implications

DISCUSSION:
There is no written Report for this item. A verbal discussion will take place at the
meeting.

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Monterey Peninsula Regional Water Authority (MPRWA)

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