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HomeMy WebLinkAbout1976 03 31 Other - Harris county water control and improvement district No.108 --ooOoo-- OTHER SUPPLEMENTAL INFORMATION HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 HARRIS COUNTY, TEXAS -o- MARCH 31 , 1976 --0000o-- --ooOoo-- C O N T ENT S Schedule OTHER SUPPLEMENTAL INFORMATION ACCOUNTANTS ' REPORT QUESTIONNAIRE TO BE COMPLETED BY AUDITOR A QUESTIONNAIRE TO BE COMPLETED BY BOARD OF DIRECTORS B MANAGEMENT LETTER C BOARD MEMBERS, KEY ADMINISTRATIVE PERSONNEL AND LEGAL COUNSEL D CERTIFICATE OF THE BOARD OF DIRECTORS E ooOoo-- WHITE, PETROV & MCHONE CERTIFIED PUBLIC ACCOUNTANTS ROBERT A.WHITE 600 JEFFERSON SUITE 1150 JOSEPH W.PETROV HOUSTON,TEXAS 77002 ROBERT W. MCHONE TELEPHONE (713) 659-1777 STEPHEN H.CORDILL,JR. July 7, 1976 - JOHN B. MANTHEY MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Harris County Water Control and Improvement District No. 108 Harris County, Texas We have examined the financial statements of HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 at March 31 , 1976 and for the year then ended, and have issued our report thereon dated July 7, 1976. Our examination was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other audit procedures as we considered necessary in the circumstances. Nothing came to our attention during the course of our examination to indicate that the questions listed in schedule A were not answered correctly. However our examination was not dir- ected specifically toward answering such question. In connection with our examination, nothing came to our attention that indicated the District had departed from general or special legislation under which the District was created, or from laws and regulations excerpted and included in the WATER DISTRICT ACCOUNTING MANUAL in Section 70-03-1 or from requirements of the bond orders except as described in the management letter, schedule C. However, our examination was not directed primarily toward obtain- ing such knowledge. Our comments included in schedule C represent certain matters relating to the District' s system of accounting and internal control which we observed during our examination. We have not been engaged to conduct a comprehensive review of the District's system of internal controls and therefore, we express no opinion thereon. Schedules B and D were not prepared by us and therefore, we express no opinion thereon. /1& Cii1C-Re6" Permit Number 14973 Our certificate or report upon an audit or examination is delivered to client with the understanding that any publication, advertisement, or copy therefrom, in full or in part, of such certificate or report, shall be in the form to be approved by us. Schedule A Page 1 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 1 . At the time that your firm was engaged by the Board of Directors of the above named water district to perform this audit, was a copy of the WATER DISTRICT ACCOUNTING MANUAL made available to X you? Yes No 2. The WATER DISTRICT ACCOUNTING MANUAL prescribes accounting principles and policies. After taking these into consider- ation, did the local water district: a. Maintain a proper classification of expenses and revenues? X Yes No b. Record expenses and revenues on the basis of full accrual accounting except for the specific revenue and expense items required to be maintained on the cash basis by the X WATER DISTRICT ACCOUNTING MANUAL? Yes No c. Maintain the double entry system of accounting? X Yes No d. Keep a general ledger in accordance with the uniform classification of general ledger accounts prescribed X in the WATER DISTRICT ACCOUNTING MANUAL? Yes No e. Adhere to other provisions of the WATER DISTRICT X ACCOUNTING MANUAL? — Yes No If No is checked for any item under question 2, full dis- closure as to the nature and reason for the negative reply is indicated in schedule C, Management Letter. 3. Did the Board of Directors of the water district impose on your firm any audit requirements in addition to those minimum X audit requirements of the WATER DISTRICT ACCOUNTING MANUAL? Yes No 4. Did you identify, during the course of your examination of the financial statements of the water district, any areas pertaining to accounting matters in which action should be X taken by the Board of Directors of the water district? Yes No If Yes is checked for question 4, have these topics been cited in a management letter to the water district 's Board X of Directors? — Yes No 5. Did you obtain representation from the Board of Directors of the water district that all records of the water district were made available to you for your examination? Yes No All known records have been made available to us. Schedule A Page 2 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 6. Did the water district: a. Use the construction fund, tax fund and debt service fund only for purposes authorized by the Board of Directors of the water district and/or within the provisions of appli- X cable bond resolutions? Yes No b. Properly segregate and maintain the required amount of cash escrowed by the Texas Water Rights Commmission or disburse the escrowed cash according to the terms prescribed by the Texas Water Rights Commission? Not Applicable Yes No c. Do business only with firms or corporations in which members of the Board of Directors had no pecuniary interest? Yes No The answer to this question does not fall within the scope of a normal audit engagement and has been answered by the Board of Directors in schedule B. d. Observe the conditions for obtaining grants , gifts, etc. , or observe agreements with governmental agencies for the purpose of securing funds or services? Yes No The answer to this question does not fall within the scope of a normal audit engagement and has been answered by the Board of Directors in schedule B. e. Have a contract for Social Security coverage for its employees with the Texas Department of Public Welfare, Social Security Division? Not Applicable Yes No f. Make remittances of Social Security taxes according to the terms of the contract for Social Security coverage with the Social Security Division of the Texas Department of Public Welfare? Not Applicable Yes No g. Deposit receipts to the proper funds kept by the approved X depository bank? Yes No h. Draw checks only on funds approved by the Board of X Directors and signed by authorized personnel ? Yes No 7. Do you issue a management letter to administrative officials of the water district at least annually which sets forth your comments (based on matters which came to your attention during your examination) for strengthening internal accounting X controls and improving administrative efficiency and procedures? Yes No Schedule A Page 3 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 If Yes is checked for question 7: a. Were your recommendations explained to and discussed with X administrative officials of the water district? Yes No b. The date of your most recent management letter was July 7. 1976 • c. Is there evidence indicating that your previous year(s) recommendations have been or are being implemented? Not Applicable `;es No d. Has a copy of the management letter been filed with the Texas Water Rights Commission? Yes No The answer to this question does not fall within the scope of a normal audit engagement and has been answered by the Board of Directors in schedule B. 8. The Texas Water Code makes specific provisions relating to security provided by depository banks . After consideration of the applicable laws pertaining to the specific water district, did the depository bank or savings association provide adequate security of the correct type? Question Yes No answered as follows using securities at par value: Bank of Fannin Community Harris Surety Bank Bank County Savings a. Name of Depository Bank Houston, Houston, Houston, Houston, or Savings Association: Texas Texas Texas Texas b. Amount of FDIC or FSLIC Coverage Demand Deposits 40 000 40 000 40 000 -o- Time or Savings Deposits 100 000 100 000 100 000 100 000 c. Cash Balance at Year End Demand Deposits 23 248 9 306 -o- -o- Time or Savings Deposits -o- -o- -o- -o- d . Amount of Bond or Par Value of Security Pledged as of Year End (Not Including FDIC or None None Not Not FSLIC Coverage) Required Required Applicable Applicable Schedule A Page 4 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 Bank of Fannin Community Harris Surety Bank Bank County Savings Houston, Houston, Houston, Houston, Texas Texas Texas Texas e. Was Security Adequate at Year End Accord- ing to Criteria Enum- Not Not erated Above? Yes Yes Applicable Applicable f. Largest Cash Balance Amounted to Demand Deposits 200 632 106 480 -o- -o- Time or Savings Deposits -o- -o- 103 000 58 000 g. Date of Largest Cash Balance 3/25/76 11/17/75 4/01/75 1/12/76 h. Amount of Bond or Par Value of Security Pledged at Time of Largest Balance (Not Including FDIC or None FSLIC Coverage) 185 000 -o- 5 000 Required i . Was Security Adequate at Date of Highest Cash Balance Accord- ing to Criteria Enumerated Above? Yes No Yes Yes Fidelity Bank and Home Beaumont University Trust Savings Savings Savings a. Name of Depository Bank Houston, Houston, Beaumont, Houston, or Savings Association: Texas Texas Texas Texas b. Amount of FDIC or FSLIC Coverage Demand Deposits 40 000 Time or Savings Deposits 100 000 100 000 100 000 100 000 c. Cash Balance at Year End Demand Deposits -o- -o- -o- -o- Time or Savings Deposits -o- 40 772 39 000 20 000 d . Amount of Bond or Par Value of Security Pledged as of Year End (Not Including FDIC or Not None None None FSLIC Coverage) Applicable Required Required Required Schedule A Page 5 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 Fidelity Bank and Home Beaumont University Trust Savings Savings Savings Houston, Houston, Beaumont, Houston, Texas Texas Texas Texas e. Was Security Adequate at Year End Accord- ing to Criteria Enum- Not erated Above? Applicable Yes Yes Yes f. Largest Cash Balance Amounted to Demand Deposits -o- -o- -o- -o- Time or Savings Deposits 18 000 64 772 64 500 61 000 g. Date of Largest Cash Balance 4/10/75 3/3/76 12/2/75 2/23/76 h. Amount of Bond or Par Value of Security Pledged at Time of Largest Balance (Not Including FDIC or None None None None FSLIC Coverage) Required Required Required Required i . Was Security Adequate at Date of Highest Cash Balance Accord- ing to Criteria Enumerated Above? Yes Yes Yes Yes 9. The water district' s taxes were collected by an independent tax assessor-collector. 10. Was the tax assessor-collector bonded as required by law? X — Yes No 11 . What was: a. The tax assessor-collector bonded for? 5 000 b. The greatest amount of the district 's taxes in the tax assessor-collector' s possession at any one time? 62 417 This question has been interpreted to mean the largest deposit for the year by the tax assessor-collector. Schedule A Page 6 of 6 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY AUDITOR MARCH 31 , 1976 c. The frequency of tax receipts deposits with the bonded depository? (check one) (1 ) Daily (2) Weekly X (3) Monthly d. The percent of the assessed valuation to fair market value? This information was furnished by the district 90 % without audit. 12. We actually examined the records of the tax assessor- collector. 13. As a result , were local tax revenues ( including delinquent taxes and interest and penalties on taxes) properly X separated for debt service? Yes No 14. Was the water district in compliance with applicable bond resolutions , with the general or special legislation under which the district was created and with the specific statutes excerpted and included in the Legal Compliance Guidelines in Section 70-03-1 of the WATER DISTRICT X ACCOUNTING MANUAL? Yes No Significant exceptions noted during the course of our audit of the financial statements are described in the management letter, schedule C. The answer to this question has also been answered by the Board of Directors in schedule B. 15. Other Comments of the Auditor: None Schedule B HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 QUESTIONNAIRE TO BE COMPLETED BY BOARD OF DIRECTORS MARCH 31 , 1976 1 . Did the district: a. Do business only with firms or corporations in which mem- X bers of the Board of Directors had no pecuniary interest? Yes No b. Observe the conditions for obtaining grants, gifts, etc. , or observe agreements with governmental agencies for the purpose of securing funds or services? Not Applicable Yes No 2. Has a copy of the management letter been filed with the X Texas Water Rights Commission? Yes No 3. Was the water district in compliance with applicable bond resolutions, with the general or special legislation under which the district was created and with the specific statutes excerpted and included in the Legal Compliance Guidelines X in Section 70-03-1 of the WATER DISTRICT ACCOUNTING MANUAL? Yes No All significant exceptions known to the Board of Directors have been described in the management letter, schedule C. Schedule C Page 1 of 4 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 MANAGEMENT LETTER JULY 7, 1976 Board of Directors Harris County Water Control and Improvement District No. 108 Harris County, Texas Board Members: In connection with our audit of Harris County Water Control and Improve- ment District No. 108 for the year ended March 31 , 1976, we noted certain matters relating to the system of internal control and accounting procedures which we are presenting for your consideration. All of our comments are based upon our observations during the course of the audit of the District's financial state- ments in accordance with standard auditing procedures; we were not engaged to separately review internal control . WATER DISTRICT ACCOUNTING MANUAL As required by State statute, the Texas Water Rights Commission established the WATER DISTRICT ACCOUNTING MANUAL (the Manual) which is applicable to all Texas utility districts having a fiscal year end of March 31 , 1976 and subsequent. The Manual requires that certain changes be made in the accounting procedures and reporting formats of these districts. The accounting policies included in the Manual are those utilized in the audit report for the year ended March 31 , 1976. The Manual left many accounting and reporting questions unanswered. After substantial research, discussions with the Texas Water Rights Commission Audit Division, and discussions with members of the accounting profession, many of these questions have not been answered to our satisfaction. The Manual does not make it clear whether the procedural and record-keeping information included in the Manual are mandatory or constitute only guidelines. Also, this Manual was written for a district that keeps all of its records under one roof. In our opinion, adoption of the Manual on a literal basis would not be practical and would substantially increase the cost to the District without commensurate benefits. Our view is that the District is in compliance with the Manual if it prepares its reports in accordance with the Manual , follows the accounting policies and legal requirements of the Manual , and maintains adequate internal accounting controls, even though bookkeeping procedures and records described in the Manual have not been adopted. None of the recommendations that follow are intended to be in conflict with the Manual . These suggestions are interpretations by our firm, and thus, others may interpret them differently. Schedule C Page 2 of 4 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 MANAGEMENT LETTER JULY 7, 1976 General The District has contracted with various companies to maintain records, operate the system, collect taxes and to provide professional advice. The Manual is not appropriate, in many respects, for districts with segmented accounting functions. We recommend that the District modify contracts, as necessary, to allow companies employed by the District to adopt the recommenda- tions that follow. Internal Control We have not made an adequate study of companies employed by the District to determine if such companies have adequately segregated their internal func- tions. The size of these companies may place certain limits on their ability to segregate functional responsibilities, and size of the District precludes good segregation of duties if all accounting functions were handled by an employee of the District. One way the District can protect its assets is to require that all persons employed by the District who receive or disburse the District's funds be bonded. The District 's bonds are listed in schedule 5 of the audit report. We recommend that these bonds be reviewed to determine if coverage is adequate. General Ledger In order for the District to have an overall report on its financial con- dition, it is necessary to bring together the operations of these various segments in one report. In our opinion, all of the transactions of the District should be periodically recorded in the general ledger and reported to the Board of Direc- tors. We understand the practical problems of recording all of the District's transactions in one general ledger, and it may not be practical to record such transactions on a monthly basis. Accounts Payable All accounts payable should be booked in each fund. This includes all invoices for goods received or services rendered through the fiscal year end without regard as to whether or not the District had timely received an invoice. Inter-Fund Payables and Receivables Inter-fund payables or receivables should not be recorded unless the District intends to liquidate such balances on a timely basis. Also, the credi- tor fund should have the ability to pay the recorded liability. Subject to approval by the Board of Directors, old outstanding inter-fund accounts have been written off. Schedule C Page 3 of 4 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 MANAGEMENT LETTER JULY 7, 1976 Service Installations and Billing The Board of Directors should make inquiries to determine that all taps have been timely billed and collected. The Board should also determine that all service being rendered is billed monthly. We recommend that the operator furnish the Board of Directors with a monthly report showing the following for the current month and to date: taps installed (double and single taps should be stated separately) , meters installed, taps collected and tap billings outstanding. A list of the tap billings out- standing and taps installed but not billed (this occurs when double taps are installed) should be furnished to the Board of Directors periodically, and specifically at year end. The bookkeeper should reconcile taps collected per this report with the general ledger. The number of service connections (generally meters installed plus other unmetered connections) should be reconciled monthly, within practical limits, with the number of customers billed. General Fixed Asset Fund Amounts contributed to the general fixed asset fund must be identified according to source so the fund balance amount can be allocated. We recommend that the full cost of taps be recorded as an asset of the District and that such amounts be shown as allocated from net system revenues in the fund balance section. The Manual prescribes much more limited capitalization policies for district organizational costs (note 2 of the notes to financial statements) than those which have been followed in the past. Under the Manual 's procedures, the capitalization of amounts in the general fixed asset fund will no longer be directly related to expenditures by the construction fund. These accounting policies have been applied retroactively to the audit report for the year ended March 31 , 1976, and we recommend that they be continued for all future bond issues. Construction Fund We recommend that the District transfer funds to the general operating fund to pay operating expenses. This transfer should be recorded as a fund balance transaction, and the operating expenses should be recorded by the general operating fund. Schedule C Page 4 of 4 HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 MANAGEMENT LETTER JULY 7, 1976 Debt Service Fund Bond discount should be transferred from the general fixed asset fund to the debt service fund and amortized in relation to the principal of the bonds out- standing. We suggest that a separate reserve account called "unamortized dis- count on the sale of bonds" be established in the debt service fund as a contra- entry when recording the discount. The discount may be amortized on a sum-of- the-years digit method as a constant percentage of the interest paid or any other method which relates the amortization to the bonds outstanding. General Operating Fund We recommend that the bookkeeper record the billings made by the operator or billing agent for services rendered as of the billing date nearest the District's year end. The applicable cash balance should also be recorded as of year end and cash transactions should be reviewed so that cash transfers can be properly recorded on the books. Bond Order and Legal Requirements The District was not in compliance with certain requirements as described in detail in note 4 of the notes to the March 31 , 1976 financial statements. Also, the deposits at Community Bank were not adequately secured at the date of the highest cash balance. We recommend that all practical steps be taken to correct such non-compliance. Account Numbers and Titles The Manual prescribed a four digit account number and standard account titles for recording all transactions of the District. We suggest that these standard account numbers and names be used in the general ledger, journals and source documents. We appreciate the courtesy and assistance extended by the District's personnel during the course of our examination. If you have any questions con- cerning the matters presented herein or need assistance in implementing any of these changes, please contact us. Yours truly, , 4t.444 Schedule D HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 BOARD MEMBERS , KEY ADMINISTRATIVE PERSONNEL AND LEGAL COUNSEL MARCH 31 , 1976 Relationship With Major Land Owners, Term of Board Members Engineer, Office Resident Attorney & Elected & Annual of Tax Assessor- Name and Address Expires Salary Title District? Collector* Lubert J. Leger 16818 Hibiscus Lane 4/6/74 Friendswood , Texas 4/3/76 Per Diem President Yes No Robert C. Topfer 16823 Hibiscus Lane 4/6/74 Vice- Friendswood , Texas 4/3/76 Per Diem President Yes No Frank K. Lutz 3818 Laura Leigh Lane 4/6/74 Secretary- Friendswood , Texas 4/3/76 Per Diem Treasurer Yes No Sheldon C. Gilmore 17022 Townes Road 4/5/75 Friendswood, Texas 4/2/77 Per Diem Member Yes No John P. Chioma 4443 Raven Drive 4/5/75 Friendswood, Texas 4/2/77 Per Diem Member Yes No Key Date Administrative Hired Personnel District Legal Counsel Fees Paid Smith, Rowe, Hay & Bacon 1811 Houston Natural Gas Building Houston, Texas 1/19/70 3 765 No No District Tax Assessor-Collector Fees Paid Alta Carbone Friendswood, Texas 1/19/70 4 800 No No *Includes business or family relationship. Schedule E HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 108 HARRIS COUNTY, TEXAS CERTIFICATE OF THE BOARD OF DIRECTORS We, the undersigned, do hereby certify that the audit report of the above named Water District for the fiscal year ended March 31 , 1976 (under separate cover) and the other supplemental information included herein was received by the Board of Directors on the and was reviewed and approved* disapproved* at a meeting of the Board of Directors of the Water District on the Signature of Board President Signature of Board Secretary -;Strike out the word which does not apply.