French Slough Flood Control District Snohomish County

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1 Accountability Audit Report Snohomish County Report Date January 13, 2011 Report No Issue Date February 7, 2011

Washington State Auditor Brian Sonntag February 7, 2011 Board of Commissioners Snohomish, Washington Report on Accountability We appreciate the opportunity to work in cooperation with your District

2 Washington State Auditor Brian Sonntag February 7, 2011 Board of Commissioners Snohomish, Washington Report on Accountability We appreciate the opportunity to work in cooperation with your District to promote accountability, integrity and openness in government. The State Auditor s Office takes seriously our role to advocate for government accountability and transparency and to promote positive change. Please find attached our report on the s accountability and compliance with state laws and regulations and its own policies and procedures. Thank you for working with us to ensure the efficient and effective use of public resources. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

3 Table of Contents Snohomish County January 13, 2011 Audit Summary... 1 Description of the District... 2 Schedule of Audit Findings and Responses... 3

4 Audit Summary Snohomish County January 13, 2011 ABOUT THE AUDIT This report contains the results of our independent accountability audit of the French Slough Flood Control District from January 1, 2007 through December 31, We evaluated internal controls and performed audit procedures on the activities of the District. We also determined whether the District complied with state laws and regulations and its own policies and procedures. In keeping with general auditing practices, we do not examine every transaction, activity or area. Instead, the areas examined were those representing the highest risk of noncompliance, misappropriation or misuse. The following areas were examined during this audit period: Disbursements Conflict of interest Procurement/bid compliance Open Public Meetings Act Contracts and agreements Cash receipting Annual reporting RESULTS In most areas, the District complied with state laws and regulations and its own policies and procedures. However, we identified two conditions significant enough to report as findings: The District did not comply with state bid laws. District Commissioners have a personal interest in District contracts. We appreciate the District s commitment to resolving these matters. 1

5 Description of the District Snohomish County January 13, 2011 ABOUT THE DISTRICT The encompasses nearly 5,500 acres of largely agricultural land near the city of Snohomish in Snohomish County. The District s purpose is to protect its service area from minor floods on the Snohomish and Pilchuck rivers by a nearly four-mile long levee system. The French Slough levee project was constructed in 1962 under the watershed protection federal program. The system includes a pumping station and a floodway channel designed to allow floodwaters to return to the Snohomish River. An elected, three-member Board of Commissioners governs the District. The Board appoints a General Manager to oversee the District s daily operations as well as its two employees. For 2007, 2008 and 2009, the District operated on annual budgets of $533,558, $567,227 and $604,782, respectively. ELECTED OFFICIALS These officials served during the audit period: Board of Commissioners: Scott Gunning David Remlinger James Scott Griffin, Jr. APPOINTED OFFICIALS General Manager Neil Wheeler DISTRICT CONTACT INFORMATION Address: P.O. Box 553 Snohomish, WA AUDIT HISTORY We audit the District once every three years. The past three audits of the District have reported no findings. 2

6 Schedule of Audit Findings and Responses Snohomish County January 13, internal controls over contracts are inadequate to ensure compliance with state bid laws. Description of Condition State law requires flood control districts to competitively bid all public works contracts. The District hired two vendors in 2008 and 2009 without documenting that it complied with state bid laws. The District hired a vendor in 2008 to do cleanup projects and dike repair on two projects totaling $63,532. Neither project was competitively bid. The District hired a vendor in 2009 to do excavation work on four projects totaling $110,893. We found evidence that the District solicited bids for one of the four projects, which was $48,064. The vendor was the low bidder; however, the published bid deadline did not allow 13 days for responses, and bids were not opened in a public meeting, as required by state law. The same vendor was also paid $22,245, $32,472 and $8,112 for the other three projects that the District did not put out for bid. For all the projects noted above, the District had no evidence of the following documentation, which is required by state law: Formal, negotiated or signed contracts. Bid bonds from contractors. Certification of industrial or unemployment insurance from the contractors. Compliance with prevailing wage requirements. Compliance with retainage requirements. Cause of Condition The District did not refer to procurement laws when it made decisions about public works and maintenance projects. Additionally, the District does not have a procurement policy to ensure it obtains competitive prices for goods and services. The District stated it believed there was a limited pool of vendors able to perform the services it needed. Effect of Condition State bid laws are designed to protect public resources. Because the District did not follow bid laws, it cannot be sure it obtained the services at the lowest cost. Also, without a signed contract in place, the District would have no recourse should it not receive the services it expects from the vendors at the prices it agreed to. Further, the 3

7 District s liability risk increases without signed contracts, bid bonds, certification of industrial and unemployment insurance, evidence of prevailing wage compliance, and evidence of compliance with retainage requirements. Recommendation We recommend the District establish and follow policies and procedures to ensure it complies with state procurement laws for public works projects. District s Response The ( District ) agrees that it is fiscally responsible to put out to competitive bid certain projects as required by law. The District was operating under the reasonable belief that it fell within the exclusion in RCW for special purpose districts, like flood control districts, that are for the reclamation or development of waste or undeveloped lands. RCW ; See RCW (citing RCW et seq), see RCW (power and purposes). The District was consolidated from several districts expressly excluded from RCW pursuant to RCW et seq. The District also notes that it is authorized to do not only construction of improvements, but also maintenance and repair. RCW ; see also RCW RCW states that RCW et seq applies to the District. RCW specifically applies to construction contracts. RCW provides that construction not exceeding $5, may be exempt from public bidding process if completed by district employees, who may be reimbursed for expenses. RCW The District generally agrees with your recommendations. The District has retained legal counsel to assist it in establishing a policy and framework moving forward that is lawful, practical and fiscally responsible for all of its various contracts, be they construction, maintenance, and/or repair contracts. Thank you for providing other applicable code provisions. The District will likely also utilize the resources of MRSC.org. Auditor s Remarks We appreciate the steps the District is taking to resolve this issue. We will review the condition during our next audit. Applicable Laws and Regulations RCW , Definitions, states: The term state shall include the state of Washington and all departments, supervisors, commissioners and agencies thereof. The term municipality shall include every city, county, town, district or other public agency thereof which is authorized by law to require the execution of public work, except drainage districts, diking districts, diking and drainage improvement districts, drainage improvement districts, diking improvement districts, consolidated diking and drainage improvement districts, consolidated drainage improvement districts, consolidated diking improvement districts, irrigation districts or any such other districts as 4

8 shall from time to time be authorized by law for the reclamation or development of waste or undeveloped lands. The term public work shall include all work, construction, alteration, repair, or improvement other than ordinary maintenance, executed at the cost of the state or of any municipality, or which is by law a lien or charge on any property therein. All public works, including maintenance when performed by contract shall comply with the provisions of RCW The term does not include work, construction, alteration, repair, or improvement performed under contracts entered into under RCW (4) or under development agreements entered into under RCW (7) or leases entered into under RCW (8). The term contract shall mean a contract in writing for the execution of public work for a fixed or determinable amount duly awarded after advertisement and competitive bid. However, a contract which is awarded from a small works roster need not be advertised. RCW , Bidder responsibility criteria Supplemental criteria, states: (1) Before award of a public works contract, a bidder must meet the following responsibility criteria to be considered a responsible bidder and qualified to be awarded a public works project. The bidder must: (a) At the time of bid submittal, have a certificate of registration in compliance with chapter RCW; (b) Have a current state unified business identifier number; (c) If applicable, have industrial insurance coverage for the bidder's employees working in Washington as required in Title 51 RCW; an employment security department number as required in Title 50 RCW; and a state excise tax registration number as required in Title 82 RCW; (d) Not be disqualified from bidding on any public works contract under RCW or (3); RCW , Statement of intent to pay prevailing wages, affidavit of wages paid Alternative procedure, states: Except as provided in subsection (2) of this section, before payment is made by or on behalf of the state, or any county, municipality, or political subdivision created by its laws, of any sum or sums due on account of a public works contract, it shall be the duty of the officer or person charged with the custody and disbursement of public funds to require the contractor and each and every subcontractor from the contractor or a subcontractor to submit to such officer a "Statement of Intent to Pay Prevailing Wages". RCW , Construction contracts Public bids, procedure, states: Contracts for construction or for labor or materials entering into the construction of any improvement authorized by the district shall be 5

9 awarded at public bidding except as herein otherwise provided. A notice calling for sealed proposals shall be published in such newspaper or newspapers of general circulation as the board shall designate for a period of not less than two weeks (three weekly issues) prior to the day of the opening of the bids. Such proposals shall be accompanied by a certified check for such amount as the board shall decide upon, to guarantee a compliance with the bid and shall be opened in public at the time and place designated in the notice. The contract shall be awarded to the lowest and best responsible bidder: PROVIDED, that the board shall have authority to reject any or all bids, in which event they shall readvertise for bids and, when no satisfactory bid is then received and with the written approval of the director, may proceed to construct the works by force account. RCW , Contractor's bond, states: Any person, except the state of Washington and the United States, acting under the provisions of this chapter, to whom or to which a contract may have been awarded by the district for construction purposes, or for labor or materials entering therein when the total amount to be paid therefor exceeds one thousand dollars, shall enter into a bond to the state of Washington, with good and sufficient sureties, to be approved and filed with the state director, for one hundred percent of the contract price, conditioned for the faithful performance of said contract and with such further conditions as may be required by law. RCW , Local government accounting Uniform system of accounting, states in part: The accounts shall show the receipt, use, and disposition of all public property, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs. 6

10 Schedule of Audit Findings and Responses Snohomish County December 9, Commissioners have had a beneficial interest in District contracts. Description of Condition Washington state law prohibits public officials from having beneficial interests in contracts. The law defines beneficial interest as a financial interest. The District contracted with a company and paid it $10,616 in 2008 and $110,893 in 2009 for excavation services. A District Commissioner is a 50 percent owner of the company. We also noted that the District did not comply with state bid laws related to these purchases. This condition is described in Finding 1. In addition, the District paid $9,770 in 2008 and $10,256 in 2009 to another Commissioner s company for an insurance contract. The Commissioner is a 20 percent owner of the insurance company. Cause of Condition District Commissioners members did not familiarize themselves with state law on beneficial interest in contracts. District commissioners stated they used common sense and awarded contracts to the only interested, qualified contractors. Effect of Condition District Commissioners received a personal financial benefit from District contracts. Recommendation We recommend the District Commissioners comply with state law prohibiting public officials from having a beneficial interest in contracts. District s Response The District and Commissioners have always strived to be compliant with the law. The Commissioners will comply with the law in contracting in the future. The rule about no personal financial interest makes sense, even if there is no personal enrichment, in the event a contract is not performed properly. It is confusing that it appears that a Commissioner may be a compensated employee of the district and work on district projects, but may not be a subcontractor. RCW (allowing employment); RCW (may work as volunteer for only actual expenses). The District has sought the 7

11 advice of legal counsel, and plans to utilize the advice of legal counsel more in the future to ensure compliance with the law. Auditor s Remarks We appreciate the steps the District is taking to resolve this issue. We will review the condition during our next audit. Applicable Laws and Regulations RCW , Board of directors Personal interest in contracts prohibited Penalty Officer may be employed, states: No director or any other officer named in this chapter shall in any manner be interested, directly or indirectly, in any contract awarded or to be awarded by the board, or in the profits to be derived therefrom; and for any violation of this provision, such officer shall be deemed guilty of a misdemeanor, and such conviction shall work a forfeiture of his office, and he shall be punished by a fine not exceeding five hundred dollars, or by imprisonment in the county jail not exceeding six months, or by both fine and imprisonment: PROVIDED, That nothing in this section contained shall be construed to prevent any district officer from being employed by the district as foreman or as a day laborer: PROVIDED FURTHER, That this section shall have no application to any person who is a state employee as defined in RCW

12 ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free Citizen Hotline (866) Website Subscription Service (SAO FACTS.DOC - Rev. 06/09)

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