The e-mail below ( it is somewhat technical but please read it) was sent by me in 2009 to the EVMWD accounting firm that used to audit the EVMWD financial statements. Basically is says that the accounting firm had made a mistake when accounting for lost money with regard to the LEAPs electric project. The LEAPs project was a project I opposed which was going to take water from the lake, run it up the mountain at night, and back down into the lake in the day though an electric power plant. I discovered the plant would lose $80 million per year in operating cost, the project was shelved but $10 million in EVMWD was wasted on the project for lawyer and consultant fees. The accounting firm did nothing to correct the statements. I sent a letter to the state controller and told them of the serious mistake the auditor had made in accounting for the lost money on LEAPs. Within a short time after sending my letter the State Controller told EVMWD to discontinue using this accounting firm because they worked for the corrupt City of Bell, I think my letter also helped the State Controller tell EVMWD to dismiss the firm as the auditor.
Listening to your presentation at the Annual GFOA conference in Anaheim last week titled, “Risky Business: A GAAS Update”, was very informative. I believe as you stated in your presentation that the new SAS suite statements will make communication of internal control deficiencies for entities more transparent due to increased communication and auditor responsibility to openly convey deficiencies in the auditor letter.
After the presentation I spoke with you about a deficiency in the Elsinore Valley Municipal Water Districts (EVMWD), Comprehensive Annual Financial Report (CAFR), for the fiscal year ending June 30, 2006. Your firm audits the basic financial statements for EVMWD and gave an unqualified opinion of the basic financial statements. I showed you a copy of the CAFR and on page 36, section 13 of the notes to the financial statements, titled, “Notes and Contracts Receivable”, the last paragraph on this page states:
Noncurrent receivalbe amount relating to a contract with, 2006, 2005 the Nevada Hydro Companyto build a water storage and electric generation facility [The LEAPS Project]. Contract amounts plus interest will be paid once the project has been approved by federal regulators and project financing is secured. $554,251 $337,986
I then showed you an EVMWD invoice from June 30, 2006, for an amount of $169,325.69 related to this loan by EVMWD to Nevada Hydro which is a private company. The invoice states that the accrued amount for the noncurrent receivable to be reimbursed by Nevada Hydro to EVMWD is $1,527,350, yet the audited CARF states the amount owed to EVMWD is $554,251. The $973,099 difference between the CAFR and the invoice amounts shown as owed to EVMWD by Nevada Hydro is significant.
You replied to me that your company didn’t investigate this portion of the statements and that you would talk to the client to get them to address the issue.
I also spoke with you about a recent decision that had recently been published by the California Independent System Operator (CAISO), who was asked by Nevada Hydro and EVMWD to approve and then take over the project. CAISO has opposed this request for many reasons that can be read by you in the attachment. This has made the probability of the project being completed remote.
Presently you are getting ready to audit the June 30, 2007 financial statements for EVMWD. I request that you expand your auditing oversight into the correct classification of this noncurrent receivable as an expense due the fact that it is remote that the project will ever be started and is no longer fiscally sustainable or viable due to CAISO’s rejection of the project.
I request that you scrutinize the invoices for this project and the amount owed to EVMWD by Nevada Hydro. The difference between the CAFR and the invoices of $973,099 is substantial. An in-depth audit to April 2001 should be sufficient to get an accurate understanding of how much money is actually owed.
I request that you make an accrual of the interest owed on this loan for the time it has been owed to EVMWD IAW GAAP. I did not see an accrual of interest owed or a percent charged per year.
I have spoken with several other CPA’s, even Stephen Gauthier, and Professors at Cal State Fullerton on what I have found and everyone has said it doesn’t look right and that I should talk to the accounting firm who audited the financial statements and to EVMWD. I am glad I saw you at the conference so I could make you aware of this accounting error at EVMWD.
What I have found to be most beneficial about financial conferences is the information learned and the plethora of help that is available from fellow accountants, professors, and agencies to ensure that financial statements are accurate, free of material misstatement, and fairly represent an entities financial position.
Please contact me if you need any help in understanding the information I am bringing forward to you. I can send you hard copies of the financial records in question to help you.