YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2006-48

August 2006

The following findings were included in our audit report on the Clay County Public Water Supply District #8.

Since 2003, the Clay County Public Water Supply District #8 (district) has been involved in various lawsuits with property owners seeking detachment of their properties from the district, which would allow property owners to develop residential or commercial units on the property and obtain water and sewer services from nearby cities.  The planned housing developments on the affected properties would significantly increase the district's customer base and provide additional revenues to fund capital improvements for the entire system. 

The district has engaged six principal law firms over the past three years for these lawsuits and incurred legal fees totaling approximately $1,083,000 during the three years ended December 31, 2005.  The district has paid approximately $716,000 in legal costs from 2003 to 2005, disputed and has unpaid billings of $136,000 from one firm dismissed in 2003, and is making payments on the unpaid balances due the current attorneys totaling about $231,000.

The board sought these firms because of their resources and expertise and interviewed attorneys from the firms; however, documentation of the interviews was not prepared, nor were they mentioned in the board minutes.  Written contracts were not executed with all firms employed and anticipated legal expenditures were not properly budgeted in 2005 or 2006.  While the anticipated expenditures for litigation was included in a cash basis analysis included with the budget, a line item for litigation expense was not budgeted, and nothing was included for additional litigation expenditures related to ongoing lawsuits.  In addition, detailed invoices were not maintained for two attorney billings, totaling approximately $82,000, which were submitted and paid in 2003. 

The district did not prepare complete budgets as required by state law and actual expenses exceeded budgeted amounts.  The district's 2005 budget did not include expected capital improvement costs and actual costs of the project were not periodically compared to estimates.   Actual and estimated costs of the project were not monitored monthly, no documentation was maintained in the board minutes to document any progress report reviews, and estimated capital improvement costs were not included in the 2005 budget.  In addition, the district did not revise its master plan for changes in the project plans and did not revise the cost estimates.

The district does not have a formal bidding policy.  The decision of whether to solicit bids/proposals for a particular purchase is made on an item-by-item basis.  During 2005, bids were not solicited for lawn mowing services, and in 2003 there were no bids for the lease purchase of a $65,000 backhoe.  Additionally, there was no documentation explaining why the district did not accept the lowest bid for road boring services bid in 2005.

District water sales revenues totaled approximately $480,000 for the year ended December 31, 2005. There is no independent oversight or adequate segregation of duties related to the district's water billing system.  The office manager performs all functions related to generating monthly water bills; receiving, recording and depositing water payments; approving and making adjustments; and producing various reports.  There is no documented independent review by the board of these activities or reports. 

The board does not always document its approval of employee salaries, additions, and pay raises.   There was no documented board approval for the 2005 salaries for the construction employees, which totaled approximately $78,000 for the year ended December 31, 2005. 

Also included in the report are recommendations related to minutes and equipment records.

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