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INDIAN VALLEY COMMUNITY SERVICES DISTRICT

AUDIT REPORT

JUNE 30, 2015

SingIetonAumanc Certified Public Accountants & Consultants

INDIAN VALLEY COMMUNITY SERVICES DISTRICT JUNE 30, 2015

TABLE OF CONTENTS Page No

FINANCIAL SECTION

Independent Auditor's Report on Financial Statements

Basic Financial Statements Statement of Net Position Statement of Activities

Fund Financial Statements Balance Sheet-Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the

Statementof Net Position 7 Statement of Revenues, Expenditures, and Changes in Fund Balance-

Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes

In Fund Balance of the Governmental Funds to the Statement of Activities 9

Statement of Net Position - Proprietary Funds 10 Statement of Revenue, Expenses and Changes in Fun1 Net Position -

Proprietary Funds 11 Statement of Cash Flows - Proprietary Funds 12 Notes to Financial Statements 13

OTHER SUPPLEMENTARY INFORMATION Report on Internal Control Over Financial Reporting and on Compliance

and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 30

Combined Schedule of Findings and Questioned Costs 32 Summary Schedule of Prior Year Audit Findings 37 Corrective Action Plan 38

SingIetonAumanc N CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

John E. Auman, CPA

Clay E. Singleton, CPA, MSAcc

Independent Auditor's Report on Financial Statements

Board of Directors Indian Valley Community Services District Greenville, CA

We have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of Indian Valley Community Services District as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.

Management's 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.

Auditor's 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 auditor's 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 District's 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 District's 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.

Susanville: Chester: 1740 Main Street, Suite A, Susanville, CA 96130 [email protected] P0 Box 795, Chester, CA 96020

530.257.1040 Fax: 530.257.8876 wwfl.sa-cpas.com 530.258.2272 Fax: 530.258.2282

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of Indian Valley Community Services District as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year 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 Management's Discussion and Analysis and budgetary comparison information identified in the table of contents be presented to supplement the basic financial statements. Such information, although not a basic part of the 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.

The District's management has omitted the Management Discussion and Analysis and budgetary comparison information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who consider it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.

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Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 20, 2015 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance.

Respectfully submitted,

SingIetonAiutn, PC Susanville, CA October 20, 2015

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FINANCIAL SECTION

INDIAN VALLEY COMMUNITY SERVICES DISTRICT STATEMENT OF NET POSITION

JUNE 30, 2015

Governmental Business-Type Activities Activities Total

ASSETS

Current Assets: Cash on Hand, in Banks, and in LAIF

Accounts Receivable Due from Other Funds

Total Current Assets

Property, Plant & Equipment, Net

Total Assets

LIABILITIES

Current Liabilities: Accounts Payable

Customer Deposits Due to Other Funds

Current Portion of Long-Term Debt

Total Current Liabilities

Long-Term Debt

Total Liabilities

NET POSITION

Net Investment in Capital Assets Restricted for Debt service Restricted - other

Unrestricted

Total Net Position

$ 40,982 $ 79,631 $ 120,613 18,978 95,199 114,177

108,086 88,197 196,283 168,046 263,027 234,790

422,430 5,870,676 6,293,106

$ 590,476 $ 6,133,703 $ 6,724,179

$ - $ 4,544 $ 4,544 19,091 19,091

196,283 196,283 10,841 63,921 74,762 10,841 283,839 294,680

91,701 2,526,649 2,618,350

$ 102,542 $ 2,810,488 $ 2,913,030

$ 319,888 $ 3,280,106 $ 3,599,994 15,712 12,416 28,128 3,142 - 3,142

149,192 30,693 179,885

$ 487,934 $ 3,323,215 $ 3,811,149

The accompanying notes are an integral part of this statement. -4-

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INDIAN VALLEY COMMUNITY SERVICES DISTRICT BALANCE SHEET-GOVERNMENTAL FUNDS

JUNE 30, 2015

General

SETS

Cash Accounts Receivable Due from Other Funds

TOTAL ASSETS

LIABILITIES AND FUND BALANCE

Fund Balance: Unassigned Fund Balance

Total Fund Balance

TOTAL LIABILITIES AND FUND BALANCE

$ 40,982 18,978

108,086 $ 168,046

$ 168,046 1 6&046

$ 168,046

The accompanying notes are an integral part of this statement. S

INDIAN VALLEY COMMUNITY SERVICES DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE

STATEMENT OF NET POSITION JUNE 30, 2015

Total Fund Balances - Governmental Funds

Reconciling Items:

Capital Assets are not reported in the governmental funds

Long-Term liablities are not reported in governmental funds

Total Net Position - Governmental Activities

$ 168,046

422,430

(102,542)

$ 487,934

The accompanying notes are an integral part of this statement. -7 -

INDIAN VALLEY COMMUNITY SERVICES DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE-

GOVERNMENTAL FtJNDS FOR THE YEAR ENDED JEJNE 30, 2015

Governmental Funds

General

Revenues Property Taxes Reimbursements for General expenses

Total Revenues

Expenditures General government Fire Capital Outlay Debt Service:

Principal Interest

Total Expenditures

Excess Of Revenues Over (Under) Expenditures

$ 188,599 112,583 301,182

108,152 118,490

9,443

10,350 5,362

251,797

49,385

Fund Balance - July 1 I 18,661

Fund Balance - June 30 $ 168,046

The accompanying notes are an integral part of this statement. - 8-

INDIAN VALLEY COMMUNITY SERVICES DISTRICT RECONCILIATTON OF THE THE STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2015

Net Changes in fund balances - total governmental funds 49,385

Reconciling Items: The depreciation of capital assets is not recorded in the governmental funds (44,652)

Capital asset additions are an expenditure in the governmental funds 9,443

Debt principal payments are an expenditure in the governmental funds 10,350

Changes in net position of governmental activities - statement of activities $ 24,526

The accompanying notes are an integral part of this statement. - 9-

INDIAN VALLEY COMMUNITY SERVICES DISTRICT STATEMENT OF NET POSITION

PROPRIETARY FUNDS JUNE 30, 2015

Business-Type Activities Water Sewer Total

ASSETS

Current Assets: Cash on Hand, in Banks, and in LAIF Accounts Receivable Due From Other Funds

Total Current Assets

Property, Plant & Equipment, Net

Total Assets

LIABILITIES

Current Liabilities: Accounts Payable Customer Deposits Due To Other Funds Current Portion of Long-Term Debt

Total Current Liabilities

Long-Term Debt

Total Liabilities

NET POSITION

Net Investment in Capital Assets Restricted for Debt Service Unrestricted

Total Net Position

$ 395 $ 79,236 $ 79,631 58,130 37,069 95,199

- 88,197 88,197 58,525 204,502 263,027

4,932,664 938,012 5,870,676

$ 4,991,189 $ 1,142,514 $6,133,703

$ 4,544 $ - $ 4,544 19,091 - 19,091

196,283 - 196,283 58,221 5,700 63,921

278,139 5,700 283,839

2,250,668 275,981 2,526,649

$ 2,528,807 $ 281,681 $ 2,810,488

$ 2,623,775 $ 662,031 $ 3,285,806 12,416 12,416

(173,809) 198,802 24,993

$ 2,462,382 $ 860,833 $ 3,323,215


91,428 54,358

29,461 110,594 158,145 443,986

43,658 44,315 10,899 65,246 44,085

208,203

135,086 98,673 40,360

175,840 202,230 652,189

INDIAN VALLEY COMMLIJNITY SERVICES DISTRICT STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN NET POSITION


Business-Type Activities Water Sewer Total

Operating Revenues: Utility Sales $ 448,931 $ 155,020 $ 603,951

Total Operating Revenue 448,931 155,020 603,951

Expenses: Salaries and Benefits Materials, Supplies, Rents and Services Repairs and Maintenance General and Administration Depreciation and Amortization

Total Operating Expenses

Operating Income (Loss) (53,183) (48,238)

Non-Operating Revenues and (Expenses): Interest Expense (97,349) (11,151) (108,500)

Total Non-Operating Revenues and (Expenses) (97,349) (11,151) (108,500)

Change in Net Position (92,404) (64,334) (156,738)

Total Net Position - July 1, 2014, as restated (Note 12) 2,554,786 925,167 3,479,953

Total Net Position - June 30, 2015 $ 2,462,382 $ 860,833 $ 3,323,215


INDIAN VALLEY COMMUNITY SERVICES DISTRICT STATEMENT OF CASH FLOWS


Business-Type Activities

Water Sewer Total

Cash Flows from Operating Activities: Cash Received From Customers Cash Payments to Employees Cash Payments to Suppliers for Goods and Services

Net Cash Provided (Used) by Operating Activities

Cash Flows from Capital and Related Financing Activities: Purchases of Property and Equipment hterfund Transfers - net change Interest Paid on Long-Term Debt Principal Paid on Long-Term Debt

Net Cash Provided (Used) by Capital Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents: Balance - July 1

Balance - June 30

Reconciliation: Operating Income (Loss)

Depreciation and Amortization (Increase)IDecrease in Operating Accounts Receivable Increase/(Decrease) in Accounts Payable Increase/(Decrease) in Customer Deposits

Net Cash Provided by Operating Activities

$ 450,889 $ 144,945 $ 595,834 (91,428) (43,658) (135,086)

(193,329) (120,460) (313,789) 166,132 (19,173) 146,959

(5,659) (7,128) (12,787) (116,688) 116,689

(97,350) (11,151) (108,501)

(56,576) (56,576)

(276,273) 98,410 (177,864)

(110,141) 79,237 (30,905)

110,536 110,536

$ 395 $ 79,237 $ 79,631

$ 4,945 $ (53,183) $ (48,238)

158,145 44,085 202,230 3,178 (10,075) (6,897) 1,084 1,084

(1,220) (1,220)

$ 166,132 $ (19,173) $ 146,959


INDIAN VALLEY COMMUNITY SERVICES DISTRICT NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2015

NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Indian Valley Community Services District (District) was formed in 1974 and provides fire, pool, water, sewer, street lighting and other public services to residential and commercial customers within the boundaries of the District. The District accounts for its financial transactions in accordance with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

1. Reporting Entity

The District's combined financial statements include the accounts of all its operations. The District evaluated whether any other entity should be included in these financial statements. The criteria for including organizations as component units within the District's reporting entity, as set forth in GASB Statement No. 14 "The Financial Reporting Entity" and GASB Statement No. 39 "Determining Whether Certain Organizations Are Component Units," include whether:

- The organization is legally separate (can sue and be sued in its name) - The District holds the corporate powers of the organization - The District appoints a voting majority of the organization's board - The District is able to impose its will on the organization - The organization has the potential to impose a financial benefit/burden on the District - There is fiscal dependency by the organization on the District - The economic resources received or held by the separate organization are entirely or

almost entirely for the direct benefit of the primary government - The primary government is entitled to, or has the ability to otherwise access, a majority

of the economic resources received or held by the separate organization - The economic resources received or held by an individual organization that the specific

primary government is entitled to, or has the ability to otherwise access, are significant to that primary government

Based on these criteria, the District has no component units. Additionally, the District is not a component unit of any other reporting entity as defined by the GASB Statement.

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JUNE 30, 2015

2. Basis of Presentation, Basis of Accounting

a. Basis of Presentation

Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties.

The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities, and for the different business-type activities of the District. Direct expenses are those that are specifically associated with a specific function or identifiable activity. The District does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs or activities, and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or identifiable activity. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

Fund Financial Statements: The fund financial statements provide information about the Districts funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major funds, each displayed in a separate column.

Separate financial statements are provided for govermnental funds and the proprietary funds. Major individual governmental funds and major individual proprietary funds are reported as separate columns in the fund financial statements.

The District reports the following major Governmental Fund:

The General Fund is used for all general revenues of the District that are not required to be accounted for in another fund.

Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities.

The District reports the following major Proprietary Funds:

The Water Fund accounts for water revenue, expenses, and net position. The Sewer Fund accounts for sewer revenue, expenses, and net position.

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JUNE 30, 2015

b. Measurement Focus, Basis of Accounting

Government-Wide Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, including property taxes, grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year for which the taxes are received. Revenues from grants, entitlements, and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied.

Governmental Fund Financial Statements: These statements are reported using the current financial resources measurement focus, and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Revenues from local sources consist primarily of property taxes. Revenues received from the State are recognized under the susceptible-to-accrual concept. Property tax revenues and miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fimd liability is incurred, except for principal and interest on general long-tenn debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital assets acquisitions are reported as expenditures in the governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources.

Proprietary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations are recorded on an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.

Under GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting," all proprietary funds will continue to follow Financial Accounting Standards Board ("FASB") standards issued on or before November 30, 1989. However, from that date forward, proprietary funds will have the option of either 1) choosing not to apply future FASB standards (including amendments of earlier pronouncements), or 2) continuing to follow new FASB pronouncements unless they conflict with GASB guidance. The District has chosen not to apply future FASB standards.

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JUNE 30, 2015

3. Assets, Liabilities, and Equity

a. Cash, Cash Equivalents and Concentrations of Risk

For the purpose of the statement of cash flows, highly liquid investments, including restricted funds, are considered to be cash equivalents if they have a maturity of three months or less when purchased.

Cash balances held in banks are insured to $250,000 by the Federal Depository Insurance Corporation. The District's entire cash balance is FDIC insured or collateralized at June 30, 2014.

The District is authorized to deposit cash and invest excess funds by California Government Code Section 53648 et seq.

b. Inventories

Inventories are expensed by the District when purchased. Although this method is not in compliance with generally accepted accounting principles, the departure is considered immaterial for financial statement purposes.

c. Capital Assets

Property, Plant and Equipment owned by the Proprietary Funds is stated at cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used.

Capital assets are being depreciated using the straight-line method over the following estimated useful lives:

Estimated Useful Asset Class Lives Buildings and Improvements 40 Office Equipment 3-7 Machinery and Equipment 5-20 Utility Plant and Infrastructure 10-40

Gain or loss is recognized when assets are retired from service or are otherwise disposed.

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JUNE 30, 2015

d. Property Taxes

Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on December 10 and April 10. Unsecured property taxes are payable in one installment on or before August 31. The County of Plumas bills and collects the taxes for the District. The District recognizes tax revenues when apportioned by the County.

e. Receivable and Payable Balances

The District believes that sufficient detail of receivable and payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates those balances.

There are no significant receivables which are not scheduled for collection within one year of year end.

No provisions have been made for bad debts. The District does not currently have procedures for writing off accounts receivable. This departure from GAAP is immaterial to the financial statements.

f. Compensated Absences

Accumulated unpaid employee vacation leave benefits are recognized as liabilities of the District. The liabilities are recognized in the General Fund, Water Fund and Sewer Fund at year end if material. Sick leave is not due upon termination and, therefore, is not recorded as a liability of the District.

g. Equity Restrictions

The District has amounts that are Restricted for Debt Service. These amounts have been set aside to pay future debt obligations as required by the lender in debt contracts.

h. Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of management's estimates. Actual results could differ from those estimates.

The District made certain estimates that were unsupported in the financial statements. The most significant estimates were the balances of interfund receivables and payables and cash balances of each fund. These figures were adjusted based on reasonable testing methods conducted during the audit.

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JUNE 30, 2015

i. Eq1ty Classifications

Fund Financial Statements

Beginning with fiscal year ending June 30, 2012, the District implemented GASB Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions." This Statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government's fund balances more transparent. The following classifications describe the relative strength of the spending constraints:

• Nonspendable fund balance—amounts that are not in nonspendable form (such as inventory) or are required to be maintained intact.

• Restricted fund balance—amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation.

• Committed fund balance—amounts constrained to specific purposes by the District itself, using its highest level of decision-making authority (i.e., District Board). To be reported as committed, amounts cannot be used for any other purpose unless the District takes the same highest level action to remove or change the constraint.

• Assigned fund balance—amounts the District intends to use for a specific purpose. Intent can be expressed by the District Board or by an official or body to which the District Board delegates the authority. The District has chosen not to delegate this authority.

• Unassigned fund balance—amounts that are available for any purpose. Positive amounts are reported only in the general fund.

Beginning fund balances for the District's governmental funds have been restated to reflect the above classifications.

The District Board establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of the fund (such as obligated for future contracts). Assigned fund balance is established by District Board through adoption or amendment of the budget as intended for specific purpose.

When expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the District Board has provided otherwise in its commitment or assignment actions.


JUNE 30, 2015

Government-Wide Financial Statements

For Government-Wide Financial Statements, equity is classified in three components as follows:

Net Investment in Capital Assets consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of debt borrowings that are attributable to the acquisition, construction, or improvement of those assets.

Restricted Net Assets consists of net assets with restrictions placed on the use either by external groups such as contributors, grantors or regulations of other governments, or law through constitutional provisions or enabling legislation.

Unrestricted Net Assets consists of all other net assets that do not meet the definition of "restricted" or "net investment in capital assets."

NOTE 2 - COMPLIANCE AND ACCOUNTABILITY

1. Finance-Related Legal and Contractual Provisions

In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance-related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations:

Violation The District was out of compliance with certain covenants of the USDA Loan Agreements. See Finding 2015-3

Action Taken See Corrective Action Plan for Finding 20 15-3

2. Deficit Fund Net Position of Individual Funds Following are funds having a deficit fund net position at year end, if any, along with remarks which address such deficits:

Deficit Fund Name Amount Remarks None nla nla

However, the water fund has a deficit in unrestricted fund balance of $173,809 at June 30, 2015.

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Water System Machinery and Equipment

Balance 6/3 0/20 14

$ 6,165,353 77,976

6,243,329

Additions

$

5,659 5,659

Balance jppitio1s 6/30/15

$ 6,165,353 83,635

6,248,988


JUNE 30, 2015

NOTE 3— PROPERTY, PLANT AND EQUIPMENT

A summary of changes in fixed assets for the General Fund follows: Balance Balance

6/30/2014 Additions Dispositions 6/30/2015

Land and Easements $ 85,000 $ - $ - $ 85,000 Buildings and Improvements 121,343 - - 121,343 Machinery and Equipment 746,338 9,443 - 755,781

952,681 9,443 - 962,124

Accumulated Depreciation 495,042) (44,652 - (539,694

Property, Plant and Equipment, Net $ 457,639 $ (35,209) $ - $ 422,430

A summary of changes in fixed assets for the Water Fund follows:

Accumulated Depreciation (1,158,180) (158,145) - (1,316,325)

Property, Plant and Equipment, Net $ 5,085,149 $ (152,486) $ - $ 4,932,663

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JUNE 30, 2015

A summary of changes in fixed assets for the Sewer Fund follows:

Balance Balance 6/30/14 Additions Dispositions 6/30/15

Sewer System $ 2,202,132 - $ - $ 2,202,132 Construction in Progress 7,128 7,128 Machinery and Equipment 82,806 82,806

2,284,938 7,128 - 2,292,066

Accumulated Depreciation (1,309,969) (44,085) - (1,354,054)

Property, Plant and Equipment, Net $ 974,969 $ (36,957) $ - $ 938,012

Depreciation was charged to functions as follows:

General $ 44,652 Water 158,145 Sewer 44,085 Total 82

NOTE 4— LONG-TERM DEBT

Long Term Debt in the General Fund is summarized as follows:

Balance Balance 6/30/14 Increases Decreases 6/30/15

4.75% USDA Note Payable, $200,000 Original Issue, Annual Payments of Principal and Interest of $15,712.

Total Bonds Payable

Less Current Portion Long-Term Portion of Bonds Payable

$ 112,892 $ - $ 10,350 $ 102,542 $ 112,892 $ - $ 10,350 102,542

(10,841) $ 91,701

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JUNE 30, 2015

Debt service requirements on long term debt in the General Fund at June 30, 2015 are as follows:

Year Ending June 30, Principal Interest Total 2016 $ 10,841 $ 4,871 $ 15,712 2017 11,356 4,356 15,712 2018 11,896 3,816 15,712 2019 12,461 3,251 15,712 2020 13,053 2,659 15,712 2021-2023 42,935 4,140 47,075 Totals $ 102,542 $ 23,093 $ 125,635

Long Term Debt in the Sewer Fund is summarized as follows: Balance 6/30/14 Increases Decreases

USDA Special Assessment Bonds $ 250,800 $ $ 6,000 $ Plumas County Community Development Commission Obligation 36,881 - Total Bonds Payable $ 287,681 $ - $ 6,000

Balance 6/30/15

244,800

36,881 281,681

Less Current Portion (5,700) Long-Term Portion of Debt $ 275,981

USDA Special Assessment Bonds - The District borrowed $312,103 at 4.5 % to help finance improvements to the Greenville sewer system. The note has annual principal payments and semiannual interest payments and matures in 2037.

Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2037 Totals

Principal $ 5,700

7,200 6,900 7,200 7,500

Interest $ 10,802 $

10,490 10,177 9,855 9,520

Total 16,502 17,690 17,077 17,055 17,020

42,700 42,040 84,740 53,400 31,105 84,505 66,600 17,466 84,066 47,600 2,563 50,163

$ 244,800 $ 144,018 $ 388,818

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Balance 6/30/2014

$ 79,490

160,626

824,178

968,430

127,406

70,039

135,296

Increases Decreases S 4,542

2,913

14,361

l7,564

7,638

1,271

8,287

' S 2,365,465 $ - $ 56,576


JUNE 30, 2015

Plumas County Community Development Commission Obligation In 1998, the Plumas County Community Development Commission (Commission) advanced $36,881 to the District to cover a funding shortfall on a sewer extension project. The Commission required that the obligation be repaid from any revenue the district receives from lot splits into the sewer extension area.

Long Term Debt of the Water Fund is summarized as follows:

CA Dept of Water Resources Note

USDA Note Payable

USDA Water Revenue Bonds - 2003

USDA Water Revenue Bonds - 2004

RCAC Interim Financing Loan

USDA Water Loan

County ofPlumas Note

Total Long-Term Debt Payable

Balance 6/30/2015

$ 74,948

157,713

809,817

950,866

119,768

68,768

127,009

2,308,889

Less Current Portion (58,221)

Long-Term Portion of Debt $ 2,250,668

Due to the District falling behind on several of their Bonds and Loans, the following debt repayment schedules are estimates based on past principal and interest amounts.

CA Dept of Water Resources Note - The District borrowed $113,557 at 0% interest from the Department of Water Resources to meet safe drinking water standards. Semi-annual payments of $2,271 are scheduled in the loan agreement.

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JUNE 30, 2015

USDA Note Payable - The District borrowed $172,000 at 4.25% to improve the Crescent Mills water system. The Note has annual payments of $9,017 and matures in 2043.

Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2043 Totals

Principal Interest Total $ 3,037 $ 6,703 $ 9,740

3,166 6,574 9,740 3,301 6,439 9,740 3,441 6,299 9,740 3,587 6,153 9,740

20,357 28,343 48,700 25,067 23,633 48,700 30,867 17,833 48,700 38,007 10,693 48,700 26,883 2,314 29,197

$ 157,713 $ 114,984 $ 272,697

USDA Water Revenue Bonds -- 2003 - The District borrowed $887,200 at 4.5 % to acquire the Greenville water system. The note has annual payments of $51,449 and matures in 2043.

Year Ending June 30, Principal Interest Total 2016 $ 15,007 $ 36,442 $ 51,449 2017 15,683 35,766 51,449 2018 16,388 35,061 51,449 2019 17,126 34,323 51,449 2020 17,896 33,553 51,449 2021-2025 102,312 154,933 257,245 2026-2030 127,500 129,745 257,245 203 1-2035 158,887 98,358 257,245 2036-2040 198,002 59,243 257,245 2041-2043 141,016 12,857 153,873 Totals $ 809,817 $ 630,281 $ 1,440,098

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JUNE 30, 2015

USDA Water Revenue Bonds - 2004 - The District borrowed $1,070,663 at 4.25 % to improve the Greenville water system. The note has annual payments of $58,723 and matures in 2042.

Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2042 Totals

Principal $ 18,311

19,089 19,901 20,747 21,628

122,736 151,131 186,094 229,146 162,083

$ 950,866

Interest $ 40,412 $

39,634 38,822 37,976 37,095

170,879 142,484 107,521 64,469 13,964

$ 693,256 $

Total 58,723 58,723 58,723 58,723 58,723

293,615 293,615 293,615 293,615 176,047

1,644,122

RCAC Interim Financing Loan - The District has a grant anticipation loan that functioned like a line of credit from Rural Community Assistance Corporation and had total original funding available of $734,500. Effective March 27, 2015, the loan was modified by RCAC with the following terms: (1) maturity date of August 1, 2026, (2) monthly payments of $1,200 of principal including interest and (3) interest rate of 5.25%. The outstanding principal balance was $123,991 at the date of the modification agreement.

USDA Water Loan - The District borrowed $75,000 at 4.25% to improve the Greenville water system. The note has annual payments of $4,247 and matures in 2043.

Year Ending June 3Q 2016 2017 2018 2019 2020 202 1-2025 2026-2030 2031-2035 2036-2040 2041-2043 Totals

Principal Interest Total $ 1,324 $ 2,923 $ 4,247

1,381 2,866 4,247 1,439 2,808 4,247 1,500 2,747 4,247 1,564 2,683 4,247 8,877 12,358 21,235

10,930 10,305 21,235 13,459 7,776 21,235 16,573 4,662 21,235 11,721 1,008 12,729

$ 68,768 $ 50,136 $ 118,904

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JUNE 30, 2015

County of Plurnas Note - In 2005, the District borrowed $200,000 from the County of Plumas. The interest rate varies and the note has no fixed payment schedule. The District should be making at least annual payments of$l0,000 toward the balance of the note.

Interest Expense for all Long-Term Debt was charged to functions as follows:

General $ 5,362 Water 97,349 Sewer 11,151 Total $J13.862

NOTE 5— LINE OF CREDIT

At June 30, 2015, the District has a line of credit with Plumas Bank totaling $129,000. The interest rate is variable at Prime plus 2.75%. The line of credit is secured by all accounts of the District, including deposit accounts, investment accounts and accounts receivable. The outstanding balance on the line of credit at June 30, 2015 was $-0-.

NOTE 6— EXCESS OF EXPENSES (EXPENDITURES) OVER APPROPRIATIONS

The District did not adopt a budget during the fiscal year and, therefore no budget presentations as required by generally accepted accounting principles are presented.

NOTE 7— COMMITMENTS AND CONTINGENCIES

Legal Matters

The District has been involved in litigation due to embezzlement in prior years. See Note 10.

Payroll Taxes

In connection with the embezzlement described in Note 10, the District paid a portion of the payroll taxes on unauthorized compensation. The District is currently in negotiations with the government taxing authorities to settle the disputed amounts. As of October 20, 2015, it is unknown whether the District will owe any additional payroll taxes or be entitled to a refund. District management believes that the potential settlement of this issue will not materially affect the financial condition of the District.

NOTE 8— RISK MANAGEMENT AND LITIGATION

The District is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and customers; and natural disasters. The District has managed these risks by obtaining coverage from commercial insurance companies as well as providing employee education and prevention programs. All risk

- 26 -


JUNE 30, 2015

management activities are accounted for in the General Fund, Water Fund and Sewer Fund. Expenses and claims are recognized when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. In determining claims, events that might create claims, but for which none have been reported are considered.

The District estimates that the amount of actual or potential claims against the District as of June 30, 2015 will not materially affect the financial condition of the District. Therefore, the funds contain no provision for estimated claims. Information relating to an analysis of claims activities for the year was not available.

NOTE 9— SEGMENT INFORMATION FOR PROPRIETARY FUNDS

The District maintains proprietary funds, which provide water and sewer services. Segment information for the year ended June 30, 2015 is as follows:

Water Sewer Enterprise Enterprise

Operating Revenues Operating Expenses Excluding Depreciation Depreciation Expense Operating Income(Loss) Non-Operating Revenues and Expenses Net Income(Loss)

Fixed Asset Additions (Net) Net Working Capital Total Assets Bonds and Other Long-Term Liabilities Total Equity

$ 448,931 (285,841) (158,145)

4,945 (97,349)

$ (92,404)

$ 5,659 - $ (219,614)

$ 4,991,189 $ 2,250,668 $ 2,462,382

$ 155,020 (164,118) (44,085) (53,183) (11,151)

$ (64,334)

$ 7,128 S 198,802 $ 1,142,514 -

$ 275,981 $ 860,833

NOTE 10— INSURANCE RECOVERY FOR PRIOR YEARS' EMBEZZLEMENT

During a six year period that included 2006 to 2012, the District was the victim of a financial fraud by a former employee. The amount of the fraud was proven to be $676,376 at trial. The employee was found guilty and at sentencing was ordered to repay the amount plus costs of $505,692 to the District. The sentence was handed down September 24, 2014. The ultimate recovery of these funds is unknown. However, as a result of this fraud, the District filed a claim with its insurance company, and, in October, 2014 received $112,191 in full settlement of that claim.

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JUNE 30, 2015

NOTE 11— USDA RESERVES

The loan agreements for certain loans provided by the USDA require the District to maintain minimum levels of funds restricted for debt service and other purposes, also known as USDA Reserves. During fiscal year 2013, USDA re-amortized several of the loans to the District. This restructuring included a provision to gradually increase the USDA reserve amount until it reaches an amount equal to the average annual loan installment for each re-amortized loan. As of June 30, 2015, the aggregate amounts of USDA Reserves are summarized by fund as follows:

General Fund

Restricted for Debt Service $ 15,712 Restricted - other 3,142 Total restricted funds - USDA Reserves $ 18,854

Water Fund

$ 12,416

$ 12,416

Totals

$ 28,128 3,142

$ 31,270

NOTE 12— PRIOR PERIOD ADJUSTMENTS

The District has determined that certain transactions were recorded incorrectly in a prior year.

In the Government-Wide statements and the Proprietary Fund statements, accounts receivable were overstated by $135,169 in the Water Fund and by $61,277 in the Sewer Fund. This overstatement was due to inadequate accounting controls in the billing system.

In the Government-Wide statements and the Proprietary Fund statements, long-term liabilities were understated. Effective for the fiscal year ending June 30, 2015, the USDA Special Assessment Bonds for the Sewer Fund are treated as a direct liability of the District. In prior years, these bonds were disclosed, but not treated as a direct liability of the District. As of June 30, 2015, these bonds had an outstanding balance of $244,800 (see Note 4).

In the Government-Wide statements and the Proprietary Fund statements, the combined effect of the Prior Period Adjustments decreases the Net Position by $441,246.

The following table summarizes the effect on the Net Position by fund, as of July 1, 2014:


JUNE 30, 2015

Net Position before Prior Period Adjustments Accounts Receivable adjustments Special Assessment Bonds

Total Prior Period Adjustments Net Position - July 1, 2014, as restated

Water Fund

$ 2,689,955 (135,169)

(135,169) $ 2,554,786

Sewer Fund

$ 1,231,244 (61,277)

(244,800) (306,077)

$ 925,167

Totals

$ 3,921,199 (196,446) (244,800) (441,246)

$ 3,479,953

NOTE 13— SUBSEQUENT EVENTS

Subsequent events were evaluated through October 20, 2015, which is the date the financial statements were available to be issued.

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OTHER SUPPLEMENTARY INFORMATION

SingIetonAumanc CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

John E. Auman, CPA

Clay E. Singleton, CPA, MSAcc

INDEPENDENT AUDITOR'S REPORT ON INTERNAl CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMENTA UDITING STANDARDS

Board of Directors Indian Valley Community Services District Greenville, California

We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Indian Valley Community Services District as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise Indian Valley Community Services District's basic fmancial statements and have issued our report thereon dated October 20, 2015.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Indian Valley COmmunity Sèrvicès District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control.. Accordingly, we do not express an opinion on the effectiveness of the District's internal control.

Our consideration of the 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 described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and 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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. We

Susanville: Chester: 1740 Main Street, Suite A, Susanville, CA 96130 [email protected] P0 Box 795, Chester, CA 96020

530.257.1040 Fax: 530.257.8876 www.s pas.com 530.258.2272 Fax: 530.258.2282

consider the deficiencies described in the accompanying schedule of findings and questioned costs listed as items 201 5-ito 2015-3 to be material weaknesses.

A sign/Ican1 deficiency is a deficiency, or 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 deficiencies described in the accompanying schedule of findings and questioned costs as items 20 15-1 to 2015-3 to be significant deficiencies.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.

District's Response to Findings

The District's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. We did not audit the District's responses and, accordingly, we express no opinion on them.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Respectfully submitted,

SingletonA ?an, PC October 20, 2015

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INDIAN VALLEY COMMUNITY SERVICES DISTRICT COMBINED SCHEDULE OF FINDINGS AND QUESTIONED COSTS

JUNE 30, 2015

EXECUTIVE SUMMARY

The Indian Valley Community Services District was formed in 1974. The quality of the District's internal controls is highly dependent upon involvement in the day to day operations by the volunteer District Board Members. Also, due to the limited number of employees of the District, there is an inability to segregate the custody of and accountability for District assets in the manner generally required for model systems of internal accounting controls. A summary of the auditors' results follows:

1. Type of Auditors' Report on Financial Statements: Unmodified 2. Internal Control Findings: 3 Significant Deficiencies, 3 being Material Weaknesses 3. Material Noncompliance Noted: None.

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JUNE 30, 2015 YELLOW BOOK SECTION

Internal Control - Material Weakness

Finding 2015-1: Lack of Segregation of Duties

Criteria upon which audit finding is based (Legal Citation): Yellow Book paragraphs 5.11 - 5.15 and Appendix I, SAS 109.

Finding (Condition): An inadequate segregation of duties exists.

Amount of Questioned Cost, How Computed and Prevalence: None.

Effect: The District has exposure to risk of financial statement misstatement and the potential risk for fraud.

Cause: Due to the number of personnel assigned to duties that involve access to the general ledger and other accounting records and who also have custody of and responsibility for handling cash and other assets, an inadequate segregation of duties exists.

Recommendation: We recommend that the District employees and board maintain diligence for the potential risks of not having an adequate segregation of duties.

District's Response: Due to the number of employees of the District, it is not possible for the District to cost effectively mitigate this finding. The District cannot, with its current budget hire an adequate number of employees to insure that custody of assets and accountability for assets is separated.

The District does, however, believe that being aware of this weakness will insure that existing employees and Board members will maintain diligence to potential risks of not having an adequate segregation of duties.

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JUNE 30, 2015 YELLOW BOOK SECTION


Finding 2015-2 Financial Reporting

Criteria pn Which Audit Finding is Based (Legal Citation) In accordance with Statement on Auditing Standards No. 122, the District is responsible for preparing complete and accurate financial statements, footnote disclosures, and management's discussion and analysis in accordance with Generally Accepted Accounting Principles (GAAP).

Finding (Condition) Similar to many other California special districts, the District does not have policies and procedures in place to ensure that complete and accurate financial statements, footnote disclosures, and management's discussion and analysis are prepared in accordance with GAAP prior to the annual audit. Management relies upon the auditor to recommend footnote disclosures for the financial statements and to prepare adjusting journal entries for approval in order to report financial information in accordance with GAAP.

Amount of Questioned Cost, How Computed and Prevalence None.

Effect There is a risk that a material financial statement misstatement may exist and not be prevented or detected by the District's system of internal control.

Cause This condition has always existed at the District, and is being reported in accordance with SAS 122.

Recommendation We recommend that the District should consider the cost benefit of hiring an accountant familiar with GAAP or hiring an independent CPA firm to compile financial statements in conformity with GAAP.

District's Response The District has determined that the costs of correcting this control weakness outweigh the benefits to be received. The District will continue to rely on the independent auditor to prepare its annual financial statements.

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JUNE 30, 2015

YELLOW BOOK SECTION


Finding 2015-3 District's Documentation and Control over Finances

Criteria Upon Which Audit Finding is Based (Legal Citation) Internal Control Standards

Finding (Condition) During the June 30, 2015 fiscal year, the District's control over finances improved over the prior year. However the following items are still considered material weaknesses and/or matters of noncompliance:

• The District has numerous USDA loans outstanding with associated debt covenants. The District did not meet the requirements to:

o Provide for adequate revenue to meet debt service requirements, operations and maintenance costs, and debt reserve requirements

o Create an operating budget with sufficient cash flows to meet all obligations

• The District did not adopt a budget for the June 30, 2015 fiscal year.

Amount of Questioned Cost, How Computed and Prevalence None.

Effect The District is at risk for a potential cash flow shortfall, insufficient to cover debt service payments.

Cause Utility service rates have not been increased sufficiently in recent years to provide enough revenue to cover operating and maintenance cost, and to provide sufficient coverage of debt service payments. District management issues in prior years resulted in no annual budgets being prepared.

Recommendations The District should develop strategies to increase revenues, while maintaining controls to contain operating costs. The District should also create operating budgets that address all costs of the District.

District's Response The District concurs with this finding. The District did pass a rate increase in the 15/16 fiscal year which will assist in meeting the loan covenants.

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INDIAN VALLEY COMMUNITY SERVICES DISTRICT SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS

(FINDINGS FROM THE JUNE 30, 2014 MANAGEMENT REPORT) JUNE 30, 2015

Finding 20 14-1 An inadequate segregation of duties exists.

Status

Not Implemented. See Finding 2015-1.

Finding 2014-2

Similar to many other California special districts, the District does not have policies and procedures in place to ensure that complete and accurate financial statements, footnote disclosures, and management's discussion and analysis are prepared in accordance with GAAP prior to the annual audit.

Status

Not Implemented. See Finding 2015-2.

Finding 20 14-3

During the June 30, 2014 fiscal year, the District's control over finances improved over the prior year. However the following items are still considered material weaknesses and/or matters of noncompliance:

• The District could not locate documentation for limited number of expenditures. • No documentation was located to support interfund activities and balances. • The District did not maintain records to support the amount of cash owned by

each fund. • The District has numerous USDA loans outstanding with associated debt

covenants. The District did not meet the requirements to: o Maintain adequate supporting documentation for District transactions. o Complete an annual audit within 180 days of the end of the fiscal year o Maintain a sufficient accounting system. o Provide for adequate revenue to meet debt service requirements,

operations and maintenance costs, and debt reserve requirements. o Create an operating budget with sufficient cash flows to meet all

obligations. • There were no apparent controls over the Fire Bank Account.

Status

Partially Implemented. See Finding 2015-3.

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INDIAN VALLEY COMMUNITY SERVICES DISTRICT SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS

(FINDINGS FROM THE JUNE 30, 2014 MANAGEMENT REPORT) JUNE 30, 2015

Finding 2014-4

Following the prior years' embezzlement, controls that were implemented during the fiscal year over financial transactions and operations of District Water and Wastewater activities. In our testing of District's internal controls, reading of board minutes, and sampling of cash receipts we noted that the corrections to controls were not as prevalent over Fire Department activity. Specifically, several deposits were received into the Volunteer Fire Association, rather than the District, for Fire Service Incident contracts with the government. Since the District bears the liability of providing these services, and owns the fire equipment, these funds should go directly to the District. Additionally, it is not clear in District operations that the line of authority from the Fire Chief to the Board is through the General Manager of the District. There does not seem to be adequate accountability to the General Manager and Board for Fire Department operations. Lastly, when volunteer firefighters fight fires under contract, they should be paid from District funds, not volunteer funds.

Status Implemented.

-37-

INDIAN VALLEY COMMUNITY SERVICES DISTRICT CORRECTIVE ACTION PLAN

JUNE 30, 2015

Person Monitoring Corrective Action Plan

District Manager, Chris Gallagher and the Board of Directors

Finding 2015-1 Lack of Segregation of Duties

Finding (Condition) Due to the number of employees an inadequate segregation of duties exists.

Corrective Action Planned Due to the number of employees of the District it is not possible for the District to cost effectively mitigate this finding. The District cannot, with its current budget hire an adequate number of employees to insure that custody of assets and accountability for assets is separated.

The District does however believe that being aware of this weakness will insure that existing employees and board members will maintain diligence to potential risks of not having an adequate segregation of duties.

Expected Completion Date Ongoing.

Finding 2015-2 Financial Reporting

Finding (Condition) Similar to many other California special districts, the District does not have policies and procedures in place to ensure that complete and accurate financial statements, footnote disclosures, and management's discussion and analysis are prepared in accordance with GAAP prior to the annual audit. Management relies• upon the auditor to recommend footnote disclosures for the financial statements and to prepare adjusting journal entries for approval in order to report financial information in accordance with GAAP.

Corrective Action Planned The District has determined that the costs of correcting this control weakness outweigh the benefits to be received. The District will continue to rely on the independent auditor to prepare its annual financial statements.

Expected Completion Date Ongoing.

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INDIAN VALLEY COMMUNITY SERVICES DISTRICT CORRECTIVE ACTION PLAN

JUNE 30, 2015

Finding 2015-3 District's Documentation and Control over Finances

Finding (Condition) During the June 30, 2015 fiscal year, the District's control over finances improved over the prior year. However the following items are still considered material weaknesses and/or matters of noncompliance:

• The District has numerous USDA loans outstanding with associated debt covenants. The District did not meet the requirements to:

o Provide for adequate revenue to meet debt service requirements, operations and maintenance costs, and debt reserve requirements.

o Create an operating budget with sufficient cash flows to meet all obligations.

• The District did not adopt a budget for the June 30, 2015 fiscal year.

Corrective Action Planned The District will be implementing policies and procedures to address these issues. Additionally, the District approved a rate increase in the 15/16 fiscal year.

Expected Completion Date Ongoing

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