HomeMy WebLinkAboutCOM 0451.000 2004-2006 Virginia Isbell •v o. H Phone No.: (808) 326-5684
Dice Chair c~- Fax No.: (808) 329-4786
Dso-ict 7-Cenrrol Kona ~ E-Mail: visbell(a~co.hawaii.hi.us
h~ei~wi~
HAWAII COUNTY COUNCIL
County of Hawai 'i
75-57061lanama Place, Suite 109
Kailua-Kona, Hawaii 96740
September 23, 2005
Honorable Stacy K. Higa, Chairman
And Members of the County Council
25 Aupuni Street
Hilo, Hawaii 96720
Dear Councilman Higa and Members of the County Council,
RE: Independent Financial Audit
Request for Proposals (FY 2006, 2007, 2008, and 2009)
Attached for your review and approval is a resolution that authorizes the Council pursuant to
Hawaii County Charter, Article X, Section 10-13, to procure an independent auditor(s) and to
make payment of funds in future fiscal years to cover afour-year contract. The current four-year
contract for an independent financial audit of the County's financial statements with KPMG,
LLP is in its last year. The Council should proceed with the issuance of a request for proposals,
evaluation, award and execution of the contract in order to secure an audit firm to conduct a
limited general audit for the next four fiscal years commencing June 30, 2006 through June 30,
2009.
The following documents are attached:
1. A timetable for securing an independent certified public accountant firm.
2. A draft Request for Proposals (RFP), which has been prepared in consultation
with County Controller (Deanna Sako), DWS Assistant Controller (Rick Sumada)
and other counties.
3. A resolution approving afour-year contract term, the obligation of more than one
fiscal year of funds and the process of securing an audit firm. Gomm. No.
ReF. To: r~
i~~.: X77 Rof. C~tr~~, CFP 2 1 7(1(15
flawai'i County /s Att Equal Oppartuttity Provider And Employer
A four-year contract term is again recommended for purposes of economy, consistency and
continuity. Should you have any questions about the resolution, the RFP or the process, please
feel free to contact Lane Shibata, Audit Analyst at 961-8494 or Rodney Oshiro, Legislative
Research Assistant at 961-8492.
Thank you for your time and consideration.
Sincerely,
V
Virginia Isbell
Vice chairman
County of Hawaii
Att. (Timetable/RFP/Resolution)
2005 External Audit Procurement Time-Line
August 2005 Au u~ st 15, Meeting with Finance Committee Chair to discuss new
RFP and Resolution.
Au ug st 1g, Tentative meeting with Finance, Water Supply and
County Clerk to discuss new RFP.
Au ug st 29, Research and review other Counties' RFPs.
September 2005 September 1, Drafting new RFP.
September 12, Send RFP draft to Purchasing for review
September 21, Deadline for submission to Finance Committee.
October 2005 October 4, Finance Committee reviews Reso 8c RFP.
October 5, Deadline for submission for Council Agenda.
October 18, Council reviews Reso &RFP.
November 2005 November 1, KFP advertised.
November 15, Deadline for proposers to submit written questions.
November 30, Deadline for Proposals due at Purchasing Division.
December 2005 December 1, Evaluation Committee to begin evaluation.
December 12, Evaluation Committee to continue evaluation, if
necessary.
December 19, Evaluation Committee to complete evaluation.
December 21. Deadline for County Council Agenda for Executive
Session.
January 2006 Januarv 4-1 1, Council meets and approves in Executive Session.
January 15, Request Purchasing Agent Bill Gray to draft final
contract (must be approved by Corporation Counsel).
February 2006 Pebruarv 1, Approximate contract execution and notification to
others of award and availability of proposals as public record.
HAWAII COUNTY COUNCIL
REQiJEST FOR INDEPENDENT FINANCIAL AUDIT PROPOSALS
I. INTRODUCTION
A. Generallnformation
The Ilawai`i County Council, pursuant to Section 10-13 of the Hawai `i County
Charter, is requesting proposals from qualified certified public accountants or firms of
certified public accountants (hereinafter referred to as "Contract Auditor") to audit the
County of Hawai`i's financial statements for each four fiscal years commencing with
the fiscal year ending June 30, r'~ 2006 through June 30, {2095] 2009.
The Contract Auditor shall r,~conduct a Single Audit of all County programs in
receipt of federal financial assistance r Tn~ n..a:.~-' and shall also perform
the required audit in conjunction with attestation services for the Section 8 -Housing
Choice Vouchers for the Financial Assessment Electronic Submission to the U.S.
Department of Housing and Urban Development Real Estate Assessment Center.
The Contract Auditor shall issue a letter report required by 40 Code of Federal
Regulations, Part 258 that enables the County to be self insured for closure, post
closure care, and remedial action for the landfills.
The Contract Auditor shall perform an audit of the Department of Water SupplYs
financial statements for each four fiscal years commencing with the fiscal year ending
June 30, 2006 through June 30, 2009.
These audits are to be performed in accordance with generally accepted auditing
standards of the American Institute of Certified Public Accountants (AICPA); the
standards set forth for financial audits in the U.S. General Accounting Office's (GAO)
Government Auditing Standards, as amended; the provisions of the Federal Single
Audit Act, as amended, and U.S. Office of Management and Budget (OMB) Circular
A-133, Audits of States, Local Governments and Non-Profit Organizations.
B. Contract P,ngagement: Term, Execution
The Council wishes to obtain a cost estimate for r~~''~°- ~ ~ - a four-year
contract. rT ,.r.,.o ,.,.~...,,....an we a,.,.:,.:,.~ ,.v.w,. .........:......ti .
,,.aea i
The Contract shall not be binding or of any force until said contract has been fidly and
properly signed by all of the parties thereto and approved by the Director of Finance as
to availability of funds and the Corporation Counsel as to form and legality.
-1-
C. Rights, Reservations and Considerations
The County Council reserves the right to investigate the financial status, experiences,
and records of each proposer, and to require further information from any proposer.
The County Council shall be the sole judge of the facts as to the reliability of the
proposer. Should a proposer fail to meet the qualifications stated herein or fail to
submit additional information requested by the Council, the Council may refuse to
receive or consider any proposal submitted by such proposer.
There is no expressed or implied obligation for the County of Hawaii to reimburse
responding firms for any expenses incurred in preparing proposals in response to this
request. Such costs should not be included in the proposal. The County Council
reserves the right without prejudice to cancel or reject any or all proposals and to
waive any defects in the proposals, in the best interest of the County.
Unless otherwise expressly provided in the contract, all provisions of these
specifications, special provisions and instructions shall be considered to be part of the
contract entered into by the County and the Contract Auditor. The "General Terms
and Conditions for Goods and Services," including exhibits of appropriate contract
and bond document, dated July 1, 1994, shall be part of any contract entered in as a
result of this proposal. All bidders are responsible to be familiar with these general
terms and conditions, a copy of which is on file at the Purchasing Division and will be
made available to any interested person upon request at no charge. Where any conflict
might appear, the Special Provisions shall have precedence over the General Terms
and Conditions and the Specification of this bid shall have precedence over either.
The County shall have the right to suspend performance of the services under the
contract or terminate the contract in whole or in part at any time by written notice to
the Contract Auditor with good cause.
The successful proposer must apply to the Hawaii State Tax office and the [nternal
Revenue Service in conformance with HRS, 103-53, for a tax clearance prior to a
contract being issued and again before final annual payment can be made. In the event
an apparent successful proposer is unable to furnish appropriate certificates within ten
(10) calendar days of being requested to do so, the County will proceed to award the
contract to the next most acceptable proposer who shall furnish said certificates. It is
not required, but strongly suggested, that proposers furnish tax clearances with their
proposals.
In conducting the Single Audit of Federal assisted programs, small business concerns
and business concerns owned and controlled by socially and economically
disadvantaged individuals are encouraged to participate in the performance of the
-2-
contract awarded to fulfill the audit requirements of Chapter 75, Title 31, United
States Code.
An~pute arising under or out of the contract is subject to chapter 3-126, HAR. The
procedures and remedies provided for shall be the exclusive means available for
persons aQ~rieved in connection with the solicitation or award of a contract, a
suspension or debarment proceeding, or in connection with a contract controversy, to
resolve their claims or differences. The contested case proceedines set out in chapter
9 ] , HRS, shall not apply to protested solicitations and awards, debarments or
suspensions, or the resolution of contract controversies. IHRS 103D-704]
D. Contact Person; Questions and Clarifications Deadline; RFP Deadline
Questions or clarifications about the request for proposals may be directed in writing
to Legislative Auditor or in the absence, Ms. Constance Kiriu, it o,.:..i,,.:.,e n..a:.,...i
County Clerk, 25 Aupuni Street, Hilo, HI 96720 at (808) 961-[8388] 8386 (FAX:
(808) 961-8572) prior to rn,..,n~ November 15, 2005.
1 he original proposal and 12 copies shall be mailed or delivered to Council Chair
r~ai Stacy K. H1Qa, c/o Purchasing Division, Room 118, 25 Aupuni
Street, Hilo, Hawaii 96720. The proposal must be received in the Purchasing
Division by 4:30 p.m. on November 30, 2005. Requirements are
set forth in Section VI of this RFP.
Il. SPECIFICATIONS FOR THG FINANCIAL AUDIT
A. Audit Objectives
1. To provide a basis for an opinion by the Contract Auditor of the reasonable
accuracy of the financial statements of the County of Hawaii and all its
agencies, including the Department of Water Supply (DWS), and of operations
for which the County is responsible.
2. To ascertain whether or not expenditures and other disbursements have been
made, and all revenues, receipts and receivables to which the County is entitled
or is responsible for having collected and accounted for in accordance with the
laws, rules and regulations, and policies and procedures of the County, the
State of Hawaii and the federal government (where applicable) have been
satisfied.
-3-
3. To evaluate the adequacy, effectiveness, and efficiency of the systems and
procedures for financial accounting, internal and operational controls of the
County and of operations for which the County is responsible.
4. To ensure that (I) the funds appropriated to the agencies are being expended
in accordance with the purposes for which they were appropriated and in
accordance with applicable laws, ordinances and regulations; (2) adequate
accounting systems and procedures have been established to safeguard the
public funds and property; (3) accurate and reliable fiscal records are being
maintained; and (4) there is efficiency in operations.
5. To test, study, examine, evaluate and report on financial statements, internal
accounting and other control systems, and other compliance requirements for
federal assistance programs in accordance with the provisions of the Single
Audit Act, as may be amended, and OMl3 Circular No. A-133.
6. As appropriate, to recommend improvements to the internal control, reporting
and accounting systems and procedures of the County agencies. R is
recognized that ordinarily, an audit is not primarily designed to detect loss,
fraud or waste of funds, if such exists. However, the Contract Auditor shall be
mindful of and be alert to such possibility during the course of this audit and to
report such irregularities.
B. Audit Scope
1. Generally
The Contract Auditor shall conduct a financial audit of all fund types and
groups in the County and in its Department of Water Supply for [°^~h~it,",~-
tweer} four consecutive fiscal years commencing with the fiscal year ending
.Tune 30, 2006 through June 30, 2009 rr.^'-° a°'°--~~~^a
. Each financial audit shall include the following:
a. Except as otherwise provided herein, a limited general audit of the
financial transactions and accounting records of the County funds and
account groups and of operations for which the County is responsible.
"the term "limited general audit' means a test audit of the receipt and
expenditures for the period(s) specified; the Contract Auditor is not
expected to verify every transaction and record for the audited fiscal
year. "Limited general audit' shall include tests of the financial data to
provide the Contract Auditor with a basis to report on the fairness of
the f nancial statements, on the legality and propriety of the
-4-
expenditures and other disbursements, and on the accounting of all
revenues, receipts and receivables.
b. An examination of the existing systems and procedures of accounting,
reporting, operational, and internal controls of the County and of all
operations for which the County is responsible. The evaluation of the
system of internal control shall include an assessment of the extent to
which the system can be relied upon to ensure accurate information, to
ensure compliance with laws and regulations, to provide for efficient
and effective operations, and to ensure integrity in the County's receipt
and expenditure of public funds.
The Contract Auditor shall identify the deficiencies and weaknesses in
the systems and procedure, and make appropriate recommendations for
improvements, including, but not limited to, the management
information system and the accounting and operating procedures.
c. An examination to enable the Contract Auditor to opine on all the
objectives specified in Section ILA. above.
d. The Contract Auditor is not required to audit the supporting schedules
contained in the comprehensive annual financial report. However, the
Contract Auditor is to provide an "in-relation-to" opinion on the
supporting schedules based on the auditing procedures applied during
the audit [~'"urther, the Contract Auditor is not required to audit the
statistical section of the report.
2. Federal Assistance Programs
In examining the County's federal assistance programs in accordance with the
provisions of the Single Audit Act, as may be amended, and OMB Circular No.
A-133, the Contract Auditor shall:
a. Perform an audit of the financial statement(s) for the federal program in
accordance with general standards specified in generally accepted
government auditing standards (GAGAS);
b. Obtain an understanding of internal control and perform tests of
internal control over the Federal Program consistent with the
requirements of Section .500(c), OMB Circular No. A-133, for a major
program;
c. Perform procedures to determine whether the auditee has complied
with laws, regulations and the provisions of contracts or grant
-5-
agreements that could have a direct and material effect on the Federal
program consistent with the requirements of Section .500(d), OMB
Circular No. A-133, for a major program;
d. Perform the required audit in conjunction with attestation services for
the Section 8 - Housine Choice Vouchers for the Financial Assessment
Electronic Submission to the U.S. Denartment of Housing and Urban
Development Real Estate Assessment Center: and
e. Follow up on prior audit findings, perform procedures to assess the
reasonableness of the summary schedule of prior audit findings
prepared by the auditee, and report, as a current year audit finding,
when the auditor concludes that the summary schedule of prior audit
findings materially misrepresents the status of any prior audit finding in
accordance with the requirements of Section .500(e), OMB Circular
No. A-133.
3. Other Areas of Concern
a. An examination of the progress made in the implementation of the
recommendations contained in the financial audits of the County for the
preceding fiscal year.
b. Other specific areas of concern as agreed upon between the Council
through its Legislative Auditor or in the absence, County Clerk and the
Contract Auditor, provided that if additional funds are required, this
contract may be amended pursuant to the provisions of this Agreement.
C Standards for Audit and Audit Reports
1. The audit examination shall adhere to the generally accepted auditing standards
adopted by the membership of the American Institute of Certified Public
Accountants and the standards for financial and compliance audits contained in
the U.S. General Accounting Office's Government Auditing Standards, as may
be further amended.
2. Standards for Reporting on Audit of Financial Statements
a. 'The rcport shall:
i. State whether the financial statements are presented in
accordance with generally accepted accounting principles;
-6-
ii. State whether such principles have been consistently observed
in the current period in relation to the preceding period and if
any material change has occurred to explain its effect(s) on the
financial reports;
iii. Contain the following county prepared financial information:
(a) Government-wide financial statements and notes
(h) Fund financial statements
(c) Notes to the financial statements
{d) Required supplementary information including
budgetary comparison information
(e) Management's discussion and analysis (MD&A)
(f) Other statements and supplementary information as
appropriate;
iv. Note any inadequacies in the information disclosures contained
in the financial statements; and
v. Contain an expression of opinion regarding the financial
statements, taken as a whole, or an assertion to the effect that an
opinion cannot be expressed. When an overall opinion cannot
be expressed, the reason therefor shall be stated. In all cases
where the Contract Auditor's name is associated with the
financial statements, the report should contain a definite
indication of the character of the Contract Auditor's
examination, if any, and the degree of responsibility being
taken.
3. Standards for Reporting on Compliance and on Internal and Operational
Controls, Accounting Systems and Procedures, etc.
With respect to compliance and internal and operational controls and
accounting systems and procedures, the report shall include:
a. Statements of the scope and objectives of the compliance testing and
systems and procedures examination;
-7-
b. An explanation of any violation of Federal, State and County Statutes,
Regulations or Requirements, including details of the instances of
noncompliance, and any expenditure not in accordance with the
purposes for which they were appropriated;
a An evaluation of the adequacy and effectiveness of the systems of
internal and operational records, forms, policies and procedures,
financial reporting and budgetary controls;
d. All significant findings of weaknesses and inadequacies in the internal
operating controls, accounting and reporting systems and procedures
disclosed as a result of the audit;
e. A disclosure of any significant loss, waste, fraudulent use, improper or
unauthorized expenditure of funds, ox any failure to account for
revenues, receipt and receivables;
A disclosure of any significant lack of efticiency or economy in the
operations of the agency; and
g. Recommendations for improvements.
4. Standards for Reporting on Federal Assistance Programs
The Contract Auditor's report shall state that the audit was conducted in
accordance with the provisions of the Single Audit Act, as may be amended,
and OMf3 Circular No. A-133, and shall include the following:
a. An opinion as to whether the financial statements of the Federal
program is presented fairly in all material respects in conformity with
the stated accounting policies;
h. A report on internal control related to the major Federal program,
which shall describe the scope of testing of internal control and the
results of the tests;
c. A report on compliance which includes an opinion as to whether the
auditee complied with laws, regulations, and the provisions of contacts
or grant agreements which could have a direct and material effect on
the Federal program; and
d. A schedule of tndings and questioned costs for the Federal program
that includes a summary of the auditor's results relative to the Federal
program in a format consistent with Section .505(d)(1), OMB Circular
-8-
No. A-133, and findings and questioned costs consistent with the
requirements of Section .505(d)(3), OMB Circular No. A-133.
5. Standards fbr Reporting on Specific Areas of Concern
With respect to reporting on specific areas of concern, sufficient detail shall be
included to enable the Council to understand the underlying causes of
problems reported and to assist in implementing or devising corrective action.
At a minimum, the report shall contain a statement of the examination
objectives and approach; a descriptive statement and an evaluation of each
problem revealed by the examination; and findings and recommendations.
6. The Government Finance Officers Association (GFOA) Certificate of
Achievement Program
1'he Contract Auditor shall assist the County in preparing its Comprehensive
Annual Financial Report to ensure that it goes beyond the minimum reporting
requirements of generally accepted accounting principles to achieve the
expanded reporting requirement of the Government Finance Officers
Association Certificate of Achievement Program.
D. Reports To I3e Issued
1. Preliminary Draft Report. The Contract Auditor shall prepare a preliminary
draft report, which shall be submitted to the County Legislative Auditor or in
the absence, County Clerk, for review and discussion. The audit work papers
referred to below shall be made available at that time. After the preliminary
draft report has been reviewed by and discussed with the County Legislative
Auditor or in the absence County Clerk, and changes, if any, have been made
to the drafr report, the report will be transmitted by the County Legislative
Auditor or in the absence Count~erk, to officials of the agencies affected by
the audit. A written response regarding the audit findings and
recommendations shall be secured from the officials of the agencies affected
by the audit, and such comments shall be incorporated as part of the final audit
report. The number of copies submitted will be determined by the County
Legislative Auditor or in the absence, Coun Clerk.
2. Final Report shall be submitted to the Chair and Members of the County
Council via the County Legislative Auditor or in the absence Countv Clerk.
The audit work required by these specifications shall be considered to have
been completed only upon approval of the final report by the County Council.
The Financial A~rdi1 Report for the fiscal Year Ended June 3Q 2004,
is included as Appendix A.
-9-
a. Form, Content and Distribution of Final Report
Each report shall be addressed to the "Chair and Members of the
County Council, County of Hawaii, Hilo, Hawai'i," and shall contain
the following parts:
i. Title of report. The title of the report shall be as follows:
County of Hawaii
Financial Audit Report
Por the Year Ended
June 30,
ii. A foreword
iii. A table of contents
iv. An introduction consisting of an explanation or statement of the
purpose of the report; a brief description of the scope of the
audit; and an outline of the organization of the material in the
report.
v. A report on compliance and on internal control and accounting
systems and procedures consisting of a table of contents; a
statement of the Contract Auditor's scope and description of the
contents of the report; a summary of findings; a statement and
description of deficiencies and weaknesses in the internal
control and accounting systems and procedures including
recommendations for corrective action. Reportable conditions
that are also material weaknesses shall be identified as such in
the report. Unresolved findings and other weaknesses from the
County of Hawai`i's most recent financial statement audit shall
be reviewed and updated.
vi. A report on financial statements consisting of a table of
contents; a statement of the Contract Auditor's scope and
opinion; financial statements; and supplementary statements
and schedules.
b. Distribution. The Contract Auditor shall deliver 2 camera-ready
masters of the financial statement section, the introductory section and
the statistical section of the auditor's report to the County Finance
Director for inclusion in the comprehensive annual financial report.
The Contract Auditor shall deliver 50 copies of the final audit report to
-10-
the County Council and 2 copies to the State Office of the
Auditor. Distribution of the reports to the officials of the agencies
audited and to other state and county officials shall be made by the
County Council.
3. Report on Single Audit. The Contract Auditor shall prepare copies of the
Single Audit on the programs in receipt of Federal financial assistance for each
of the consecutive years commencing with the fiscal year ending
June 30, r''~ 2006. 100 copies of the report shall be submitted to the
Finance Department no later than December 31. A Counry's Single Audit
Report,for the Fiscal Year Fnded June 30, r'~>z 2004 is included as
Appendix B.
4. Report on the Department of Water Supply. The Contract Auditor shall
prepare 24 copies of an annual audit report on the financial statements of the
Department of Water Supply, County of Hawaii, commencing with the fiscal
year ending June 30, r''~ 2006. Any findings and recommendations
concerning internal and operational control matters of the department shall be
included as part of the independenC general audit report on the County's
financial statement. The Department of Water Supply's Audit Repor[ for
!'fiscal Year Ended Jzrne 3Q {~A9Fl} 2004, is included as Appendix C.
5. Report for Landfill Financial Assurance. 'fhe Contract Auditor shall furnish 22
copies of the letter report required by 40 Code of Federal Regulations, Part 258
that enables the County to be self insured for closure, postclosure care, and
remedial action for the landfills. An example of such a report is attached as
Appendix D.
6 Financial Assessment Electronic Submission of Section 8 -Housing Choice
Voucher program The Contract Auditor shall comply with the attestation
service requirement of the Section 8 -Housing Choice Voucher pro rg am to
,provide for the Financial Assessment Electronic Submission to the U.S.
Department of Housing and Urban Development Real Estate Assessment
Center and furnish 20 copies of the annual filing. An example of such report is
attached as Appendix E.
7. The County of Hawaii anticipates it will prepare one or more official
statements in connection with the sale of debt securities which will contain the
general purpose financial statements and the auditor's report thereon. The
Contract Auditor shall be required, if requested by the fiscal advisor and/or the
underwriter, to issue a "consent and citation of expertise" as the auditor and
any necessary `comfort letters."
_11_
E. Audit Activities
1. Legal Authority. In ascertaining whether or not the financial transactions of
the agency are in compliance with applicable laws, ordinances, regulations and
administrative procedures, the Contract Auditor shall be sufficiently
knowledgeable with the applicable sections of the following documents:
• Constitution of the State of Hawaii
• Hawaii Revised Statutes
• IIawai`i Administrative Rules
• Hawaii County Charter
• Hawaii County Code
• Single Audit Act, as may be amended
• Applicable rules, regulations and administrative procedures of the state,
county, and federal governments relating to the financial transactions,
accounting systems and controls and operating procedures
• Resolutions adopted by the County Council
• Collective bargaining agreements affecting employees of the agency
2. Contract Administration. The provisions of the contract and of these
instructions shall be administered on behalf of the County by the Legislative
Auditor or in the absence, County Clerk, and the Chair of the County Council.
3. Audit Work Papers. The Contract Auditor shall, at any time during and
subsequent to the audit, make available to the Legislative Auditors
(°Legislative Auditors" refers to the County Legislative Auditoror in the
absence, County Clerk, and the State of Hawaii Legislative Auditor) and
federal audit agencies as may be required by the terms and conditions under
which federal funds are received by the County, for their inspection and
review, the working papers developed during the audit including, among
others, the following:
a. fhe audit program and internal control questionnaire
b. The working trial balance
c. Schedules, recommendations, computations, analyses, audit notes,
confirmation letters and replies, and other data representing a record of
work done in support of account transactions and balances, and systems
analysis.
d. Documents obtained and other working paper relating to the
examination.
_~Z_
All working papers and reports must be retained, at the Contract Auditor's
expense, for a minimum of four years, unless the firm is notified in writing by
the County of Hawaii of the need to extend the retention period.
In addition, the firm shall respond to the reasonable inquiries of successor
auditors and allow successor auditors to review working papers relating to
matters of continuing accounting significance.
4. Significant Deficiencies in Internal Control or Unusual financial Transactions.
"the Contract Auditor shall notify the County Council and the County
Legislative Auditor or in the absence, County Clerk, in writing of any
significant deficiency in internal control or unusual financial transactions
discovered during the course of the audit. If the circumstances call for a
significant amount of additional investigation, the Contract Auditor shall
submit to the Council and the County Legislative Auditor or in the absence,
County Clerk, the estimated additional time and cost required to perform the
invcstigation. Contract Auditor shall proceed with the special work only upon
written authorization from the County Council.
Significant deficiencies in the internal control, unusual transactions or
noncompliance discovered during the course of any Single Audit shall be
reported by the Contract Auditor to the County Council, County Legislative
Auditor or in the absence, County Clerk and the cognizant agency for the
County of Hawaii.
5. Non-reportable conditions discovered by the Contract Auditor shall be reported
in a separate letter to management, which shall be referred to in the report on
internal controls.
6. Reportable conditions encountered by the Contract Auditor during the course
of the audit examinations shall be reported in a separate letter to the County
Council via the County Legislative Auditor or in the absence, County Clerk.
Such conditions would include disagreement with management or difficulties
encountered in performing the audit.
[II. CONSULTATION UN REPORT FINDINGS AND RECOMMENDATION
Subsequent to the completion of the work required, the Contract Auditor shall, as part of the
audit contract, be available for attendance at Council, {artck} Committee, and Board of Water
Supp1Y hearings as may be necessary to testify on or discuss the findings and
recommendations contained in the audit report.
-13-
IV. BUDGET LIMITATIONS AND "TIME REQUIREMENTS
A. Budget Limitations
1. fhe total sum to be allocated for conducting the audit shall be limited to the
extent of funds appropriated for this purpose and the continued availability of
such funds during the course of the project.
2. The method of payment for services provided by the Contract Auditor, whether
in lump sum or in increments, shall be agreed to mutually by the Contract
Auditor and the County Council. Should progress or incremental payments be
agreed upon as the method of payment, the following conditions shall apply:
a. 'The amount of each progress payment shall be subject to agreement.
b. Each request for progress payment shall be accompanied by a certified
statement of the costs actually incurred for staff and other technical
services, including the fee rates and amounts of staff classification.
c. In no event shall the annual final payment be made except upon the
delivery of the final report acceptable to the County Council and upon
compliance by the Contract Auditor with the requirements of Section
103-53, Hawaii Revised .Statutes, relating to tax clearance.
d. The County Council reserves the right to determine and prescribe such
other conditions as appropriate under which progress payments shall be
allowed.
B. Time Requirements
1. The timetable set forth below shall be followed to the closest extent possible
requi+ed} This timetable, however, may be modified by the County {C~wnEtl}
Legislative Auditor, or in the absence, County Clerk, upon justifiable reasons
submitted in writing by the Contract Auditor and upon finding that such
modifications would not jeopardize the successful completion of the audit.
RFY Advertised on ~n^'~',"'z-~17November 1, 2005
Written uestions submitted b ~ c ~nnn November I5, 2005
q y......... ~-.~;=~0=1
Proposal due at Purchasing Division rn^'o; r November 30, 2005
Approximate Award i~7 January
Approximate Contract Execution {kebwary} March
-14-
Commencement of First Audit June 2006
Submittal of Preliminary Drafr DWS (FY{A~A3-;A4,~5} 06,07,08,09)October 15
Submittal of Preliminary Draft (FY{9~E 06, 07, 08, 09) ......October 31
Submittal of Final Report DWS (FYrm
n~~ 06,07,08,09) ...November 15
Submittal of Fina] Report (FY{8~9~3;04;95} 06,07,08,09)..........November 30
Submittal of Office of Housing Section 8 Report (FYr~,?~~~o~
06,07,08,09) .............................................................November 30
Submittal of Report for Landfill Financial Assurance (FY{9~93;94~93}
06,07,08,09) ...............................................................November 30
Submittal of Single Audit Report (FYrm n,~ 06, 07, 08, 09)by December 31
2. Schedule For the Fiscal Year's Audit
Each of the following should be completed by the Contract Auditor no later
than the dates indicated.
a. Detailed Audit Plan
'Che auditor shall provide the County of Hawaii by Jules, both a
detailed audit plan and a list of all schedules to be prepared by the
County of Hawaii.
b. At a minimum, the following conferences should be held by the dates
indicated on the schedule:
Entrance conference with all key finance department personnel and department
heads of key offices or programs no later than May 1.
The purpose oC this meeting will be to discuss prior audit problems and the
interim work to be performed. This meeting will also be used to establish
overall liaison for the audit and to make arrangements for workspace and other
needs of the auditor.
Proctress conference, if necessary, with County Legislative Auditor or in the
absence, County Clerk, Finance Director and department heads of key offices
or programs no later than October 15
"Che purpose of this meeting will be to summarize the results of the preliminary
review and to identify the key internal controls or other matters to be tested.
Lxit conference with County Legislative Auditor or in the absence, County
Clerk no later than November 1
-IS-
The purpose of this meeting is to summarize the results of fieldwork and to
review significant findings.
V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION
A. Finance Department Assistance
The finance department staff and responsible management personnel will be available
during the audit to assist the firm by providing information, documentation and
explanations. The tnance department will prepare, at a minimum, the following: the
government-wide financial statements, fund Inancial statements, required
supplementary information, MD&A, notes to the financial statements, the statistical
tables, transmittal letter, leadsheets, schedules, reconciliations and other worksheets as
needed by the department and for the auditors.
B. Electronic Data Processing (EDP) Assistance
EDP personnel will be available to provide systems documentation and explanations.
C. Work Area, Telephones, Photocopying and FAX Machines
The County of Hawaii will provide the auditor with reasonable workspace, desks and
chairs. The auditor will also be provided with access to telephone line, photocopying
machine and FAX machine.
D. Department of Water Supply Assistance
The department staff and responsible management personnel will be available during
the audit to assist the firm by preparing information, documentation and explanation.
In addition, the Department of Water Supply will prepare, at the minimum, the
following: financial statements and notes to the financial statements, including
supporting schedules for all disclosed amounts, account variance explanations,
confirmations, schedule of federal financial assistance, client representation letter, trial
balance, reconciliations (c.g. bank), detail schedules (e.g. investments) and special
calculations (c.g. depreciation).
E Office of Housing and Community Development Assistance
The department staff and responsible management personnel will be available during
the audit to assist the firm b~preparine information, documentation and explanation.
In addition the Office of Housing and Community Development will prepare, at the
minimum the following: applicants for the housing choice voucher pro¢ram,
verification of payment standards within the required range of the HUD fair market
-16-
rent, verification of family income, annual reexaminations of family income,
calculation of the tenant share of the rent and housing assistance payments, and
maintenance of a current schedule of allowances for tenant utility costs.
VI. PROPOSAL REQUIREM1iNTS
A. Minimum Requirements
1. General. The purpose of the proposal is to demonstrate the qualifications,
competence and capacity of the proposer seeking to undertake an independent
audit of the County of Hawaii in conformity with the requirements of this
request for proposals. As such, the substance of the proposal will carry more
weight than the form or manner of presentation.
The proposal should address all the points outlined in the request for proposals.
Che proposal should be prepared simply and economically, providing a straight
forward, concise description of the proposer's capabilities to satisfy the
requirements of the request for proposals. These capabilities represent the
criteria against which the proposal will be evaluated.
2. Independence. The proposer should provide an affirmative statement that it is
independent of the County of Hawaii as defined by generally accepted
auditing standards. the U.S. General Accounting Office's Government
Auditing Standards.
"The proposer should also provide an affirmative statement that it has no
personal interest, direct or indirect, in the fiscal affairs of the county or of any
of its agencies or executive agencies and that it is independent of all of the
component units of the County of Hawaii as defined by the Government
Auditing Standards.
The proposer should also list and describe its (or proposed subcontractor's)
professional relationships involving the County of Hawaii or any of its
agencies or component units/agencies, for the past five years, together with a
statement explaining why such relationships do not constitute a conflict of
interest relative to performing the audit.
3. License; Permit to Practice in Hawaii. An affirmative statement should be
included that the proposer and all assigned key professional staff are properly
licensed to practice in Hawaii. Additionally, a photocopy of a current CPA
permit to practice of the person to be directly in charge of the audit shall be
attached to the proposal.
- 17-
4. Experience. The proposer shall have at least three years of experience
performing governmental audits and shall have performed at least two audits
within the past five years of a governmental agency which has budget of more
than $50 million. The proposer shall submit information verifying these
minimum experience requirements.
B. Proposer's Background, Size, Work Experience and Qualifications
I . The proposer should describe its work experience in the last five years, with
special attention to work performed by the local office with respect to financial
audits conducted that are similar to those described herein:
a. Limited general financial audits of governments and governmental
units in the State of Hawaii and/or of cities, municipalities and
counties having population sizes similar to that of the County of
Hawai `i.
b. Audits of federal assistance programs according to the provisions of the
Single Audit Act, as may be amended, and OMB Circular No. A-128.
2. Describe any work experience in assisting governmental entities to meet the
financial reporting requirements of the Certificate of Achievement Program of
the Government Finance Officers Association.
3. Aside from the audit work performed in VLB.l.a, indicate previous audit work
performed (maximum 5) in the last five years for the State of Hawaii or the
cowitics of Hawaii. ]ndicate scope of work, total staff hours, and name and
te]ephone number of the principal client. contact.
4. Provide samples of previous reports and/or publications by the proposer
relating to the work experience described in 1, 2, or 3 above. The name and
telephone number of the principal client contact shall be given.
5. Provide the number of total full-time staff currently employed by the proposer,
including joint venturers and subcontractors in Hawaii by categories (services,
professional and other classification).
6. 1 f the proposer is a joint venture or intends to subcontract a portion of the audit,
the qualifications of each firm comprising the joint venture or subcontractor
should be separately identified and the firm that is to serve as the principal
auditor should be noted, if applicable.
_~g_
7. The proposer shall submit a copy of the report on its most recent external
quality control review, if any, with a statement whether that quality control
included a review of specific government engagements. If the proposer has not
conducted an external quality review, the proposal should so state.
8. hhe proposer shall provide information on the circumstances and status of any
disciplinary and legal action taken or pending against it during the past five
years with state regulatory bodies or professional organizations.
C. Resources to be Used and Staff Qualifications including subcontractors
1. Identify the principal supervisory and management staff, including engagement
partners, principals, managers, other supervisors and specialists, who would be
assigned to the engagement.
2. Indicate whether each such person is registered or licensed to practice as a
certified public accountant in Hawaii.
3. Provide information on the government auditing experience of each person,
including information on relevant continuing professional education for the
past three years and membership in professional organizations relevant to the
performance of this audit.
4. Provide as much information as possible regarding the number, qualifications,
experience and training, including relevant continuing professional education,
of the specific statt~to be assigned to this engagement.
5. Indicate how the quality of staff over the term of the agreement will be assured.
6. Consultants and subcontractors mentioned in this request for proposal can only
be changed with the express prior written permission of the County Council,
which retains the right to approve or reject replacements.
D. Audit Approach and Methodology
The proposal shall set forth a plan and approach, including an explanation of the audit
methodology to be followed, to perform the services required in Section II of this
request for proposal In addition, the proposed phases and steps to be followed and the
tests and standards to be used in performing the work shall be outlined.
G. Timetable and Compensation Schedule
l . The proposal shall set forth a timetable of the dates for the delivery of the
reports to be issued.
-19-
2. The proposal shall, to the extent possible, show the cost schedule of the audit
project by fiscal year based on the time allocation of the staffing classifications
(i.e. partner, principal, manager, supervisory staff and staff), their rate of pay,
and estimated out-of-pocket expenses. For each year, a distinction should be
made between the time and cost of conducting the County's External Audit,
the Federal Single Audit, the Department of Water Supply Audit, {a+~d} the
Report for Landfill Financial Assurance and the Financial Assessment of the
Electronic submission of Section S -Housing Choice Voucher Pro rg am
.,a r,,. n r ,..,«.n,..,.nt ,.a ~rHe ,.run...n:•:
n rlnn~«n~~n n~~ 4~nn« n n~~mkn nn•« nn~n « F..« Ir... nn~n..f nrf
f
M.......~ h~.o ..«.4..r... ~:..ko.~ 1.......... ~
Y +
3. If it should become necessary for the County of Hawaii to request the auditor
to render any additional services to either supplement the services requested in
this RFP or to perform additional work as a result of the specific
recommendations included in any report issued on this engagement, then such
additional work shall be performed only if set forth in an addendum to the
contract approved by the council between the County of Hawaii and the firm.
4. Any such additional work agreed to between the County of Hawaii and the
Contract Auditor shall be performed at the same rates set forth in the schedule
of fees and expenses included in the proposal.
F. Address Where the Audit will be Conducted
The proposal shall specify the address of the office where the Contract Auditor shall
conduct and coordinates its activities. The proposal shall specify any facilities, etc.,
which the proposer requires the County to provide.
G. Submittal of Proposal.
The original and 12 copies of the proposal shall be received by Council Chair {3atmes
A~akalti-~ Stacy K. Hi¢a, c/o Purchasing Division, Room 118, 25 Aupuni Street, Hilo,
I Iawai`i 96720, by 4:30 p.m. on r.,...,.ti,._ ~nni ~ November 30, 2005. Proposals
should include the following:
1. Title Paee showing the request for proposal's subject; the proposer's name; the
name, address and telephone number of the contact person; and the date of the
proposal.
-20-
2. Table of Contents
3. A signed letter of transmittal briefly stating the proposer's understanding of the
work to be done, the commitment to perform the work within the time period,
a statement why it believes itself to be best qualified to perform the
engagement and a statement that the proposal is a firm and an irrevocable offer
fir 60 days.
4. Detailed Proposal: The detailed proposal should follow the order set forth in
Section VI of this request for proposals. The County Council shall have the
right to hold all proposals received for a period of sixty calendar days from the
deadline date in this RFP.
H. No Proposal Security is Required.
VII. EVALUATION PROCEDURES AND METHODOLOGY
A. Evaluation Committee
Proposals submitted will be reviewed and evaluated by an Evaluation Committee.
During the evaluation process, the Evaluation Committee may, at its discretion,
conduct discussions with proposers in accordance with Title 3, Subtitle I1, Chapter
122, Subchapter 6, Hawaii Administrative Rules relating to procurement.
All proposals become public record after a contract is completely executed or all
proposals rejected, except information covered under section 92F-13, Hawaii Revised
Statutes. Proposal information that is considered by the proposer to be
proprietary/confidential should be identified as such, and sealed in a separate
envelope. If the information is not identified as proprietary/confidential, the County
reserves the right to use any or all ideas presented in any of the replies to the RFP.
Selection or rejection of the proposal does not affect this right.
In evaluating proposals, any pages marked "Proprietary", "ConfidentiaP° or otherwise
clearly intended not to be made public will not be considered, except those dealing
with financial resources and condition or references, existing customers and the like.
Thus, if all pages of a proposal are marked as not public information or a cover
document indicates the entire proposal is proprietary or otherwise restricted, the
proposal may be rejected. The County shall have the option of requesting that sections
improperly marked as proprietary be amended or rejecting the proposal without further
action.
_Zt_
13. Method of Evaluation
1. The County of Hawaii reserves the right to accept or reject a proposal that
does not meet the minimum qualifications set forth above in Section VLA.
2. Che proposals will be evaluated using the scoring values and weights for the
factors shown on 'f'able I.
3. The County of Hawaii reserves the rigkrt to make an award based only upon
proposals submitted, or may require submittal of additional information and/or
oral presentation.
4. I"he County of Hawaii also reserves the right to negotiate with one or more
proposers and request best and final offers; provided that no proposer's
proposal or information regarding his or her negotiation with the County shall
be public information or shared with any other proposer until after an award is
made.
C. Final Selection
The Evaluation Committee will evaluate the proposal and make its recommendation to
the County Council. In the event the County Council does not agree with the
recommendation of the committee, the County Council will then independently
evaluate all proposals received, based upon the evaluation criteria listed herein. When
the Council makes its decision, it is anticipated that an award letter will be transmitted
promptly thereafter.
_ZZ_
TABLE I: EVALUATION OF PROPOSALS INDEPENDENT FINANCIAL AUDIT
Proposals will be awarded a maximum of 200 technical points based upon evaluation of proposal content. A
maximum of 75 additional points will be awarded based upon cost and added to the proposal's technical points
average.
Cost Points: The total cost for{tive{}four years will be awarded the maximum number of points assigned to
cost. The following formula will be used to assign the cost points for each proposal:
Price of Lowest Cost Proposal X Maximum Points for Cost (75)= Points
Price of Proposal Being Rated
Scale: 0-]0 (Unacce table to Outstandin )Maximum Score = 200
Factor Value X Weight = Score
I Previous experience in performing X 3 =
comparable governmental auditing
2 Demonstrates qualifications to conduct audit
in accordance with the specifications X 3
3 Allocates sufficient resources to the audit to
meet the timetables set out in the
specifications X 3 =
4 Demonstrates a clear understanding of &
fully responds to specifications Xc
instructions X 3 =
5 Methodology presented evidences that audit
will be conducted in a systematic and sound
manner X 2 =
6 Adheres to the scope & guidelines listed in
the specifications X 2 =
7 Demonstrates a comminnent to be
accessible during audit & throughout the X 2 =
fiscal year
8 Quality of writing of [he proposal is
indicative of the quality of reports X 2 =
Subtotal Score
9 Cost Points
TOTAL SCORE
-23-
M(V Oi
CONS'I'ANCE R. KIRIU ~ WILLIAM E. SMITH
('owui Clrrd Depwr Cmnnr C4-rk
i+'•~•
• •~f Oi ~M~1
OFFICE OF THE COUNTY CLERK
Cou~~h~ q/ Hnwni `i
Hnurn'i Comr(r Bui&7ing
_'S Aupun! Slree[
Hilo. Hnnvri'f 96 J20
Tcl<~phnne: 96 7-N3 s s
h~nconnilc: 9h l-X 9 / 3
No~rE
[n the draft Request for Proposals (RFP) attached to Communication 451
(Res. 170-OS), reference is made to the Counjv of Hawaii Financial Audii Report
/or the Frscnl Yem• Ended .lune 3Q 2004, and the County q/~Hawai `i, State o/~
llawui 'i Single Audi) gJ~Federal Financral Assistance Programs -Year ended
.huge 30, 3004, which are included as Appcndiccs A and B to the draft RFP.
Said Appcndiccs were previously made a part of the public record, and are
on the in the Clerk's Office as Communications 220 and 290 (2004-2006 Council
Elective Tcrm), and will not he a part of the scanned image or duplicate copies of
this communication.
If fwther information is needed, please call 961-8255.
Constance R. Kiriu
COUNTY CLERK
APPENDIX A
APPENDIX B
OFFICE OF THE LEGISLATIVE AUDITU
HAWAII COUNTY BUILDING
' Y6 AUPUNI STREET
HILO. HAWAII 96?20
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Financial Statements
Jame 30, 2004 and ?003
(With Independent Auditors' Report Thereon)
APPENDIX C
KPMG LLP Telephone 808 531 7286
PO Box 4150 Fax 808 547 9321
HonoWlu, Hl 96812-4150 Internet www us kpmg com
October 8.2004
PRIVATE & CONFIDENTIAL
The Water Board
County of Hawai' i
Department of Water Supply
Hilo, Hawaii
Ladies and Gentlemen:
We have audited the financial statements of the Department of Water Supply, County of Hawaii (the
Department), for the year ended 3une 30, 2004, and have issued our report thereon dated October 8. 2004.
In planning and performing our audit of the financial statements of the Department, we considered internal
control in order to determine our auditing procedures for the purpose of expressing our opinion on the
financial statements. An audit does not include examining the effectiveness of internal control and does
not provide assurance on internal control. We have not considered internal control since the date of our
report.
During our audit we noted certain matters involving internal control and other operational matters that are
presented for your consideration. These comments and recommendations, all of which have been
discussed with the appropriate members of management, are intended to improve internal control or result
in other operating efficiencies and are summarized as follows:
Exhibit 1 -Current Year's Finding and Recommendation
F,xhibit tl -Status of Prior Year's Findings and Recommendations
Our audit procedures arc designed primarily to enable us to form an opinion on the financial statements,
and therefore may not bring to light all weaknesses in policies or procedures [hat may exist. We aim;
however, to use our knowledge of [he Department's organization gained during our work to make
comments and suggestions that we hope will be useful to }rou.
We would be pleased to discuss these comments and recommendations with you at any time.
'T'his report is intended solely for the information and use of the Water Board, management, and others
within the organization, and is not intended to be and should not be used by anyone other than these
specified parties.
Very truly yours,
~?1'(G LLB
Exhibit I
COUNTY OF HAWAII
DEPARTMENT OF WATER SUPPLY
Current Year's Findin_ and Kecommendation
June 30, 2004
MONITORING ANI) COLLECTION OE DELINQUENT ACCOUNTS
Ohscrvation
To assist with its collection efforts, the Department utilizes the services of an external collection agency to
pursue delinyuent accounts past due greater than 180 days. While performing procedures over the Department's
collection process, we found that the Department has not been identifying and referring delinquent accounts to
its external collection agency on a timely and consistent basis.
Despite the tact that the Department had several accounts past due greater than 180 days, we noted several
instances where these accounts were either not submitted to the collection agency an a timely basis or were not
submitted at all. We were infomted that the Department fell behind with the referral of past due accounts
because of the Harris Billing System's inability to properly identify and alert Department personnel of accounts
past due greater than 180 days. Failure to properly identify and refer delinquent accounts to the Department's
collection agency in a timely and consistent manner severely hampers the Department's collection efforts.
Recommendation
The Department should continue to work with the vendors of the Harris Billing System to ensure that all
accounts past due greater than 180 days are properly flagged and identified. In addition, the Department should
implement a formal policy to ensure that accounts past due greater than 180 days are properly referred to the
Department's external collection agency in a timely and consistent manner.
Exhibit 11
COUNTY OF HAWAI`1
DEPARTMENT OF WATER SUPPLY
Status of Prior Year's Findines and Recommendations
June 30.2004
MONITORING AND COLLECTION OF DELINQUENT ACCOUNTS
Observation
While performing procedures over the Department's collection process, we found that the Department did not
identify and refer delinquent accounts [o its external collection agency on a timely and consistent basis.
Recommendation
We recommended that the Department continue to work with the vendors of the Harris Billing System to ensure
that all accounts past due greater than IAO days are properly flagged and identified. In addition, a formal policy
to ensure that accounts past due greater than 180 days are properly referred to the Department's external
collection agency in a timely and consistent manner should be implemented.
Status
The Department purchased a report writer from the vendors of the Harris Billing System to interface with the
system and create reports identifying closed and delinquent accounts. However, during the current fiscal year,
the Department did not utilize the report writer to create such reports. During fiscal year 2005, the Department
hired a credit and collections clerk who is responsible for identifying and submitting delinquent accounts to the
external collection agency. Unfortunately, the Department continued to experience problems identifying and
referring delinquent accounts to its external collection agency on a timely and consistent basis during the year
ended June 30, 2004. Accordingly, comment is still applicable. Refer to the current year finding and
recommendation relating to the Department's monitoring and collection of delinquent accounts.
i
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, Slate of Hawaii)
Financial Statements
June 30, 2004 and 2003
Table of Contents
Page
Independent Auditors' Report 1
Managements Discussion and Analysis 2
Financial Statements:
Balance Sheets ~
Statements oTRevenues, Expenses, and Changes in Net Assets ~
Statements of Cash Flows 8
Notes to Financial Statements 9
KPMG LLP
PO Box 4750
Honolulu, HI 96812L150
Independent Auditors' Report
To the Water Board of the
County of Hawaii:
We have audited the accompanying financial statements of the Department of Water Supply, County of
Hawaii (the Lepartment), a component unit of the County of Hawaii, State of Hawaii (the County), as of
and for the years ended June 30, 2004 and 2003, as listed in the table of contents. These financial
statements are [he responsibility of the Department's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion. the financial statements referred to above present fairly, in a{I material respects, the
financial position of the Department of Water Supply, Gounty of Hawaii, as of June 30, 2004 and 2003,
and the changes in its financial position and its cash flows for the years then ended in conformity with
accaunting principles generally accepted in the United Stales of America.
Management's discussion and analysis on pages 2 through 5 is not a required part of the financial
statements but is supplementary information required by accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion on it_
~?~'tG LLB'
October S. 2004
'.P SUS o. Cr'Re';'~p o, rhe~~
~ in v J CVT6 n i e vonai 3 a., a~ ~ov_ r,.u..
llEYARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Management's Discussion and Analysis
June 30, 2004 and 2003
Management's Discussion and Analysis
The Department o'f Water Supply, County of Hawaii (the Department) operates as asemi-autonomous agency
charged with the responsibility of operating and maintaining the County of Hawai`i's public water systems. The
Department is a utility enterprise and presents its financial statements using the economic resources measurement
focus and the full accrual basis of accounting. This discussion and analysis is designed to assist the reader in
focusing on the significant financial issues and activities and to identify any significant changes in financial
position. We encourage readers to consider the information presented here in conjunction with the 5nancial
statements as a whole.
Financial Statements
The financial statements are designed to provide readers with a broad overview of the Department's finances in a
manner similar to aprivate-sector business.
The balance sheets present information on all the Department's assets and liabilities, with the difference between
the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of
whether the financial position of the Department is improving or deteriorating. Net assets increase when revenues
exceed expenses. lncreases in assets without a corresponding increase to liabilities, results in increased net assets,
which indicates an improved financial position.
The statements of revenues, expenses, and changes in net assets present information showing how an entity's net
assets changed during the fiscal year. All changes in net assets are reported as soon as the underlying event
occurs, regardless of timing of related cash flows. Thus revenues and expenses are reported in these statements
for some items that will result in cash flows in future fiscal periods.
Notes to Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the
financial statements.
Other /njormatinn
In addition to the financial statements and accompanying notes, this report also presents certain supplementary
information concerning the Department's changes in net assets. ]n the case of the Department, assets exceeded
liabilities by $196.1 million at the close of the most recent fiscal year. This represents an increase of $3.1 million
(2%) above the previous year. At June 30, 2004, $157.8 million of the Department's net assets was invested in
capital assets (net of related debt), and $38.3 million was unrestricted.
2 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Management's Discussion and Analysis
June 30, 2004 and 2003
Cmtdenred Frnancin[ /njormation
The following are summaries fiom the Department's financial statements as of and for the years ended June 3Q
2004 and 2003:
2004 2003 2002
Assets:
Capital assets, net $ 175,713,140 174,539,387 156,198,869
Other assets 55,622,383 53,039,779 49,45Q180
Total assets $ 231,335,523 227,579,]66 205,649,049
Liabilities:
Long-term debt $ 18,792,249 19,636,708 18,488,284
Customers' deposits payable from
restricted assets 11,005,836 10,063,565 9,959,787
Other liabilities 5,395,540 4,824,208 4,142,143
Total liabilities $ 35,193,625 34,524,481 32,590,214
Net Assets:
Invested in capital assets, net of related debt $ 157,837,593 158,017,287 143,720,608
Unrestricted 38,304,305 35,037,398 29,338,227
'total net assets $ 196,141,898 193,054,685 173,058,835
Changes in Net Assets:
Operating revenues-water sales $ 30,412,788 27,891,472 26,825,22]
Total operating expenses 31,532,400 29,488,357 27,224,637
Operating loss (l,] 19,612) (1,596,885) (399,416)
Total nonoperating revenues 5,504,57] 23,254,812 10,500,533
Total nonoperating expenses (1,297,746) (1,662,077) (1,448,5]1)
Change in net assets 3,087,213 19,995,850 8,652,606
Net assets at beginning of year 193,054,685 173,058,835 164,406,229
Net assets a[ end of year $ 196,141,898 193,054,685 173,058,835
3 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Management's Discussion and Analysis
June 30, 2004 and 2003
Financin! Analysis
Cnpita! assets, net increased by $L2 million, or t% in FY2004, due primarily [o an $8.0 million increase in
construction work-in-progress, a $2.] million increase in utility plant-in-service offset by current year
depreciation expense of $9.5 million. In FY2003, there was an increase of $18.3 million, or 12%, due primarily
to improvements [o the Department's various water systems offset by current year disposals and depreciation
expense.
Other assets increased by $2.6 million, or 5% in FY2004, due primarily to a $0.9 million increase in restricted
investments and $1.0 million increase in preliminary survey and investigation charges. ]n FY2003, there was an
increase of $3.6 million, or 7%, due primarily [o a $3.2 million increase in investments.
Latg-term debt decreased $0.8 million, or (4%) in FY2004, due primarily to $1.2 million in payments made on
long-term bonds, offset by the receipt of $0.4 million in state revolving fund loans. In FY2003, there was an
increase of $1.1 million, or 6%, due primarily to receipt of $22 million in state revolving fund loans, offset by
$I.l million in payments made on other long-term bonds.
Ne[ assets increased by $3.1 million, or 2% in FY2004, and by $20 million, or ]2% in FY2003, due primarily to
the results of that current years' operations.
Operating revenues increased by $2.5 million, or 9% in FY2004, due primarily to a 2% increase in water
consumption and services, and an increase in water rates for consumption and standby. In FY2003, there was an
increase of $l.l million, or 4%, due primarily to a 3% increase in water consumption and a 2% increase in
services.
Operating expenses increased by $2 million, or 7% in FY2004, due primarily to increases in power and pumping
expenses of $0.9 million, general and administrative expenses of $0.8 million, and transmission and distribution
expenses of $0.5 million. In FY2003, there was an increase of $2.3 million, or 8%, due primarily to increases in
power and pumping expenses and depreciation expense of $1.6 million and $0.6 million, respectively.
Nonoperatirrg revenues decreased by $17.8 million, or (76%), due primarily to an $18 million decrease in
contributions in aid of construction income. In FY2003, there was an increase of $12.8 million, or 121%, due
primarily to a $13 million increase in contributions in aid of construction income.
Nonoperating expenses decreased by $0.4 million, or (22%), due primarily to a $0.4 million decrease in loss on
disposal of property. ]n FY2003, there was an increase of $0.2 million, or 15%, due primarily to a $0.2 million
increase in loss on disposal of propert}.
4 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Managements Discussion and Analysis
June 3Q, 2004 and 2003
Capita! Assets and Debt Adminisrratian
As of June 30, 2004 and 2003, the Department had $175.7 million and $174.5 million, respectively, invested in
capital assets and $18.8 million and $19.6 million, respectively, of long-term deb[ outstanding.
Capital assets is made up of property, plant, and equipment. During 2004, major capital asset additions included:
• $1.5 million for the construction of Ahualoa reservoirs.
• $1.3 million for the construction of Puapuaa reservoir and supporting facilities.
• $1.2 million for the construction of the Puukapu-Nienie booster pump.
• $ ] .2 million for the construction of Pohakea improvements.
• $1.0 million for the construction of Kawailani reservoir.
During 2003, ma}or capital asset additions included:
• $4.2 million for the construction of Parker Well improvements.
• $L8 million for the construction of North Kohala water system improvements.
• $1.5 million for the construction of the Mauna Kea Uplands water system.
• $1.4 million for the construction of Mohouli Street Extension improvements.
• $1.3 million for the construction of Konawaena Elementary School improvements.
More detailed information about the Department's capital assets is provided in note 6 of the notes to financial
statements.
Long-tern: deb[ decreased $0.8 million, or (4%) in FY2004, due primarily to the receipt of $0.4 million in state
revolving fund loans, offset by $1.2 million in payments made on long-term obligations. In FY2003, there was an
increase of $l.l million, or 6%, due primarily to the receipt of $2.2 million in state revolving fund loans, offset
by $I.I million in payments made on other long-term bonds. At June 3Q, 2004, the Department had $15.7 million
in public improvement bonds and $3.1 million in a state revolving fund loan. At June 30, 2003, the Department
had $16.8 million in public improvement bonds and $2.8 million in a state revolving fund loan. More detailed
information about the Department's long-term debt is provided in note 7 of notes to financial statements.
Other Drtta
Other statistics relating to the Department's operations are as follows:
2004 2003 20U2
Consumption (thousands of gallons) 9,321,01 1 9,165,850 8,925,307
Services 38,016 37.162 36,490
5
DEPARTMENT OF WATER SUPPLY
COUNTY OF HA~VA19
(A Component Unit of the County of Hatt ai'i. State of Hawaii)
k3alancc Sheets
June 30.2001 and 2003
Assets 2001 2003
Currem assets:
Cash and cash equivalents (note 3) $ 9.627.440 25.089,460
lnvestments (note 3) 22.148J01 7.867.862
Trade receivables, less allowance for doubtful accounts of $1,365,000 and
$I,340,000 in 2004 and 2003, respectively 4.844.139 3,272.781
Interest receivable on investments 45.051 64,228
Loans receivable, current portion (note 4) 13,532 12.937
Inventories of materials and supplies 919.977 827,733
Prepaid expenses 180.208 13.487
Total current assets 37,774.048 37.148.488
Restricted investments-customer deposits (note 3) 11.005.836 10,063,565
loans receivable. excluding current portion (note 4) 696, I OI 708,680
Capitol assets (note 6):
Utility plant in service 259,220.175 257.158,227
Less accumulated depreciation (1IA.60S,673) (105.522,682)
144.6{ 4.502 151.635.545
Land and rights 787,657 545,000
Construction work in progress 30.310.981 22,358,842
Net capital assets 175.713.140 174,539.387
pelerred charges 6,141,398 5,119,046
Total assets $ 231,335,523 227,579,166
Liabilities
Current liabilities:
Accounts and construction contracts payable, including retainages $ 2,133,914 1 j54,494
Long-term debt, current portion (note 7) 1,539,000 1,190,000
Customers' deposits for service connections 699,425 8]3,240
Accrued compensation 813,458 773,159
Accrued vacation, current portion 319,864 317,860
Accrued interest payable 292,060 265,054
Accrued workers' compensation, current portion (note 8) 61 .000 54,000
Total current liabilities 5.858,721 4.967,807
Accrued workers' compensation, excluding current portion (note 8) 211,000 187,000
Accrued vacation, excluding current portion 864,819 859,401
Customers' deposits payable Gom restricted assets (note 3) 11,005,836 10,063,565
Long-term debt, excluding current portion (note 7) 17.253,249 18,446,708
Total liabilities 35.193,625 34,521,481
Commitments and contingencies (note 8)
Net Assets
Invested in capital assets. net of related debt 157.837.593 08,017,287
Unrestricted 38.304,305 35.037.398
fatal net assets 196.141,898 193.054,685
Total liabilities and net assets $ 231.335.523 227,579.] 66
See accompanying notes to tinanciol statements
6
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, Slate of Hawaii)
Statements of Revenues, Expenses, and Changes in Net Assets
Years ended June 30, 2004 and 2003
2004 2003
Operating revenues -water sales $ 30,412.788 27,891,472
Operating expenses:
Vower and pumping 10,932,975 10,070,553
Depreciation (note 6) 9,316,1 1 1 9,505,892
Transmission and distribution 3,852,028 3,329,783
General and administrative 3,454,002 2,680,444
Purification 1.639.571 !,549,165
Customers' accounting and collecting ],218,600 1,266,162
Maintenance and repairs 832,436 826,074
Source of supply 286,677 260,284
Total operating expenses 3],532,400 29,488,357
Operating loss (1,1 ]9,612) (1,596,885)
Nonoperating revenues:
Contributions in aid of construction (note 2) 3,326,155 21,412,31 8
Interest 345,050 515,203
Other 1,833.366 1,327,291
Total nonoperating revenues 5,504,571 23,254,812
Nonoperating expenses:
Literest on long-term debt (note 7) (946,610) (942,767)
Loss on disposal of property Q ]0,191) (494,629)
Other (240,945) (224,687)
Total nonoperatingexpmses (1,297,746) (1,662,077)
Change in net assets 3,087,213 19,995,850
Net assets at beginning of year 193,054,685 173,058,835
Net assets at end of year $ 196,141,898 ] 93,054,685
See accompanying notes to tinaneial statements.
7
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of [he County of Hawaii, State of Hawaii)
Statements of Cash Flows
Years ended June 30, 2004 and 2003
2004 2003
Cash flows from operating activities:
Cash received from customers $ 29,681,870 27,962,096
Cash payments to suppliers for goods and services (15,486,146) (13,632,1 15)
Cash payments to employees for services (6,330,966) (6,] 11,647)
Net cash provided by operating activities 7,864,758 8,218,334
Cash flows from capital and related financing activities:
Principal paid on long-term debt (1,204,683) (1,054,444)
Deb[ and bond proceeds 360,224 2,202,868
Interest paid on long-term debt (919,604) (934,229)
Proceeds on sale of assets 1,750 2],222
Acquisition and construction of capital assets (8,574,41 (7,829,442)
Contributions in aid ofca~stniction 1,868,833 2,028,472
Net cash used in capital and related financing activities (8,467,895) (5.56,553)
Cash flows from investing activities:
Purchase of investments (145,176,488) (110,803,677)
Proceeds from sale and maturities of investments 129,953,378 107,498,544
Interest on investments 364,227 525,598
Net cash used in investing activities 4,858,883) (2,779,535)
Net decreasein cash and cash equivalents (15,462,020) (126,754)
Cash and cash equivalents at beginning of year 25,089,460 25,216,214
Cash and cash equivalents at end of year $ 9,627,440 25,089,460
Reconciliation of operating loss to net cash provided by
operating activities:
Operating loss $ (1,119,612) (1,596,885)
Depreciation 9,316,1 ] 1 9,505,892
Decrease (increase)in assets:
Trade receivables, net (1,571,358) (471,903)
Loans receivable 11,984 11,400
Inventories ofmaterials and supplies (92,244) (12,028)
Prepaid expenses (166,721) 4,550
Increase in liabilities:
Accounts and construction contracts payable, inetuding
retainages 579,420 235,682
Other liabilities 907,178 541,626
Net cash provided by operating activities $ 7,864,758 8,218,334
Noncash capital activities:
the Department received $1.457,3'_'2 and $19,383.846 of infrastructure as contributions in aid of construction
in fiscal 2004 and 2003, respectively.
See accompanying notes to financial statements.
8
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
.Tune 30, 2004 and 2003
(1) Administration
The Department of Water Supply, County of Hawaii (the Department), is administered by the Water
Board, which consists of nine members who serve staggered terms of five years in length. Board members
are appointed by the Mayor of the County of Hawaii, State of Hawaii (the County), and are confirmed by
the County Council, as required by the County Charter.
(2) Summary of Significant Accounting Policies
This summary of significant policies is presented to assist the reader in understanding the financial
statements. 'These policies are considered essential and should be read in conjunction with the financial
statements.
(n) Finnncin! Stntemerrt Presentation
The Department is a component unit of the County (the primary government). The accompanying
financial statements present only the activities of the Departrent and do not include other
organizations, activities, and functions of the County.
(b) Measurement Fncus and Bnsis of Accounting
The accounting policies of the Department conform to accounting principles generally accepted in
the United States of America as applicable to enterprise activities of governmental units as
promulgated by the Government Accounting Standards Board (GASB). The Department's operations
are accounted for on the flow of economic resources measurement focus and the accrual basis of
accounting is utilized. Under this method, revenues are recorded when earned and expenses are
recorded at the time liabilities are incurred. Restricted assets are recorded at fair value.
In accordance with GASB Statement No. 20, Accomrting and Financier! Reporting jor Proprietary
Funds and Other Govermnentai Entities That Use Proprietary Fund Accounting, the Department
applies all applicable GASB pronouncements as well as the following pronouncements issued on or
before November 30, 1989, unless those pronouncements conflict with or contradict GASB
pronouncements; Financial Accounting Standards Board statements and interpretations, Accounting
Principles Board opinions, and Accounting Research Bulletins of the Committee on Accounting
Procedures_
(c) Utility Plnnt
Utility plan[ in service as of January 1, 1950, date of inception of the Department, was recorded at
cost of the assets acquired by the County for its water system from January 1, 1924 to December 31,
1949, less accumulated depreciation to December 31, 1949 as determined by the Department. Assets
purchased prior to 1924 and property acquired by gift or grant prior to 1950 are not included in
utility plant Additions to utility plant since January 1, 1950 are stated at cost and include
contributions by governmental agencies, private subdividers, and customers at their cost or estimated
cost Construction costs include amounts for contract work, engineering supervision, and other direct
cvsts and overhead costs. Construction period interest is capitalized on utility plant constructed with
tax-exempt dcht and amounted to $50,524 and $33,398 at June 30, 2004 and 2003, respectively.
9 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
Maintenance and repairs and minor replacements are charged to operations. Major replacements,
renewals, and betterments are capitalized to utility plant accounts.
Provision for depreciation is computed using [he straight-line method. Annual depreciation rates are
applied to costs of the various classes of depreciable plant on the group basis or, as to transportation
equipment, to the cost of individual units of property.
Gains or losses resulting from the sale, retirement, or disposal of utility plant in service are charged
or credited to operations in the year realized.
(d) Caslr arrd Cash Equivalents
For purposes of the statements of cash flows, the Department considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents
amounted to $8,046,45 and $24,226,670 at June 30, 2004 and 2003, respectively.
(eJ Trade Reeervnbles
Trade receivables arc recorded at the invoiced amount and do not bear interest. 'fhe allowance for
doubtful accounts is the Department's best estimate of the amount of probable credit losses in the
Department's existing trade receivables. The Company determines the allowance based on historical
write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due
balances over 90 days and over a specified amount are reviewed individually for collectibility.
Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Investments
GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for
External Investment Pools, establishes fair value standards for certain types of financial instruments.
All of [he Department's investments fall into categories that can be valued by cost-based measures.
Investments are comprised of nonparticipating interest-earning investment contracts (time
certificates of deposit). These investments are stated at amortized cost.
(g) Inventories ojMaterials and Supplies
Materials and supplies are stated at cost on an average-cost basis.
(h) Restricted Assets
Funds received by the Department which are refundable or restricted as to use are recorded as
restricted assets.
10 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Uni[ of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
(i) Compensated Absences
Emplo}'ees earn vacation credits at [he rate of either one or one and three-quarter working days for
each month of service. Up to 90 days of vacation leave credits can be accumulated per employee. In
addition, employees who work overtime can elect to take compensatory time off instead of overtime
pay. "the time off is earned at the rate of one and a half hours for each hour of overtime worked. Both
compensatory time off and vacation credits are converted to pay upon termination of employment.
Sick leave accumulates without limit. Sick leave can be taken only in [he event of illness and is not
convertible to pay upon termination of employment. Accumulated sick leave at June 30, 2004 and
2003 amounted to $4,1 ] 7.000 and $3,982,000, respectively.
U) Contributions in Aid of Construction
GASB Statement No. 33, Aceovming and Financial Reporting for Nonexchange Transactions,
requires the Department to recognize contributions in aid of construction as nonoperating revenues.
The Department recognized $3,326,155 and $2],412,318 of contributions in aid of construction as
nonoperating revenues for the fiscal years ended June 30, 2004 and 2003, respectively.
(k) Operating Revenues and Expenses
Revenues and expenses are distinguished between operating and nonoperating items. Operating
revenues generally result from providing services in connection with the Department's principal
ongoing operations. The principal operating revenues of the Department are fees charged to residents
for providing water services.
Operating expenses include the costs associated with providing water services, administrative
expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions
are reported as nonoperating revenues and expenses.
(1) Use ojE.rtimates
The preparation of the financial statements requires management to make a number of estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant items subject to such estimates and assumptions
include the carrying amount of capital assets, valuation allowances for trade and loans receivables,
and accrued workers' compensation. Actual results could differ from those estimates.
(m) Reckfssiftaltion
Certain 2003 amounts have been reclassitied to conform to the 2004 presentation. Such
reclassifications had no effect on previously reported operating results.
I I (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 3Q, 2004 and 2003
(3) Deposits and Investments
Cash collected by the Department is deposited in separate accounts maintained with [he County's Treasury.
At June 30, 2004, information relating to the insurance and collateral of the Department's cash deposits
was not available, since such information is determined on a county-wide basis and not for individual
departments or divisions. Complete information on a county-wide basis is contained in the County's
Comprehensive Annual Financial Report. Hawaii Revised Statutes authorize the County [o invest, with
certain restrictions, in obligations of the State of Hawaii or the United States, federally insured savings
accounts, and time certificates of deposits with federally insured banks and savings and loans associations
authorized to do business in the State of Hawaii, provided that all deposits are fully insured or
collateralized.
A[ June 30. 2004 and 2003, cash, time certificates of deposit, money market funds, and repurchase
agreements of $42,766,890 and $43,005,630, respectively, were held by the County on behalf of the
Department These balances were fully insured or collateralized with securities held by the County's agent
in [he County's name.
At June 30, 2004 and 2003, the Department held customer deposits of $11,005,836 and $10,063,565,
respectively. These customer deposits are recorded as restricted investments and customers' deposits
payable in the Department's balance sheets. Changes in customers' deposits payable are as follows:
2004 2003
Beginning liability $ 10,063,565 9,959,787
Collections I ,108,843 1,027,180
Payments (166,572) (923,402)
Ending liability $ 11,005,836 10,063,565
(4) Loans Receivable
At June 30, 2004 and 2003, loans receivable from various community associations for water system
improvements consisted of the following:
2004 2003
Paauilo Camp Community Association -interest at 4.5%,
due in semi-annual installments of $9,323 through 2033 $ 300,000 305,000
Paauhau Village Community Association -interest at 4.5%,
due in semi-annual installments of $9,413 through 2033 303,129 308,297
Ookala Community Association ~ -interest at 4.5%, due in
semi-annual installments of $3,373 through 2033 106,504 108,320
704,633 721,617
Less current portion (13,532) (]2,937)
Loans receivable, excludingeurrent portion $ 696.10] 708,680
12 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
(5) Employees' BeneSt Plans
(a) Pension Plan
All full-time employees are eligible to participate in the Employees' Retirement System of the State
of Hawaii (System), acost-sharing multiple-employer public employee retirement plan. The System
was established by Chapter 88, Hawaii Revised Statutes (HRS) and is governed by a Board of
Trustees.
The System consists of a contriburory retirement plan and a noncontributory retirement plan. Eligible
employees, in service and a member of the existing contributory plan on June 30, 1984, were given
an option to remain in the existing plan or join [he noncontributory plan, effective January 1, 1985.
All new eligible employees hired after June 3Q 1984 who are covered by Social Security, generally
become members of the noncontributory plan. Both plans provide death and disability benefits and a
cost of living adjustment In the contributory plan, employees may elect normal retirement at age 55
with 5 years of credited service or elect early retirement at any age with 25 years of credited service.
Such employees are entitled to retirement benefits, payable monthly for life, of 2% of [heir average
final salary, as defined, for each year of credited service. Benefits fully vest on reaching 5 years of
service; retirement benefits are reduced for early retirement. In the noncontributory plan, employees
may elect normal retirement at age 62 with ] 0 years of credited service or at age 55 with 30 years of
credited service, or elect early retirement at age 55 with 20 years of credited service. Such employees
are entitled to retirement benefits, payable monthly for life, of 1.25% of their average final salary, as
defined, for each year of credited service. Benefits fully vest on reaching ]0 years of service;
retirement benefits are reduced for early retirement.
fhe System issues a Comprehensive Annual Financial Report that may be obtained by writing to the
Employees' Retirement System of the State of Hawaii, 201 Merchant Street, Suite 1400, Honolulu,
Hawaii 96813.
All funding requirements are established by Chapter 88, HRS, and can be amended by the state
legislature. Covered contributory plan employees are required to contribute 7.8% of their salary [o
the plan; the Department is required to contribute the remaining amounts necessary to pay
contributory plan benefits when due. The Department is also required to contribute all amounts
necessary to pay noncontributory benefits when due. The Department's contribution requirements
are actuarially determined based on actuarial assumptions established by Chapter 88, HRS. The
Department is responsible for funding its own contribution. The Department's contributions for the
years ended June 30, 2004, 2003, and 2002 were $56,332, $470,832, and $329,341 respectively,
equal to the required contribution for the year.
] 3 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
(b) Deferred Compensation Plan
All full-time employees are eligible to participate in the County's Public Employees' Deferred
Compensation Plan, adopted pursuant to Internal Revenue Code Section 457. The plan permits
eligible employees to defer a portion of their salary until future years by contributing to a fund
managed by a plan administrator. The deferred compensation amounts are no[ available to
employees until termination, retirement, death, or unforeseeable emergency.
All plan assets are held in a trust fund to protect them from claims of general creditors and from
diversion to any uses other than paying benefits to participants and beneficiaries. The County has no
responsibility for loss due to the investment or failure of investment of funds and assets in the plans,
but does have the duty of due care that would be required of an ordinary pmdent investor.
(e) Post-Retirement Benefits
In addition to providing the pension benefits described above, the Department is required by state
stamte to contribute to the Hawaii Public Employees Health Fund (Health Fund), a statewide
program which provides health and group insurance for all retired and active Department employees,
their dependents, and their beneficiaries. The County, State, and other counties also participate in the
fund. For employees hired prior to July I, 1996 who retire with at least ten years of credited service,
the Department is reyuired [o pay 100% of the premiums of the medical, adult dental, prescription
drug, vision, and group life insurance plans elected by the retiree. For employees hired prior to
July I, ] 996 who retire with less than ten years of credited service, the Department is required to pay
half of the monthly premiwn cost of the above plans. For employees hired July 1, 1996 or after, the
amount of [he premium cost the Department is required to pay varies depending on the employee's
years of service at the time of retirement.
Currently, the Department has 68 former employees who have retired with at least ten years of
credited service and are receiving the full benefit. For each retiree and retiree's spouse eligible for
Medicare, the Department also pays $45 per month as reimbursement of their Medicare premiums.
The Departments contribution is recorded as an expense when paid. The amount of the contribution
is limited by state statute to the actual cos[ of benefit coverage. During the fiscal years ended
June 30, 2004 and 2003, the Departments contribution to the Health Fund for retired employees
totaled approximately $47(;,000 and $382,000, respectively.
14 (Continued)
DF,PARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of f lawai`i)
Notes to Financial Statements
June 30, 2004 and 2003
(d) Accrued Vaention
The following is a summary of changes in accrued vacation payable during the fiscal year ended
June 30, 2004:
E3alance at June 30, 2003 $ 1,177,261
Additions 482,081
Deletions (474,659)
Balance at June 30, 2004 1,184,683
Less current portion (319,864)
$ 864,819
(6) Capital Assets
The following summarizes the Department's capital assets at June 30, 2004 and 2003:
2004 2003
In service:
Distribution mains and accessories $ ]02,535,091 102,193,148
Structures and improvements 70,911,13] 70,666,130
Electric and hydraulic pumping equipment 22,267,768 22,387,130
Services 21,225,888 20,591,341
Transmission mains and accessories 15,530,077 15,530,077
Hydrants 6.804,847 6,735,928
Purification system 5,757,049 5,739,037
Meters 5,602,205 5,211,530
Transpor[atioo equipment 2,550,168 2,438,658
Communication equipment 2.235,144 2,206,748
Office equipment and furniture 1,560,822 1,505,708
Other equipment 1,226,299 1.029,821
Tools and work equipment 994,099 903,384
Other fire protection plant 19,587 ] 9,587
Total in sen~ice 259,220,175 257,158,227
Less accumulated depreciation (114,605,673) (105,522,682)
144,614,502 151,635,545
Land and rights 7R7,657 545,000
Construction work in progress 30,310,981 22,358,842
Net capital assets $ 175,713,140 ] 74,539,387
] 5 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii. Stale of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
The following is a summary of changes in capital assets during the fiscal years ended June 30, 2004 and
2003:
Construction Less Net
Land and work in accumulated capital
In service rights progress depreciation assets
Balance at ]uue 30.2002 $ 233,813.250 545.000 18,325,555 (96,484,936) 156,198,869
Additions 24,334,346 - ]3,017,35] (9,505,892) 27.845,805
Deductions (989.369) (8,984,064) 46R.146 (9.SOS,287)
Balance at Lune 30. 2003 2~7J 58,227 545.000 22,355,842 (105.522.682) 174,539,387
Additions 2.52R.327 ?42,657 8,296,359 (9.316.111) 1.751,232
Deductions (466379) - (344.220) 233,12U (577.479)
Balance at June 30. 2004 ~ 259.220.175 787.657 30,310.981 (114.605.673) 175.713,140
(7) Long-Term Debt
At June 30, 2004 and 2003, long-term deb[ consisted of the following:
2004 2003
Public Improvement bonds ($10,000,000 issue) payable to
the County, interest at 5.05% to 5.6%, due in annual
installments through 2013 $ 6,115,000 6,635,000
Public Improvement Refunding bonds ($5,060,000 issue)
payable to the County, interest at 6.8% to 6.95%, due in
annual installments through 2005 500,000 1,000,000
Public Improvement bonds ($750,000 issue) payable to the
County, interest at 5%, due in annual installments
through 2016 411,000 436,000
Public Improvement bonds ($775,600 authorized) payable to
the County, interest at 4.5%, due in annual installments
through 2033 711,700 723,600
Public Improvement bonds ($8,000,000 issued) payable to the
County, interest at 4% to 5.5%, due in annual installments
through 2021 8,000,000 8,000,000
State Revolving Fund loan ($4925,814 loaned) payable to the
State of Hawaii, interest at 7.01 % to 1.37%, due in
semi-annual installments through 2022 3,054,549 2,842,108
Total long-tcnn debt 18,792,249 19,636,708
Less current portion (1,539,000) (1,190,000)
long-term debt, excluding current portion $ 17;253,249 18,446,708
16 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWA[`I
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
.tune 30. 2004 and 2003
The following is a summary of changes in long-term debt during the fiscal years ended June 30, 2004 and
2003:
2004 2003
Beginning balance $ 19,636,708 18,488,284
Additions 360,224 2,202,868
Repayments (1,204,683) (1,054,444)
Ending balance $ ]8,792,249 19,636,708
At June 3Q 2004, future principal payments for long-term debt are scheduled as follows:
Year ending June 30:
2005 $ 1,539.000
2006 1,077,000
2007 1,129,000
Zoos 1, ~ sz.ooo
2009 1,22s,ooo
2010 - 2014 6,194,000
2015 - 2019 3,673,000
2020 - 2024 2,449,000
2025 - 2029 163,000
2030 - 2033 158,249
Total $ 18,792,249
(8) Commitments and Contingent Liabilities
(a) Risk Management
The Department is exposed to various risks of loss from torts; thefr of, damage to, and destruction of
assets; employee injuries and illnesses; natural disasters; and employee health, dental, and accident
benefits. The Department maintains fire insurance on Department facilities. The Department is
self-insured for its vehicles as welt as for workers compensation and general liability.
17 (Continued)
DEPARTMENT OF WATER SUPPLY
COUNTY OF HAWAII
(A Component Unit of the County of Hawaii, State of Hawaii)
Notes to Financial Statements
June 30, 2004 and 2003
Liabilities are recorded when it is probable that a loss has occurred and the amount of that loss can
be reasonably estimated. These losses include an estimate of claims that have been incurred-but-not-
reported (IBNR). Claim liabilities, including IBNR, are based on the estimated ultimate cost of
settling [he claims, and include incremental costs for the hiring of special counsel and expert
witnesses. Claims liabilities are estimated by a case-by-case review of all claims and the application
of historical experience to outstanding claims. Estimates of IBNR are based on historical experience.
Accrued workers' compensation amounted to $272,000 and $241,000, a[ June 30, 2004 and 2003,
respectively. Changes in the reported liability are as follows:
2004 2003
Beginning liability $ 241,000 339,000
Current year claims 262,988 6,559
Claim payments (231,988) (104,SS9)
Ending liability $ 272,000 24],000
(b) Construction Cnntrncts
The Department is obligated under construction contracts for the utility plant and other projects.
Such commitments approximated $17,957,000 and $9,478,000, respectively, at June 30, 2004 and
2003.
(c) Litignrion
The Department is involved in various legal proceedings arising in the ordinary course of business.
The Department provides for losses that, in the opinion of management, are both probable of being
incurred and that can be reasonably estimated. In management's opinion, losses, if any, would not
materially affect the Department's financial position or results of operations.
I3
KPMG LLP
PO Box 4150
Honolulu, HI 96872150
Independent Accountants' Report
on Applying Agreed-Upon Procedures
Director of Finance
County of Hawaii:
We have performed dre procedures enumerated below, which were agreed to by the management of the
County of Hawaii (the County) and the U.S. Environmental Protection Agency, solely to assist you in
evaluating the accompanying Local Government Financial Test Worksheet prepared in accordance with the
Federal Register (40 CFR Part 258, Subpart G) Criteria For Municipal Solid Waste /,a~rdfrlls Financini
/Issurcnzce Criteria for the year ended June 30, 2004. This agreed-upan procedures engagement was
performed in accordance with attestation standards established by the American Institute of Certified
Public Accountants. The sufficiency of these procedures is solely the responsibility of the specified users
of this report. Consequently, we make no representation regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
We performed the following agreed-upon procedures for the year ended June 30, 2004. These procedures
were performed using the definitions in Attachment 2.
1. With respect to the computation of excess of revenues over expenditures/expenses, we
recomputed the amomit for the year ended Jwre 30, 2004 by deducting total
expenditures/expenses, as adjusted, from total revenues. We compared the amounts which
comprise the total revenues and total expendihireslexpenses, as adjusted, with the related
amounts in the Cow~ty's Comprehensive Annual Financial Report (CAFR) for the year ended
June 30, 2004 and we found such amounts to be in agreement with the amow~ts presented i n
the fetid financial statements in the County's CAFk.
2 We verified that the computations on the LocaV Government Financial Test Worksheet were
arithmetically correct.
3. We audited the County's CAFR as of and for the year ended June 30, 2004 to determine
whether the County's basic financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America. Our independent auditors'
report states that, i? our opinion, the County's basic financial statements present fairly, in all
material respects, the respective linancia{ position of the governmental activities, the bnsiness-
type activities, [he discretely presented component unit, each mtijor fund, and the aggregate
remaining fund information of the County as of June 30, 2004, and the respective changes in
financial position and cash tlow~s, where applicable, thereof and the respective budgetary
comparison for the general Bind for the year then ended in conformity with accounting
principles generally accepted in the United Stales of ilmerica
APPENDIX D
4'~~M~: ii nUi nnistl ~,i, eW wimvrneq; is t~~oUS
i nml~~~ 1. ~ n nl KFL4 ; 1. r o, i.;xr.~l a ,mnm o .-.,v-m...
We were not engaged Lo, and did not, perform an examination, the objective of which would be the
expression of an opinion on the accompanying Local Government Financial Test Worksheet nccordinely,
we do not express such an opinion. Had we performed additional procedures, other matters might have
come to our attention that would have been reported to you.
1~his report is intended solely for [he information and use of the Director of Finance, the County
Administration, the County Council and the U.S. Environmental Protection Agency, and is not intended to
F1P and chnp~r nnf hr ng~r~ by nnvnnP pll.er Ulan the6°, .°,p~G E: C'i partiC~.
K`P?v(~ LCP
March 23, 2005
Attachment 1
COUNTY OF HAWAI`7
Local Government Financial Test Worksheet
Year ended .Tune 30, 2004
(Amounts in thousands)
Computation of excess of revenues over expenditures/expenses:
Revenues:
Gross revenues:
Govermnental Funds $ 231,516
Proprietary Cunds 30,860
Nonopcrving revenues- proprietary funds -interest and other 5,513
Total revenues 267,889
Expenditures/expenses:
Ciovernmentaf funds $ 229,595
Proprietary funds 32,275
Less:
llebt service (governmental funds) (22,] 10)
Capital outlays (governmental fiords) (23,474)
l~otalexpenditures/expenses 216,286
I[xcess of revenues over expenditures/expenses $ 51,603
3
Attachment 2
COUNTY OF HAWAII
Local Government Financial Test Worksheet- Definitions
Year ended June 3Q ?004
The following Leans used in the accompanying Local Government Financial Test Worksheet are defined in the
Federal Register (40 CFR Part 258.74) Cri[eri~r For Muuicrpal Solid G~asie I,a~adfills -Financial Assurance
Crilerfa-Allowable Mechania~ms as follows:
(A) lbtal revenues include revenues fknu all taxes and fees but does not include the proceeds from
borrowings or asset sales, and esdude revenues from funds managed by the local government on
behalfofa spccilic third party;
(R) `total expenditweslcxpenses inchide all governmental fund type expenditures and proprietary fund
type expenses, nel of capital outiavs and debt repayment, and
(C) Debt service is the amount of principal and interest due ou loans during the year.
4
KPMG LLP
Lr~
PO Hox 4150
Honolulu. HI 9fi812-4150
Independent Auditors' Report on Supplementary Information
1'o the Chair and Members of the
County Council
County otHawai`i
State ofHawai`i:
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 Govern~ne~rt fluditing Standards, issued by the
Comptroller General of the United States, the financial statements of the governmental activities, the
business-type activities, the discretely presented component unit, each major fund, and the aggregate
remaining fund informatiou of the County of Hawaii, State of Hawaii (the County), as of and for the year
ended June 30, ?.004, which collectively comprise the County's basic financial statements, and have issued
our report thereon dated March 23, ?005.
Our audit was made for the purpose of forming opiniats rnE the financial statements that collectively
comprise the County's basic financial statements'. ~t~he supplementary infonnatio? included in pages I
through 3 of the Financial Assessnuou Subsystem-FDS is presented for purposes of additional analysis and
is not a reyuircd part of the basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a whole.
This report is intended solely for the information and use of the County Com~ciJ of the County of Hawaii,
State of Hawaii who have previously received the basic flnancia] statements of the County of Hawaii,
State of Hawaii, as of and for the year ended June 30, 2004, and our unqualified opinions thereon, for use
in evaluating those bas+c financial statements, and is not intended to be and should not be used for any
other purpose.
~i`(G LLB
March 23, 2005
APPENDIX E
P
n. ml, i,u m KPML rirv n-anal a A~iss ~ooi ~-.on~~
!-tnonaal nssesstnenl Subw~;tem Pope L of 4
P11Fl HI002 FYED 0 613 012 0 0 4
r__-...-_ - -
me Itrm No 1 Mrmr rl Devn
. pbon Housing Gnrce Voi rheas l
111 ,ash Uicst ided _ _ E7
its ,ash Hr. Inrled for Payment of Cwrenl liaDiLhe- IOJ,444
109. dal Cash _ , 109445..: - r
124 ccmmts Reservable -Other Government 179, 771 ~ J
126 2 Ilowance for DoWlhd Acwunts -Other p
129 Gwed Imeresl ResevaDle -~_-_v--- - - 103 -
129 :7 t:"^~ - - ti6I,R € _ 7SICE~'n$[RT„'a~'aMat3f:e$fo~t'ddUtilfr7`acc6 A-.. '.y T „ate: =s~.?' b'~~;" ice:
142 repaid E>t enses and Other Assets 102
-eiM1' eLk~~,r#*N~.K;.'.7~;fae'~~`tt'w>~s~ ri' m .z ~--"~s-. .89 54 • ~w~• - :'v
163 um4ure, E uipment 8 Machkmry~CTvellings ~ _i 350,702
765 _ easehold Im mvemenls p
166 cwmulaled l)¢predaDOn J -350,702
171 ores, Loans. d Mortgages Receivable -Non Curtest 70,573
9P.:s="~,,~. .."~~i bY31 ~ r.;'v ',~'c~ .Fa^~ ° xX"` n-~.- 9.~x °.~w -
PHA- HI002 FYE_D- 0 613 012 0 0 4
line Item No Account Desuiphon, _i _ Housing Choice Vouchers_
'112 ccounts Payable 90 Days ~ 10,315
3t ccounts Payable -HUD PHA Programs _ $191,598
333 ccounts Payable -Other Govemmenl 707,653
`~B - `,so-
G#a...?bJld N~>-:'.~. , <~i.'s - _i£~*~ r`Y~ '-.~.r~'L-i.~x~.. -.e., `~j.-y Sx~,.
07 her ConbrDUaons f u ~ ~ E94,257
. ~x<.' D' ~a1V81tei1 G2Dnax1 _~:3`; ~A . rl ..,{a~s`vF'd';i=. - ,'$>.a,.:
t'e?~ " R$~4'Ve8Fut1r3HdID~~t N~€u",~`.~1C`~vr'~.
*~E'" x . - `Y. - ~.a,-k
.iR._
572 ndesi sated Fund 9alance/Retained Eamin s ~ -115 826
.--s '9~ ' _ ~ els
fi<~ -a" qu,/bJn7~ts T .::as?~!"e5~7A'~f,2w7 6.~"" .,ti,;? sx~~¢:T*at"5+-yy~ ,
~-'.'-sa- "'-`.5 M~ d i'd~~ltft EQUi. tii. ,~"'k.E..~ v.. i-.3,.:.,......_...,..~~...° ma'&fi,° ~Xrygs
7WF'kr'1'~-"•':F ~'~k,~-...~~~,`
F mancial Assessment Subsyster US Yage 2 0l 3
PHA: HI002 FYED: 06!30/2004
ine Item No_ Account Description Housing Choice Vourhe¢
06 UD PHA O eraUng Grants btt 079 943
1E0~~z.Q `.eSTe~ -o18fReve x'x;K'»,.~ +k?~.,.~v..~,5.'Tf K v l: a~ 3,1,--s. ~~`t`~~^.."_Ts ~t _~F~D7994 kx_ h€< ?a:~';
a;
PHA: HI002 FYED~ 06/30/2004 _ _
be Ilern No _ Aunmtl I_lescripbon Ilousrng Choice Vouchers
11 dmuvsbaeve Salarres _ 946695
r ul~n lc.rni .~>acaaulcul nuu~y.. u' „t r~ Na Ke i of 3
l2 ud~hng F e _ 812 s4l _ _ -
J76 he~0 ialin0 Admim IaUVe - - ~ _ - ~ -~-y74J N6
_....il.r__ 'dTaj Operalx~9~''yAh"se v. _ _ k7 2349 .n
$7
~~s 'Ee~L)pe ~~t!ri~Revenue nkeiOperdlln "l~E'xpenses~_ _ 93TJ
389 _
9_-._..._Y
73 ousin Assislanre Pa me Ns 9,676,118
Ur ._z Aiat ~tpt;t>sg xr,>: ~ ~ ~ r c~...~~,.r~_ --~t?3?8"462 -
O'TU
f<; u1~f ~:~FfG.SnFSnS.SUii[. .t 11se'S1 :.Y~, -,~3~~z:~~~;,~~ '~'~.g~~'~.rt_ :'s;{ ~ -z: z~.~t'~., te' ~°~xas..
E7~ - ...`~t5 `a"e.. .~",..m~...~'~`~..-3'?a~'`-`F~srri'~
f. E; S1 ...,-~,cFa '~-~"r zu?ad:",-;~
PHA: HI002 FYED: 06/30/200A _ _
'ne Item No ~r~ A¢ounl Desalpbon ~ ~ v~~ Ilousmg Choice VouUeis
Ito? bt Prind al Payments Enterprise Funds_ D ~
1103 inning Equity _u 330,085 _
1104 rim Penotl Adjustments, EgW1y Transfers and Conection of Ertors -53,535
1113 ~ aximum Annual ContribuUOns Commitment (Per ACC) 70,155_6Bt1~~
11 I4 rorata Maximum Annual OUntfIDUtIOnS Applicable to a Period of less Ihan twelve Months ~ 0
7 t 15 on6ngenc Reserve, ACC Pro ram Reserve 1,614,576
1120 it Months Available _ ~ 1,557 _
t t 21 umber o1 Unil Months l eased J t 079
Repo~r Generaletl 04R t/JO@
Dafe Submrsson GeateJ L
Top of Page ~