Report 2003-136 Summary - June 2004

Metropolitan Water District of Southern California

:

Its Administrative Controls Need to Be Improved to Ensure an Appropriate Level of Checks and Balances Over Public Resources

HIGHLIGHTS

Our review of the Metropolitan Water District of Southern California (district) revealed the following:

RESULTS IN BRIEF

The Metropolitan Water District of Southern California (district) is a public corporation created under the Metropolitan Water District Act (water act) for the purpose of developing, storing, and distributing water for the district. The district is governed by a 37-member board of directors (board). It is a collection of 26 member public agencies, including 14 cities, 11 municipal water districts, and one county water authority, that provide drinking water to nearly 18 million people in parts of Southern California. In carrying out its functions, the district is considered a public agency and may expend funds and use other resources only to carry out those purposes that are expressly authorized or reasonably implied by the water act.

We believe the district's broad interpretation of the purposes for which it can spend public funds has led to policies governing expenses that generally are not well-defined and do not always ensure that expenses have a direct link to its authorized purposes. For example, the district financially sponsors numerous organizations' activities without justifying the direct link to the purposes for which it was created. In addition, the district's field inspection trips may not be the most cost-effective way to educate the public on its operations. The district also pays for social events such as holiday parties and provides catered meals to executive management and employees. Further, it reimburses board members and executive management for travel expenses without always ensuring that they are reasonable and necessary. We also observed numerous instances where the district leases property to other entities, both public and private, for a nominal amount rather than market value. If such a lease does not serve the district's authorized purposes, it may constitute a gift of public funds in violation of the California Constitution.

Additionally, more than four years after the enactment of Chapter 415, Statutes of 1999 (SB 60), the district still is trying to establish an effective ethics office. It did not hire an ethics officer until more than two years after the effective date of SB 60, and that ethics officer primarily referred complaints to other district offices that cannot demonstrate how these complaints were resolved. Of the employees who responded to our recent survey, 26 percent indicated they are not familiar with the purpose of the ethics office, and 26 percent indicated the office does not effectively identify, handle, or resolve ethics issues.1 The district is trying to establish a more structured ethics office, but it is still too soon to determine the success of these efforts.

Another area of concern is the district's contracting process. Although it has established adequate policies and procedures for construction contracts, it has not always done so for its purchasing and consulting contracts. Further, its procedures manuals for consulting and purchasing contracts state that sole-source contracts should be used only in limited situations and require staff to document the justification for not using a competitive process.2 The district does not always ensure that this occurs.

The district's personnel policies are not always current or comprehensive and do not always ensure sufficient merit system processes, the basis on which it hires and promotes employees represented by bargaining units. It risks inconsistencies within its merit system and cannot ensure appropriate checks and balances over its hiring and promotion decisions. Further complicating the issue, the district does not always follow the hiring policies it does have, making itself vulnerable to criticism by employees and other interested parties. However, the district is updating its operating policies, including personnel policies.

Finally, the district created the entity now known as the Center for Water Education (center) in October 2001 to establish a water education facility and museum. The center currently depends primarily upon the district for funding and the provision of certain services. Nonetheless, the center's long-term goal is to reduce its reliance on funding from the district. Although law does not prohibit the district from establishing the center as a separate entity, this could raise concern that it was set up this way to circumvent certain laws applicable to the district, such as the Political Reform Act of 1974. Now that the center is becoming more active, it needs to establish policies and procedures for its contracting activities to ensure that it obtains the best value for the dollars it spends.

RECOMMENDATIONS

To ensure that the district expends funds and uses its resources only to carry out its authorized purposes in a reasonable and necessary manner, it should do the following:

The district should complete the implementation of its new ethics office and ensure that the office complies with the requirements of SB 60.

To strengthen its controls over consulting and purchasing contracts, the district should ensure that it has adequate policies and procedures and that it prepares justifications for contracts that are not awarded competitively.

To ensure consistency and checks and balances, the district should continue its effort to develop comprehensive and up-to-date personnel policies and procedures and ensure that it follows these policies.

Finally, the center should establish formal contracting policies and procedures for all contracts.

AGENCY COMMENTS

The district and the center generally agree with our recommendations and intend to work towards implementing them.

1 We sent a survey to 100 employees, 65 of whom responded. Our statistics reflect the responses of the individuals that responded to each question.

2 The term sole-source is generally used only when referring to the procurement of goods in a noncompetitive manner. However, because the district also describes consulting contracts that were not awarded through a competitive process as sole-source contracts, throughout our report we use the term to refer to both purchasing and consulting contracts that were not awarded competitively.