State audit finds accounting problems in wastewater authority serving Laguna Beach

A recently completed state audit of the South Orange County Wastewater Authority, whose member agencies serve Laguna Beach, has concluded that the authority has had “inadequate” accounting practices and continues to have unclear guidelines regarding pension obligations.

The estimated $260,000 audit — released March 22 and done at the request of state Sen. Pat Bates (R-Laguna Niguel) and Assemblyman Bill Brough (R-Dana Point) — also notes that SOCWA’s financial reporting issues stretch back some 15 years and have included a failure to understand the value of assets and to file audited statements. The report contends SOCWA “has been slow to correct deficiencies in internal controls” in recent years.

The seven-month audit states that if the authority were to dissolve, it’s unclear who would pay out employee retirement benefits. It suggests seeking clarification on the matter.

The audit also acknowledges that the Dana Point-based authority — whose members include the Emerald Bay Service District, South Coast Water District and city of Laguna Beach — has been instituting some improvements, such as hiring an outside firm to determine asset values and making plans to ensure that financial statements are filed on time. It did not specify any adverse direct effects on ratepayers.

However, the report says, there remains a $354,000 discrepancy between audited financial statements and accounting records in the amount of cash collected but not yet spent. SOCWA is investigating the gap.

SOCWA does not levy its own taxes but relies primarily on funding from its member agencies. It serves more than 500,000 homes and businesses.

SOCWA Chairman Dan Ferons said the authority “fundamentally” agrees with the state’s “characterization of our past as well as our current efforts to ensure strong, transparent and accountable financial management.”

“Since 2014, we have worked hard to transform financial systems within SOCWA,” he said. “We appreciate the state auditor’s encouragement and support to continue on our current path.”

In a joint statement, Bates and Brough said the audit “validates how SOCWA has been mismanaged over several years. Missing financial statements, failure to report assets and unfulfilled public records requests are worrisome.”

The legislators said they felt “encouraged” that SOCWA agreed with the audit’s findings.

“We urge SOCWA to work with their stakeholders and the county auditor to remedy these issues and create better oversight in a timely manner,” they said.

Officials announced the audit of SOCWA in June, a few weeks after the authority, the city of Laguna Beach, the South Coast Water District and the Emerald Bay Service District sued the Moulton Niguel Water District, alleging it had failed to pay more than $755,000 in bills toward SOCWA’s wastewater treatment facility in Aliso Canyon.

Moulton Niguel filed a cross complaint in August alleging various accounting and record-keeping problems at SOCWA that were eventually examined in the state audit.

The litigation is continuing.

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