FINAL REPORT

CASE #2199:  Manteca-Lathrop Wastewater Treatment Contract,

Contract Management & Tracking 

Cities of Escalon, Lathrop, Lodi, Manteca, Ripon, Stockton and Tracy

 

REASON FOR INVESTIGATION

 

This investigation was initiated by the San Joaquin County Civil Grand Jury (SJCCGJ) as a review of the Manteca–Lathrop Wastewater Treatment Contract.  The investigation was expanded to include contract management and tracking at all seven (7) San Joaquin County Cities.

 

BACKGROUND

 

The issue with the Manteca–Lathrop Wastewater contract was Manteca’s long-term under-billing of Lathrop for services provided.  Billing and payment procedures are described as terms of the contract.  Those terms require that Lathrop pay for its proportional share of the actual operation and maintenance of wastewater treatment.  The apportioning of the cost is to be based on the respective flows, and sewage strengths (BOD and Suspended Solids) from each party.  Manteca billed a flat monthly charge, and Lathrop paid the bill.

 

That flat rate billing/payment practice went on since 1987 until it was challenged in November of 1999.  The SJCCGJ investigation started after the problem surfaced and the investigation was later expanded to all cities in an effort to determine if this was an isolated condition, or if it could happen with other contracts and/or other Cities.

 

METHOD OF INVESTIGATION

 

The SJCCGJ obtained and reviewed a copy of the Manteca – Lathrop Wastewater Treatment Contract.  We met with City of Manteca staff for an overview and requested

additional related documents.  We then met with the City of Lathrop staff for their overview.  Lathrop staff provided related documents.  We reviewed pertinent related documents including:

 

·        Annual Sewer Budgets since 1989

·        Lathrop Billing since 1989

·        Portions of the Annual Audit pertaining to the Sewer Account since 1989

·        Manteca – Raymus Village Contract

·        Correspondence

 

The investigation was expanded beyond the original Manteca–Lathrop contract issues.  Letters were sent to all seven (7) cities in San Joaquin County requesting copies or written descriptions of their Contract Management Policies.  All cities contacted responded.  Interviews were conducted with the responsible staff members from each City.  Manteca’s meeting also included follow up questions and requests for copies of additional correspondence relative to the Manteca-Lathrop Wastewater Contract administration.

 

FINDINGS:  CITY OF MANTECA

 

  1. The City of Manteca did not, and is still not administering the Manteca–Lathrop Wastewater Treatment and Disposal Contract consistent with contract provisions.  Manteca’s practice led to under-billing for services provided and they have not established a Replacement Account.

 

  1.  The City of Manteca has billed the City of Lathrop $1,093,574.20 as the balance due for sewer services provided between January 1, 1991 and December 31, 1999.  This bill is based on a “fixed cost per unit sewer rate”, rather than the  “proportionate share of the actual costs based on usage” as provided by the contract, (Section V: Maintenance and Operation and Replacement, Subparagraph B: District’s Share of Costs).

 

  1. The City of Manteca staff, in our second interview, stated that they are implementing a “Records Management System” on a schedule of one department per year.

 

  1. Over the course of the investigation, the City of Manteca has not shown substantial progress toward determining and/or increasing the reliability of the City’s contract checkpoints.

 

  1. The City of Manteca has not adequately addressed Manteca-Lathrop Wastewater Treatment Contract problems or the cause for these problems.  The City could have dealt with the problem more aggressively.

 

FINDINGS:  CITY OF LATHROP

 

  1. The City of Lathrop assumed the Lathrop County Water District’s position in the Contract/Agreement between the Lathrop County Water District and the City of Manteca dated March 5, 1984.

 

  1. The City of Lathrop has failed to submit to the City of Manteca a yearly written summary of the projected daily peak month flow, BOD and suspended solids for each year during the succeeding five (5) year period, (Section IV:  District Capacity Rights, Subparagraph D: Future Capacity Option).

 

FINDINGS:  ALL CITIES

 

  1. No City responded to our request with a comprehensive written Contract Management Policy.  Our interview process showed that all Cities have adequate practices in place for standard transactions.  Many Cities have good procedures to help insure contractual compliance.

 

  1. The procedures for contract management were generally regarded and addressed as part of the Cities overall fiscal management responsibilities.  The same checkpoints were applied to all financial transactions whether governed by contract or ordinance.

 

  1. While the procedures showed many similarities from City to City, they also varied greatly depending upon the size of the City, the size of City staff, and management styles.

 

  1. All Cities had ordinances in place or followed the Government Code provisions that pertain to issuing contracts.

 

  1. Part of the procedure in each City included multiple checkpoints for all transactions and watching for exceptions in the revenue stream.

 

  1. Each City determines its own level of required checks and balances.  They consider the costs of applying the contract controls they employ weighed against the additional safety these controls provide.

 

  1. The Cities of Escalon and Stockton monitor contracts through a single checkpoint, other Cities monitor them through multiple checkpoints.

 

15. Some Cities find that standardizing contract elements simplified contract interpretation and management.

 

  1. During investigation process of the various Cities we discovered that some of the Cities followed what we felt were good and innovative practices.

 

·        Stockton:  Good Purchasing Booklet; Utilizes “Tickler System” (Tickler System is a program that tracts and reminds employees and departments of bench mark dates and required performances)

·        Tracy:  Standardizes Contracts; Innovative Fire Department Financing through use of Joint Power Authority

·        Escalon:  New “Tickler System”

·        Ripon:  Standardization of Contract Review Schedules; Independent Audits of all Contracts

·        Lathrop:  Contracts with Sheriff’s Department for Police Services

 

RECOMMENDATIONS:  CITY OF MANTECA

 

  1. Due to the apparent magnitude of the under-billing and the continued non-compliance with contract requirements, the Manteca City Council should retain an independent expert to evaluate the Manteca-Lathrop Wastewater Treatment Contract relative to determining contract compliance requirements and proper billing to the City of Lathrop.

 

  1. The Manteca City Council should obtain an Independent Management Audit to review the City’s method of contract administration and financial controls.

 

  1. The City of Manteca should accelerate the implementation of its “Records Management System”.

 

RECOMMENDATIONS:  CITY OF LATHROP

 

  1. The City of Lathrop should review and adhere to the provisions of the Manteca-Lathrop Wastewater Treatment Contract including preparation of the Annual Five-Year Plan.

 

RECOMMENDATIONS:  ALL CITIES

 

  1. The City Manager of each City should establish a written policy on Contract Management and Tracking, as part of his Fiscal Management Policies.  Elements of that policy should include:

 

    1. A central file for Management and Tracking of all contracts.  This file should include for each contract

 

                                                               i.      A copy or description of the contract and where it is stored

                                                             ii.      Who the contract is with

                                                            iii.      The term (length) of the contract

                                                           iv.      Who, by title or position, administers the contract

                                                             v.      Who, by title or position, can approve changes

                                                           vi.      Other information deemed useful

 

    1. A requirement that each contract be read and reviewed at least yearly by the appointed contract administrator.  This could be done as part of the Budget Process.

 

    1. Establishment of a “tickler system” that would help with meeting the important milestones established in any and all contracts.

 

    1. Standardize as many aspects of contracts as possible.

 

 

 

RESPONSE REQUIRED

 

Pursuant to Sections 933.05 of the Penal Code:

 

  1. The City of Manteca for Findings #1 - #5 and Recommendations “A”, “B”, and “C” shall report to the Presiding Judge of the San Joaquin County Superior Court, in writing and within 90 days of the publication of this Report.  That statute requires that as to each finding in the report, the response indicate one of the following:

 

    1. The respondent agrees with the finding.

 

    1. The respondent disagrees with the finding with an explanation of the reasons therefore.

 

Section 933.05 also requires as to each recommendation, the response indicate one of the following:

     

a.       The recommendation has been implemented, with a summary of the action taken.

 

b.      The recommendation has not yet been implemented, but will be, with a timeframe for implementation.

 

c.       The recommendation requires further analysis, with an explanation of the scope of the analysis and a timeframe not to exceed six (6) months.

 

d.      The recommendation will not be implemented, with an explanation therefore.

 

2.      The City of Lathrop for Findings #6 and #7 and Recommendation “D” shall report to the Presiding Judge of the San Joaquin County Superior Court, in writing and within 90 days of the publication of this Report.  That statute requires that as to each finding in the report, the response indicate one of the following:

 

a.      The respondent agrees with the finding.

 

b.      The respondent disagrees with the finding with an explanation of the reasons therefore.

 

Section 933.05 also requires as to each recommendation, the response indicate one of the following:

 

a.       The recommendation has been implemented, with a summary of the action taken.

 

b.      The recommendation has not yet been implemented, but will be, with a timeframe for implementation.

 

c.       The recommendation requires further analysis, with an explanation of the scope of the analysis and a timeframe not to exceed six (6) months.

 

d.      The recommendation will not be implemented, with an explanation therefore.

 

 

3.      All San Joaquin County Cities

(Escalon, Lathrop, Lodi, Manteca, Ripon, Stockton and Tracy) for Findings #8 through #15 and Recommendation “E” shall report to the Presiding Judge of the San Joaquin County Superior Court, in writing and within 90 days of the publication of this Report.  That statute requires that as to each finding in the report, the response indicate one of the following:

 

a.      The respondent agrees with the finding.

 

b.      The respondent disagrees with the finding with an explanation of the reasons therefore.

 

Section 933.05 also requires as to each recommendation, the response indicate one of the following:

 

a.       The recommendation has been implemented, with a summary of the action taken.

 

b.      The recommendation has not yet been implemented, but will be, with a timeframe for implementation.

 

c.       The recommendation requires further analysis, with an explanation of the scope of the analysis and a timeframe not to exceed six (6) months.

 

d.      The recommendation will not be implemented, with an explanation therefore.