Nevada Drinking Water State Revolving Fund Financial Statements with Independent Auditor's Report


UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
January 21, 2003
Memorandum
Subject:
Auditor's Report for the Nevada Drinking Water State Revolving Fund
as of June 30, 2001
Audit Report No.2003-1-00048
From:
Michael A. Rickey
Director for Assist

To:
Wayne Nastri
Regional Administrator
EPA, Region 9
San Francisco, CA
Attached is a copy of the subject audit we sent to the State of Nevada. The audit contains reports on the
financial statements, internal controls, and compliance requirements applicable to the Drinking Water State
Revolving Fund (SRF) program in Nevada for the year ended June 30, 2001.
We issued an unqualified opinion on the financial statements and on the compliance requirements
applicable to the Drinking Water SRF program. In addition, we did not note any matters involving the
internal control system and operations that we consider to be material weaknesses.
Since we did not have any compliance matters or costs questioned, and we are closing the audit report on
issuance.
The OIG has no objection to the release of this report to any member of the public upon request. The report
contains no confidential business or proprietary information.
If you have any questions or concerns regarding this matter, please feel free to contact Paul Felz at (303) 312-
6270 or Mr. William Dayton at (916) 498-6590.
Attachment

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
January 21, 2003
Mr. Alex Haartz, Deputy Administrator
Nevada State Health Division
Department of Human Resources
1179 Fairview Drive, Suite 201
Carson City, Nevada 89701-5405
Re: Final Report of Audit of Financial Statements of Nevada Drinking Water State Revolving Fund for
the year ended June 30, 2001
Dear Mr. Haartz:
Attached please find an electronic copy of the Nevada Drinking Water State Revolving Fund audited
financial statements of the year ended June 30, 2001.
In order to present the financial statements in accordance with generally accepted accounting principles,
we made certain proposed adjustments to the state's financial statements, which your staff has agreed
with.
We would like to take this opportunity to thank you and your staff for the cooperation and courtesies we
received during our audit. Please call me at (916) 498-6590 or Mr. Paul Felz at (303) 312-6270 should
you have any comments or questions.
Sincerely,
William M
Wlliam M. Dayton (
SRF Audit Manager

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Nevada Drinking Water State Revolving Fund
Financial Statements with
Independent Auditor's Report
June 30, 2001
Audit Report No. 2003-1- 00048

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Inspector General Division
Conducting the Audit:
Region Covered:
Program Office Involved:
State Offices:
Auditors Conducting Audit:
Western Audit Division
San Francisco, California
Region 9
Drinking Water Unit
Department of Human Resources,
Nevada State Health Division,
Bureau of Health Protection Services
Paul Felz
Yeon Kim
Darren Schorer

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Nevada Drinking Water State Revolving Fund
Table of Contents
Independent Auditor's Report	1
Balance Sheet	2
Statement of Revenues, Expenses, and Changes in Retained Earnings	3
Statement of Cash Flows	4
Notes to the Financial Statements	5
Independent Auditor's Report on the Internal Control Structure Based on an Audit of
the Financial Statements Performed in Accordance with Government Auditing Standards	10
Independent Auditor's Report on Compliance with the Requirements Applicable to the
Environmental Protection Agency's State Revolving Fund Program in Accordance with
Government Auditing Standards	12
Supplemental Information	14

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
Independent Auditor's Report
To: Mr. Alex Haartz, Deputy Administrator
Nevada State Health Division
We have examined the accompanying balance sheet of the Nevada Drinking Water State Revolving Fund
Program (the Program) as of June 30, 2001, the related statement of revenues, expenses, and changes
in retained earnings, and the statement of cash flows for the year then ended. These financial statements
are the responsibility of the Program's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in the United States of
America and Government Auditing Standards issued by the Comptroller General of 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph present fairly, in all material
respects, the financial position of the Program as of June 30, 2001, and the results of its activities and its
cash flows for the year then ended in conformity with generally accepted accounting principles in the
United States of America.
Our audit was conducted for the purpose of forming an opinion on the combined financial statements
taken as a whole. The supplemental information is presented for purposes of additional analysis of the
combined financial statements. The supplemental information has been subjected to the auditing
procedures applied in the audit of the combined financial statements and, in our opinion, is fairly stated in
all material respects in relation to the combined financial statements taken as a whole.
As discussed in Note 1, the financial statements referred to above are intended to present the financial
position and results of operations of the Program, a component of a Special Revenue Fund of the State of
Nevada. These statements are not intended to present the financial position or results of operations for
the State of Nevada or the Nevada Bureau of Health Protection Services, of which the Program is a part.
In accordance with Government Auditing Standards, we have also issued a report dated July 25, 2002,
on our consideration of the Program's internal control structure and a report dated July 25, 2002, on the
' s and regulations.
western Auait Division
San Francisco, California
July 25, 2002

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State of Nevada
Drinking Water State Revolving Fund
Balance Sheet
June 30, 2001
Assets
Current assets:
Cash and cash equivalents
Loan interest receivable
Investment interest receivable
Federal grants receivable
Loans receivable - current portion
Total current assets
Loans receivable - long term portion
Unamortized cost of issuance
Total assets
Liabilities and Equity
Current liabilities:
Accounts payable
Accrued payroll
Interest payable
Contracts payable
Total current liabilities
Long term liabilities
Bonds payable (Note 3)
Arbitrage rebate payable
Total long term liabilities
Total liabilities
Equity
EPA contributions
Retained earnings
Total equity
Total liabilities and equity
$ 2,963,485
204,166
61,921
657,141
801,102
4,687,815
23,011,117
77,830
$ 27,776,762
$ 16,020
12,886
170,752
580,141
779,799
7,064,545
37,699
7,102,244
7,882,043
19,312,602
582,117
19,894,719
$ 27,776,762
The accompanying notes are an integral part of these financial statements.
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State of Nevada
Drinking Water State Revolving Fund
Statement of Revenues, Expenses, and Changes
in Retained Earnings
Year Ended June 30, 2001
Revenues:
Federal set aside receipts
Interest earned on investments
Interest earned on loans
Total Income
Expenses:
Set-asides:
Administrative
State program management
Local assistance
Technical assistance
Interest on bonds
Arbitrage rebate
Amortization of cost of issuance
Total expenses
Net Income
Beginning retained earnings
Ending retained earnings
$ 1,360,174
240,012
463,904
2,064,090
221,754
515,459
441,140
181,821
341,804
37,699
	3,563
1,743,240
320,850
261,267
$ 582,117
The accompanying notes are an integral part of these financial statements.
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State of Nevada
Drinking Water State Revolving Fund
Statement of Cash Flows
Year Ended June 30, 2001
Cash flows from operating activities:
Cash received from EPA for set-asides	$ 1,081,390
Interest received on investments	222,010
Interest received on loans	492,280
Principal repayments received on loans	427,551
Disbursements to loan recipients	(11,970,075)
Interest on bonds	(299,455)
Cash paid for set-aside activities	(1,037,520)
Net cash used for operating activities	(11,083,819)
Cash flows from financing activities:
Cash received from EPA for loans	9,554,667
Proceeds from sale of bonds	1,587,727
Bond issuance costs		(31,545)
Net cash provided by financing activities	11,110,849
Net Increase (decrease) in cash	27,030
Cash and cash equivalents, July 1, 2000	2,936,455
Cash and cash equivalents, June 30,2001	$ 2,963,485
Reconciliation of operating income to net
cash used for operating activities:
Operating income	$ 320,850
Adjustments to reconcile operating income to
net cash used for operating activities:
Amortization of bond premium	(3,630)
Amortization of cost of issuance	3,563
Change in assets and liabilities:
(Increase) in accrued investment interest	(18,002)
(Increase) in federal grant receivable	(270,620)
Decrease in loan interest receivable	28,376
(Increase) in loans receivable	(11,542,524)
Increase in accounts payable	314,490
Increase in interest payable on bonds	45,979
Increase in arbitrage rebate payable		37,699
Total Adjustments	(11,404,669)
Net cash (used for) operating activities	$ (11,083,819)
The accompanying notes are an integral part of these financial statements.
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NEVADA DRINKING WATER STATE REVOLVING FUND
Notes to the Financial Statements
June 30, 2001
1. Organization of the Fund
The Nevada Drinking Water State Revolving Fund Program (the Program) was established
in1997 pursuant to Nevada Revised Statutes 445A.200-445A.295 and the Federal Safe Drinking
Water Act (SDWA). The Program was established to provide assistance to public water systems
for projects that meet the eligibility requirements of the SDWA. The SDWA also allows the State
to "set aside" up to 31% of the annual capitalization grants for administration of the Program (up
to 4%), supplemental funding for the State's Public Water System Supervision program (up to
10%), for technical assistance to public water systems (up to 2%), and for other technical or
financial assistance to public water systems (up to 15%).
The Nevada Health Division's (the Division) Bureau of Health Protection Services (the Bureau)
manages the Program. The Bureau has developed policies and procedures for the loan and set-
aside programs to meet the objectives of the State and Federal Acts and properly manage and
coordinate the Program. The Bureau determines the level of funding to be contributed to the loan
fund and used for loans and the amount to be set-aside for other eligible activities. The Bureau
reviews loan applications for eligibility and subsequently prioritizes eligible projects with
compliance-related projects addressing public health risks receiving the highest ranking. The
Bureau's staff reviews each loan applicant to determine its ability to repay the loan, its readiness
to proceed with the project, its ability to complete the project, and the environmental impacts of
the project. A list of prioritized loan applications is forwarded to the Board for Financing Water
Projects for approval. Funding is offered to the highest-ranking projects that are ready to
proceed, until all funds are used.
Beginning in 1997, the Program received annual capitalization grants from the U.S.
Environmental Protection Agency (EPA). Nevada is required to provide an amount equaling 20
percent of the Federal capitalization grant as matching funds in order to receive each grant. As of
June 30, 2001, EPA awarded $34,900,900 in capitalization grants for the Program, and Nevada is
required to provide $6,980,180 as its matching share. The state match is acquired from proceeds
of state match bonds issued on behalf of the Program by the State Treasurer's Office.
The Bureau has a small professional staff dedicated solely to the administration of Program
activities. The allocated portion of salaries and benefits of other employees for time spent
working on Program activities, as well as indirect costs based on direct costs, are also charged to
the Program. Employees charging time to the Program are covered by the State of Nevada
personnel benefits plan.
The Program's account balances and activities are included in Nevada's Comprehensive Annual
Financial Report (CAFR) as part of the Municipal Bond Bank special revenue fund, which uses
the modified accrual basis of accounting. Because the Program is blended into this special
revenue fund, its assets, liabilities, equity and activities are not identifiable in Nevada's CAFR.
Also, because of the different reporting methods, there may be differences between the amounts
reported in these financial statements and Nevada's CAFR.
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2.
Summary of Significant Accounting Policies
Basis of Accounting
The Program's financial statements are presented as an enterprise fund using the accrual
method of accounting whereby revenues are recorded when earned and expenses are recorded
when the related liability is incurred. An enterprise fund is used since the Program's operations
are similar to a financing institution where net income and capital maintenance are appropriate
determinations of accountability that provide information to the EPA to assist in evaluating
whether the Program is operating with the requirements of the SDWA. In preparing the Program
financial statements, Nevada follows the accounting pronouncements of the Governmental
Accounting Standards Board (GASB), as well as statements issued by the Financial Accounting
Standards Board (FASB) before November 30, 1989, unless FASB pronouncements conflict with
or contradict GASB pronouncements.
Cash and Cash Equivalents
The Nevada State Treasurer is an elected Constitutional Office and part of the Executive Branch
of State government. The Treasurer is responsible for the handling of all State cash as a fiscal
agent for the owning fund. The Treasurer manages an investment pool where all temporary
surplus cash is invested. The investment pool has the same general characteristics as demand
deposit accounts. Invested funds are considered to be cash equivalents. Management of the
Program does not have control over the investment of excess cash, and the statement of cash
flows considers all funds deposited with the Treasurer to be cash and cash equivalents,
regardless of actual maturities of the underlying investments. Deposits with the Nevada State
Treasurer are accounted for on the balance sheet as cash and cash equivalents.
Loans Receivable
Nevada operates the Program as a direct loan program, whereby the majority of loans made to
water systems are funded by the Federal capitalization grant and/or match from State funds.
Additional loans can be made from revolving funds that have been repaid to the Program and
Program earnings. The Program's loans are evidenced by a formal loan contract between the
Division and the borrower. Loan funds are disbursed to borrowers after they incur costs for the
purposes of the loan, request reimbursement from the Program, and the Program receives the
Federal share from EPA.
Interest rates are based on the Bond Buyer Municipal Index, which is published on a weekly basis
each Friday, and currently range from 3.46 to 4.03 percent. In determining the interest rate
offered to a loan recipient, the rate of interest as published by the Bond Buyer Municipal Index on
the Friday preceding the date on which the recipient loan contract is executed is multiplied by a
percentage, which is sixty-six and 2/3 percent (66.667%). No provision for doubtful accounts has
been made as all loans are current, and management believes that all loans will be repaid
according to the loan terms.
Bonds Payable
The State issues state match bonds to meet its state match obligation. Bond premiums and
costs of issuance are amortized over the life of the bonds. All bonds are backed by the full faith
and credit of the State of Nevada, with the Program primarily responsible for repayment.
Contributed Capital
In accordance with generally accepted accounting principles applicable for the period, funds
received from EPA and Nevada for the capitalization of the Program are recorded as contributed
capital rather than fund revenue.
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3. Cash and cash equivalents
All monies of the Program are deposited with the Nevada State Treasurer and are considered
cash and cash equivalents. The Treasurer is responsible for maintaining the cash balances in
accordance with Nevada laws. Details of the investments of the State Treasurer can be obtained
from the State Treasurer.
As of June 30, 2001, the Program investments with the State Treasurer totaled $2,963,485. The
Program earned $240,012 from deposits with the Treasurer during fiscal 2001. Deposits with the
Treasurer are not categorized because they are not evidenced by securities that exist in physical
or book entry form.
Market
Cost Value
Not subject to categorization:
Consolidated cash pool $2,963,485 $2,963,485
4. Loans Receivable
The Program makes loans to qualified public water systems for projects that meet the eligibility
requirements of the SDWA. Loans have been financed by federal capitalization grants and state
match contributions. As of June 30, 2001, $19,312,602 in federal funds and $4,927,168 in state
match had been disbursed for loans. The Program made loans to the Southern Nevada Water
Authority in the amount of $22,269,695, which represents approximately 92 percent of the
amounts disbursed. Effective interest rates on loans vary between 3.46 and 4.03 percent, and
are generally repaid over 20 years starting six months after the project is completed. Loans
receivable as of June 30, 2001, are as follows:
Loan Amount July1,2000 June 30, 2001
Category Authorized Balance Disbursements Repayments Balance
Funding completed $22,389,695 $ 12,269,695 $ 10,120,000 $ 427,551 $21,962,144
Funding in progress 9,450,987 0 1.850,075 0 1.850,075
Totals $31.840.682 $ 12.269.695 $ 11.970.075 $ 427.551 $23.812.219
Loans mature at various intervals through July, 2021. The scheduled principal and interest
payments on completely disbursed loans maturing in subsequent years are as follows:
ding June 30:
Principal
Interest
Total
2002
$ 801,102
$ 773,623
$1,574,725
2003
829,759
742,641
1,572,400
2004
859,443
712,957
1,572,400
2005
890,188
682,212
1,572,400
2006
922,034
650,366
1,572,400
Thereafter
17.659.618
5.059.724
22.719.342
Total
$21,962,144
$8,621,523
$30,583,667
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5. State Match Bonds Payable
The Series 1999B and Series 2000C bonds were issued by the State for the purpose of providing
matching funds for the Program and paying costs of issuance. As of June 30, 2001, Nevada had
deposited matching funds from the net proceeds of these bonds totaling $6,986,808. The bonds
are general obligations of the State to which the full faith and credit of the State is pledged. The
State expects the loan payments received from the public water systems to service debt on the
bonds. Interest on the bonds is payable semiannually with interest rates ranging from 5.1
percent to 5.75 percent. Principal is due annually through 2019 with optional early redemption, at
the option of the State, with early redemption premiums ranging from no premium to 1 percent.
Following is an analysis of changes in bonds payable for the year ended June 30, 2001:
July 1,2000	New	June 30,2001
Balance	Issues	Retirements	Balance
1999B Series $5,430,000	-	-	$5,430,000
2000C Series -	$ 1.555.000	-	1.555.000
$ 5,430,000
$ 1,555,000

$6,985,000
Premium ('amortization') 50,448
32.727
$ (3.630)
79.545
Total $ 5.480.448
$ 1.587.727
$ (3.6301
$ 7.064.545
The Program's debt service requirements to maturity, excluding unamortized premium, are as follows:
Year ending June 30:
Principal
Interest
Total
2002
2003
2004
2005
2006
Thereafter
$
195,000
305,000
310,000
320,000
5.855.000
$396,011
376,855
363,167
346,380
329,180
2.422.684
$ 396,011
571,855
668,167
656,380
649,180
8.277.684
Total
$6,985,000
$4,234,277
$ 11.219.277
As of June 30, 2001, the status of the state match deposits were
as follows:


June 30, 2000
Balance
FY 2001
Contribution
June 30, 2001
Balance
Net bond proceeds
Amount Used on Loans
Amount Available
$ 5,430 626
$1,556,182
$ 6,986,808
(4.927.1681
$ 2.059.640
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Arbitrage Rebate
In accordance with Internal Revenue Code Section 148(f) relating to arbitrage restrictions on tax-
exempt bonds, an arbitrage rebate payable in the amount of $37,699 has been recorded for the
Series 1999B and 2000C state match bond issues. The portion of the rebate due for the 1999B
bonds will be due in November, 2004, and the portion due for the 2000C bonds will be due in
February, 2006.
Contributed Capital
The Program is capitalized by EPA grants authorized by SDWA and matching funds provided by
state match bonds. All EPA funds drawn for loans are recorded as contributed capital from EPA.
All EPA funds drawn for set-asides are recorded as revenue. As of June 30, 2001, EPA had
awarded capitalization grants of $34,900,900 to Nevada, of which $19,312,602 had been drawn
for reimbursement of loan disbursements and recorded as contributed capital. An additional
$2,200,602 had been drawn for set-aside expenses since inception of the Program and recorded
as revenue. Additional revenue of $657,141 was recorded and due from EPA for set-asides as of
June 30, 2001. The following summarizes the federal capitalization grants awarded, amounts
drawn on each grant as of June 30, 2001, and balances available:
Grants
As of June 30, 2000
Awards July 1, 2000 through June 30, 2001
$27,143,900
$ 7.757.000
Total
$34,900,900
Cash Draws
As of June 30, 2000
Draws July 1, 2000 through June 30, 2001
Total Available as of June 30, 2001
$10,868,983
$10.644.221
($ 21.513.204')
$ 13.387.696
Contingencies and Subsequent Events
Contingencies
The Program is exposed to various risks of loss related to torts; thefts of, damage to, or
destruction of assets; errors or omissions; injuries to state employees while performing Program
business; or acts of God. Nevada is self-insured against certain property and liability claims up to
$1,000,000 and carries excess liability insurance for any claim in excess of $1,000,000. There
have not been any claims against the Program since its inception.
Subsequent Events
Subsequent to year end, EPA awarded Nevada its 2001 capitalization grant for $6,231,280.
Nevada's matching share for this grant is $1,246,256.

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Independent Auditor's Report on the
Nevada Drinking Water State Revolving Fund Program
Internal Control Structure Based on an
Audit of the Financial Statements
Performed in Accordance with
Government Auditing Standards
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
Mr. Alex Haartz, Deputy Administrator
Nevada State Health Division
We have audited the financial statements of the Nevada Drinking Water State Revolving Fund Program
(the Program) as of and for the year ended June 30, 2001, and have issued our report thereon dated July
25, 2002.
We conducted our audit in accordance with generally accepted auditing standards and Government
Auditing Standards issued by the Comptroller General of the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.
The management of the Program is responsible for establishing and maintaining an internal control
structure. In fulfilling this responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control policies and procedures. The objectives of an
internal control structure are to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and recorded properly to permit the preparation
of financial statements in accordance with generally accepted accounting principles. Because of inherent
limitations in any internal control structure, errors or irregularities may nevertheless occur and not be
detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the effectiveness of the
design and operation of policies and procedures may deteriorate.
In planning and performing our audit of the financial statements of the Program for the year ended June
30, 2001, we obtained an understanding of the internal control structure. Wth respect to the internal
control structure, we obtained an understanding of the design of relevant policies and procedures and
whether they have been placed in operation, and we assessed control risk in order to determine our
auditing procedures for the purpose of expressing our opinion on the financial statements and not to
provide an opinion on the internal control structure. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure would not necessarily disclose all matters in the internal
control structure that might be material weaknesses under standards established by the American
Institute of Certified Public Accountants. A material weakness is a condition in which the design or
operation of one or more of the specific internal control elements does not reduce to a relatively low level
the risk that errors and irregularities in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. We noted no matters involving the internal control
structure and its operations that we consider to be material weaknesses as defined above.
This report is intended for the information of management of the Program and the U.S. Environmental
this report is a matter of public record and distribution is not limited.

Office of Inspector General
Western Audit Division
San Francisco, California
July 25, 2002
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Independent Auditor's Report
on Compliance with Requirements Applicable to the
Nevada Drinking Water State Revolving Fund Program
in Accordance with
Government Auditing Standards
12

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Supplemental Information
14

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State of Nevada
Drinking Water State Revolving Fund
Schedule of Set-aside Expenses
Year Ended June 30, 2001
State Program Technical	Local
Administrative Management Assistance Assistance
Total
Salaries and Benefits $	124,836	$ - $
Equipment	-	30,105
Contracts	35,639	436,138 179,666
Travel	4,527	20,766
Indirect Costs	21,901	8,816
Other Operating Costs	34,852	19,634 2,155
59,324 $
14,985
358,379
2,191
6,261
184,160
45,090
1,009,822
27,483
30,717
62,902
Total
$ 221,754 $ 515,459 $ 181,821 $ 441,140 $ 1,360,174
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Report Distribution
EPA, Headquarters:
Director, Grants Administration
Agency Followup Coordinator
Associate Administrator for Congressional
and Intergovernmental Relations
Associate Administrator for Communications,
Education and Public Affairs
Infrastructure Branch Chief
DWSRF Coordinator
DWSRF Audit Manager
EPA, Region 9:
Regional Administrator
Water Division Acting Director
Associate Director for Nevada
Manager for Drinking Water Office
Audit Liaison
DWSRF Coordinator
Other:
Nevada Department of Human Resources, Health Division

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