Washington Drinking Water State Revolving Fund, Financial Statements with Independent Auditor’s Report, June 30, 2001


UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
February 21,2003
Memorandum
Subject:
Auditor's Report for the Washington Drinking Water State Revolving Fund
as of June 30, 2001
Audit Report No.2003^-00068 / -
William M. Daytoj
National SRF Audit Manager	Q
From:
To:
John lani
Regional Administrator
EPA, Region 10
Seattle, WA
Attached is a copy of the subject audit we sent to the State of Washington. The audit contains reports on the
financial statements, internal controls, and compliance requirements applicable to the Drinking Water State
Revolving Fund (SRF) program in Washington 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 me at (916) 498-6590
or Mr. Paul Felz at (303) 312-6270.
Attachment

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
February 21, 2003
Ms. Peggy Johnson, Deputy Director
Headquarters Operation
Division of Drinking Water
Washington Department of Health
Re: Final Report of Audit of Financial Statements of Washington Drinking Water State Revolving Fund for the
year ended June 30, 2001
Dear Ms. Johnson:
Attached please find an electronic copy of the Washington 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,
Wlliam M. Dayton
SRF Audit Manager

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( Q \ OIG
\	/ OFFICE OF INSPECTOR GENERAL
V T?
Catalyst for Improving the Environment
Audit Report
Washington Drinking Water
State Revolving Fund
Financial Statements with
Independent Auditor's Report, June 30, 2001
Audit Report Number 2003-1-00068
Issued February 21, 2003

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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 10
Drinking Water Unit
Department of Health
Public Works Board
Department of Community Trade &
Economic Development
Paul Felz
Darren Schorer

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Washington Drinking Water State Revolving Fund
Table of Contents
Independent Auditor's Report	1
Balance Sheet	2
Statement of Revenues, Expenses and Changes in Fund Balance	3
Notes to the Financial Statements	4
Independent Auditor's Report on the Internal Control Structure Based on an Audit of
the Financial Statements Performed in Accordance with Government Auditing Standards	8
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 	10
Supplemental Information	12

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
Independent Auditor's Report
To: Ms. Peggy Johnson, Deputy Director
Headquarters Operation
Division of Drinking Water
Washington Department of Health
We have examined the accompanying balance sheet of the Washington Drinking Water State Revolving Fund
Program (the Program) as of June 30, 2001, and the related statement of revenues, expenses and fund balance
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 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. 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 for the year then ended in
conformity with generally accepted accounting principles.
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 the General Fund of the State of Washington. These
statements are not intended to present the financial position or results of operations for the State of Washington or
the Washington Department of Health, of which the Program is a part.
In accordance with Government Auditing Standards, we have also issued a report dated July 15, 2002, on our
consideration of the Program's internal control structure and a report dated July 15, 2002, the Program's
compliance with laws and regulations.
Washington, D.C.
July 15, 2002

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Washington Drinking Water State Revolving Fund
Balance Sheet
For The Year Ended June 30, 2001
Assets
Current Assets:
Cash and cash equivalents
Loans receivable
Loan interest receivable
Investment interest receivable
Due from other funds
EPA grant receivable
Other receivables
Total Current Assets
Long-Term Assets:
Long-term loan receivable
Total Long-term Assets
Total Assets
DWSRF Fund
$13,896,708
298,488
563,072
53,831
245,713
6,629,887
24,351
21,712,050
24,433,228
24,433,228
$46,145,278
Loan Fee Acct
$728,640
25,729
45,000
799,369
$799,369
TOTAL
$14,625,348
298,488
563,072
79,560
290,713
6,629,887
24,351
22,511,419
24,433,228
24,433,228
$46,944,647
Liabilities And Fund Balance
Current Liabilities:
Due to Other Agencies
Vouchers Payable
Other Current Liabilities
Total Current Liabilities
$6,245,454
302,078
14,561
6,562,093
$6,245,454
302,078
14,561
6,562,093
Fund Balance
Reserved for Receivables
Reserved for Restricted Accounts
Total Fund Balance
Total Liabilities and Fund Balance
25,319,139
14,264,046
39,583,185
$46,145,278
$799,369
799,369
$799,369
25,319,139
15,063,416
40,382,554
$46,944,647
See accompanying notes to the financial statements.
2

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Washington Drinking Water State Revolving Fund
Statement Of Revenues, Expenses, and Changes in Fund Balance
For The Year Ended June 30, 2001
Revenues
Federal Grants in Aid
Charges for Services
Interest Income
Total Revenue
Total Expenses
Excess of Revenues over Expenses
DWSRF Fund
$15,093,369
1.422.483
16,515,852
15,093,368
1.422.484
Loan Fee Acct
471,821
36,197
508,018
508,018
Total
$15,093,369
471,821
1,458,680
17,023,870
15,093,368
1,930,502
Fund Balance Prior Year
38,160,701
291,351
38,452,052
Ending Fund Balance
$39,583,185
$799,369
$40,382,554
See accompanying notes to the financial statements.
3

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WASHINGTON DRINKING WATER STATE REVOLVING FUND
Notes to the Financial Statements
June 30, 2001
1. Organization of the Fund
The Washington Drinking Water State Revolving Fund (DWSRF) was established in 1997
pursuant to the Washington State Safe Drinking Water Act (RCW70.119A) and the Federal Safe
Drinking Water Act (SDWA). The DWSRF 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
DWSRF (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 Department of Health's Drinking Water Division (DOH) and the Public Works Board (Board)
along with its administrative agent, the Department of Community, Trade and Economic
Development (CTED), jointly manage the DWSRF. DOH determines the level of set-aside
funding needed to meet its obligations, reviews loan applications for eligibility and prioritizes
eligible projects. The Board 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 Public Works
Board for approval. Funding is offered to the highest-ranking projects that are ready to proceed,
until all funds are used.
Beginning in 1997, the DWSRF received annual capitalization grants from the U.S. Environmental
Protection Agency (EPA). States are required to provide an additional 20 percent of the Federal
capitalization grant as matching funds in order to receive a grant. As of June 30, 2001, EPA
awarded $97,800,454 in capitalization grants to the State of Washington, and Washington is
required to provide $19,560,091 to the DWSRF as its matching share. Washington's match is
transferred to the DWSRF from the State's Public Works Assistance Account.
DOH and CTED have numerous staff dedicated solely or in part to work on DWSRF activities.
The portion of salaries and benefits of employees for time spent working on Fund activities, as
well as indirect costs based on direct costs, are charged to the Fund. Employees charging time
to the Fund are covered by the State of Washington personnel benefits plan.
The DWSRF balances and activities are included in Washington's Comprehensive Annual
Financial Report (CAFR) as part of the general fund, which uses the modified accrual basis of
accounting. Because the Fund is included in the State's general fund, the assets, liabilities, and
equity of the Fund as reported here may not be identifiable in Washington's CAFR.
2. Summary of Significant Accounting Policies
Basis of Accounting
The DWSRF's financial statements are presented as a general fund using the modified accrual
method of accounting. Revenues are recognized when both measurable and available.
Expenditures are recorded when the related liability is incurred. Washington follows the
accounting pronouncements of the Governmental Accounting Standards Board (GASB).
Cash and Cash Equivalents
All monies of the Fund are deposited with the Washington State Treasurer's Office and are
considered cash or cash equivalents. According to Washington law, the State Treasurer is
responsible for managing cash balances and investing excess cash of the Fund, as further
discussed in Note 3. Therefore, management of the DWSRF does not have control over the
investment of excess cash, and the statement of cash flows considers all funds deposited with
the Treasurerto be cash or cash equivalents, regardless of actual maturities of the underlying
investments. Deposits with the Washington State Treasurer are accounted for on the balance
sheet as cash or cash equivalents.
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WASHINGTON DRINKING WATER STATE REVOLVING FUND
Notes to the Financial Statements
June 30, 2001
Loans Receivable
Washington operates the DWSRF 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 Fund and fund
earnings. The DWSRF loans are evidenced by a formal loan agreement between the Board and
the borrower, executed by CTED and a promissory note executed with CTED. Loan funds are
disbursed to borrowers after they expend funds for the purposes of the loan and request
reimbursement from the Fund.
Interest rates range from zero to 5.0 percent and are calculated from the date that funds are
advanced, and interest is accrued during the construction period. After the final loan
disbursement has been made, the loan and agreement amounts are adjusted for the actual
amounts disbursed. No provision for uncollectible accounts has been made as all loans are
current, and management believes that all loans will be repaid according to the loan terms.
Administration Fees
The DWSRF charges an administration fee on all loans. Initial DWSRF loans were charged a 3
percent administration fee with 1.5 percent due at the time of the first loan draw and 1.5 percent
due at the closing of the project. Any adjustments due to the final level of funding were made on
the final fee payment. In 1999, the fee was 2 percent due at the time of the first project draw.
Proceeds from these administration fees are available to fund administration of the DWSRF and
other eligible activities. The DWSRF collected $471,821 in administration fees in fiscal year June
30,2001.
Fund Balance
Fund balances represent the amount available for funding future operations. The reserved fund
balances represent the amount that has been legally restricted to a specific purpose or that is not
available for appropriation or expenditure. The DWSRF had the following reserved fund balances
at year end:
Reserved for receivables - An account used to indicate receivables that do not represent
available expendable resources.
Reserved for restricted accounts - An account used to recognize the remaining fund
balance that is restricted for use for activities eligible under the SDWA.
Budget Information
Under the provisions of the DWSRF's enabling legislation, funds shall be deposited into the State
Treasury and may only be drawn from the State Treasury by legislative appropriation.
3. Cash and cash equivalents
All monies of the Fund are deposited with the Washington State Treasurer and are considered
cash and cash equivalents. The Treasurer is responsible for maintaining the cash balances in
accordance with Washington laws. Details of the investments of the State Treasurer can be
obtained from the State Treasurer.
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WASHINGTON DRINKING WATER STATE REVOLVING FUND
Notes to the Financial Statements
June 30, 2001
Cash and cash equivalents (continued)
As of June 30, 2001, the Fund investments with the State Treasurer totaled $13,896,708. The
Fund earned $739,775 from investments with the Treasurer during fiscal 2001. Investments 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:
Government investment pool - DWSRF $13,896,708	$13,896,708
Government investment pool - Fees 728,640	728,640
$14,625,348	$14,625,348
Loans Receivable
The DWSRF makes loans to qualified public water systems for projects that meet the eligibility
requirements of the SDWA. Loans are financed by federal capitalization grants, state match, and
revolving funds. Effective interest rates on loans vary between zero and 5.0 percent, and are
generally repaid over 20 years starting one year after the project is completed. Loans receivable
as of June 30, 2001, are as follows:
Loan	June 30,
Amount	Julyl, 2000	2001
Category Authorized Balance	Disbursements	Repayments	Balance
Funding completed $ 4,920,307	$ 3,303,030	$ 1,367,951	$ 70,414	$ 4,500,567
Funding in progress 56.862.409 7.498.278	13.044.808	311.933	20.231.153
Totals $61.782.716	$10.801.308	$ 14.412.759	$ 482.347	$24.731.720
Loan disbursements were comprised of $10,596,447 in federally reimbursable funds, less
$24,347 recorded as other receivables, and $3,840,659 provided from State match.
Loans mature at various intervals through October, 2020. The scheduled principal and interest
payments on completely disbursed loans maturing in subsequent years are as follows:
ding June 30:
Principal
Interest
Total
2002
$ 246,167
$ 173,262
$419,429
2003
256,146
187,766
443,912
2004
256,146
176,616
432,762
2005
256,146
165,466
421,612
2006
256,146
154,316
410,462
Thereafter
3.229.815
1.010.422
4.240.237
Total
$4,500,566
$ 1.867.848
$6,368,414
Fund Balance
The DWSRF is capitalized by EPA grants authorized by SDWA and matching funds from
Washington. All funds drawn from EPA and all state match deposits from Washington are
recorded as revenues. As of June 30, 2001, EPA had awarded capitalization grants of
$97,800,454 to Washington, of which $25,356,946 had been drawn for reimbursement of loan
disbursements and set-aside expenses. An additional $6,741,187 was due from EPA.
Washington had provided matching funds of $17,649,000. The following summarizes the federal
capitalization grants awarded, amounts drawn on each grant as of June 30, 2001, and balances
available:
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WASHINGTON DRINKING WATER STATE REVOLVING FUND
Notes to the Financial Statements
June 30, 2001
5. Fund Balance (continued)
Grants	Total
As of June 30, 2000	$70,406,100
Awards July 1, 2000 through June 30, 2001	$27.394.354	$97,800,454
Cash Draws
As of June 30, 2000
Draws July 1, 2000 through June 30, 2001
Total Available as of June 30, 2001
$12,188,978
$13.167.968
($ 25.356.946)
$72.443.508
As of June 30, 2001, Washington matching contributions were:
June 30, 2000 FY 2001	June 30, 2001
Balance Contribution	Balance
State of Washington $17,649,000 $0	$17,649,000
Amount Used on Loans	(6,781.491)
Amount Available	$10.867.509
The DWSRF Fund Balance determined on a regulatory basis as of June 30, 2001 consisted of
the following:
EPA capital contributions	$18,504,106
State of Washington capital contributions	17,649,000
Retained Fund Earnings	3,430,079
Total Fund Balance	$39.583.185
6. Contingencies and Subsequent Events
Contingencies
The DWSRF 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 Fund
business; or acts of God. Washington is self-insured against certain property and liability claims.
There have not been any claims against the DWSRF since its inception.
Subsequent Events
Subsequent to year end, EPA awarded Washington the remainder of its 2001 capitalization grant
for $6,160,320.00. Washington's matching share for this grant is $1,232,064.
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Independent Auditor's Report on the
Washington Drinking Water State Revolving Fund
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
Ms. Peggy Johnson, Deputy Director
Headquarters Operation
Division of Drinking Water
Washington Department of Health
We have audited the financial statements of the Washington Drinking Water State Revolving Fund (the
Fund) as of and for the year ended June 30, 2001, and have issued our report thereon dated July 15,
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 Fund 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 Fund 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 Fund and the U.S. Environmental
Protection Agency. However, this report is a matter of public record and distribution is not limited.
i
Washington, D.C.
July 15, 2002
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Independent Auditor's Report
on Compliance with Requirements Applicable to the
Washington Drinking Water State Revolving Fund Program
in Accordance with
Government Auditing Standards

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Supplemental Information

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State of Washington
Drinking Water State Revolving Fund
Schedule of Expenditures
June 30, 2001
State
Program
Management
$ 771,923
270,862
17,359
325,281
$ 1,385,425
Expenditures for loans
Total Expenditures
Technical	Local
Total
$ 1,658,518
71,114
1,123,280
44,973
1,599,037
$ 4,496,921
10,596,447
$ 15,093,368
Admistrative
Salaries and benefits	$ 215,975
Equipment
Contracts	395,176
Travel	5,749
Other operating costs 	117,536
Subtotal	$ 734,436
Assistance	Assistance
$ 176,080	$ 494,540
71,114
61,496	395,746
5,740	16,125
235,658	920,562
$ 478,973	$ 1,898,086
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Report Distribution
EPA, Region 10:
Regional Administrator
Director, Water Division
State Revolving Fund Coordinator
SRF Financial Analyst
Audit Followup Coordinator
EPA, Headquarters:
Director, Grants Administration
Agency Followup Coordinator
Associate Administrator for Congressional
and Legislative Affairs
Associate Administrator for Communication, Education,
And Public Affairs
State Revolving Fund Audit Manager
State Revolving Fund Branch, Office of Wastewater Management
Other:
State of Washington, Department of Health

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