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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
'x	*
"I PRO^
OFFICE OF
INSPECTOR GENERAL
June 3, 2003
Memorandum
Subject:
Auditor's Report for the Utah State Revolving Fund as of June 30, 2002
From:
EPA Audit Repo
William M. Dayti
National SRF M,
To:
Robbie Roberts
Regional Administrator
EPA, Region 8
Denver, CO
Attached is a copy of the subject audit we sent to the State of Utah. The audit contains reports on the
financial statements, internal controls, and compliance requirements applicable to the Drinking Water
State Revolving Fund (SRF) program in Utah for the year ended June 30, 2002.
We have issued an unqualified opinion on the financial statements and noted no matters involving the
internal control system and operations that we consider to be material weaknesses. We qualified our
opinion on the compliance requirements applicable to the SRF program because the Utah Drinking Water
State Revolving Fund did not comply with binding commitments requirements of the Safe Drinking Water
Act and regulations. In response to the draft audit report, management agreed with our comments, and is
taking appropriate steps to correct the deficiencies.
In accordance with EPA directive 2750, the Action Official is required to take action on the findings and
recommendations in this report within 150 days.
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 Mr. William Dayton
at (916) 498-6590 or Mr. Darren Schorer at (206) 553-6288.
Attachment

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ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C
OFFICE OF
INSPECTOR GENERAL
June 3, 2003
Mr. Kevin Brown, Director
Division of Drinking Water
Department of Environmental Quality
State of Utah
Re: Audit Report of the Financial Statements of the Utah Drinking Water State Revolving Fund
Program for the year ended June 30, 2002
Audit Report No. 2003-1-00110
Dear Mr. Brown:
Enclosed please an electronic copy of the audited financial statement for the Utah Drinking Water State
Revolving Fund Programs for the year ended June 30, 2002.
We made certain adjustments and reclassifications, to which you have agreed, in order to have the
financial statements follow EPA's current reporting guidelines, which are presented in accordance with
generally accepted accounting principles.
We would like to thank you and your staff for the cooperation and courtesies we received during our audit.
Please feel free to call Mr Darren Schorer (206) 553-6288 or myself at (916) 498-6590 should you have
any comments or questions.
William M. Dayton^
National SRF Audit Manager

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^60
Q\ OIG
/ OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
State of Utah
Drinking Water State Revolving Fund
Financial Statements with
Independent Auditor's Report, June 30, 2002
Audit Report Number 2003-1-00110
Issued June 3, 2003

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State of Utah
Drinking Water State Revolving Fund
Table of Contents
Independent Auditor's Report		1
Statement of Net Assets		2
Statement of Revenues, Expenses and Changes in Fund Net Assets 		3
Statement of Cash Flows		4
Notes to the Financial Statements 		6
Independent Auditor's Report on the Internal Control Structure Based on an
Audit of the Financial Statements Performed In Accordance with
Government Auditing Standards 	 13
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	 16
Supplemental Information 	 19

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
Independent Auditor's Report
To: Kevin Brown, Director
Division of Drinking Water
Department of Environmental Quality
State of Utah
We have audited the accompanying statement of net assets of the Utah Department of Environmental Quality
Drinking Water State Revolving Fund Program (the Program) as of June 30, 2002, and the related statements of
revenues, expenses and changes in fund net assets, and 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 auditing standards generally accepted in the United States of America
and standards applicable to financial audits contained in 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 Utah Department of Environmental Quality Drinking Water State Revolving Fund as of June
30, 2002 and the results of its operation and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1, the financial statements referred to above are intended to present the financial position and
results of operations of the Utah Department of Environmental Quality Drinking Water State Revolving Fund, a
component fund of the State of Utah. These statements are not intended to present the financial position or results
of operations for the State of Utah or the Utah Department of Environmental Quality, in conformity with accounting
principles generally accepted in the United States, of which the Drinking Water Revolving Fund is a part.
In accordance with Government Auditing Standards, we have also issued a report, dated December 13, 2002, on our
consideration of the Utah Department of Environmental Quality Drinking Water State Revolving Fund's internal
control structure and a report dated December 13, 2002 on its compliance with laws and regulations. Those reports
are integral parts of an audit prepared in accordance with auditing standards generally accepted in the United States
of America and should be read in conjunction with the report in considering the results of our audit.
Office of the Inspecti
ieneral
Environmental Protection Agency
December 13, 2002

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Statement of Net Assets
June 30, 2002
Assets
Loan
Fund
Hardship
Fee Fund
Total
Current assets:
Cash and cash equivalents
Current receivables:
Federal receivables
Late payment interest receivable
Accrued hardship fees
Current maturities of loan receivables
Total current assets
$ 3,493,120
162,177
3,173
831.000
4,489.470
$ 244,391
168,331
412,722
$ 3,737,511
162,177
3,173
168,331
743.000
4,902,192
Long-term loan receivable
16,727,377
Capital assets:
Fixed assets
Accumulated depreciation
Total capital assets
Total assets
591,875
(117.967)
473,908
$ 21.690.755
$ 412.722
591,875
(117.967)
473,908
$ 22.103.477
Liabilities
Current liabilities:
Accounts payable
Due to state
Accrued liabilities
Total liabilities
4,350
52,435
105,392
162.177
4,350
52,435
105,392
162.177
Net Assets
Unrestricted
$ 21.528.578
$ 412.722 $ 21.941.300
The accompanying notes are an integral part of these financial statements.
2

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Statement of Revenues, Expenses and Changes in Fund Net Assets
For the year ended June 30, 2002
Loan	Hardship
Fund	Fee Fund	Total
Operating Revenues:
Loan hardship fees
Late payment fees
Set-asides:
EPA set-aside operating grants
Transfer from other State Funds
Total operating revenues
$ -	$ 295,929	$ 295,930
2,298	-	2,298
1,337,679	1,337,679
799.339 		799.339
2.139.316	295.929	2.435.245
Operating Expenses:
Principal forgiveness
Loan administration charge
Administration
State program management
Technical assistance
Local assistance
Total operating expenses
Operating income (loss)
417,479
1,126
195,957
1,624,272
186,788
247.967
(534,272)
295,929
417,479
1,126
195,957
1,624,272
186,788
247.967
(238,343)
Nonoperating Revenue (Expenses)
Interest on investments	108,879 1,949 110,828
Fair market value adjustment	(7,208) (524) (7,732)
EPA grant:
Loan program	8,190,382 8,190,382
Transfer from other State funds:
Loan program	1,557,820 1,557,820
EPA set-aside grant - fixed asset purchase	162,406 		162,406
Total nonoperating revenue	10,012,279 	1,425	10,013,704
Change in net assets	9,478,007 297,354 9,775,361
Net assets, beginning of year	12,050,571 115,368
Net assets, end of year	$ 21.528.578 $ 412.722 $ 21.941.300
The accompanying notes are an integral part of these financial statements.
3

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Combined Statement of Cash Flows
For the year ended June 30, 2002
Loan
Fund
Cash flows from operating activities:
Receipt from hardship fee payment
Receipt from EPA for the set-aside program
Transfer from other State funds to set-aside programs
Principal forgiveness payments to borrowers
Loan administration charge paid to State
Receipt from loan payments
Payments for loan draws
Payment for employee services and benefits
Payment for supplies and contracts
Net cash provided (used) by operating activities
Cash flows from noncapital financing activities:
Funds received from EPA
Transfer from other State funds
Net cash provided by noncapital financing activities
Cash flows from capital and related financing activities:
Receipt from EPA
Acquisition of fixed asset
Net cash provided by capital and related
financing activities
Cash flows from investing activities:
Receipt from interest on investments
Investment fair market value adjustment
Net cash provided by investing activities
Net cash provided by operations
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$ 1,544,450
720,654
(417,479)
(1,125)
494,024
(10,149,570)
(1,490,412)
(774.692)
(10.074.150)
8,790,382
1.557.820
162,406
(162.406)
0
108,879
(7,208)
101.671
375,723
3.117.397
Hardship
Fees
185,300
Total
185.300
1,949
(524)
1.425
186,725
57.666
$
185,300
1,544,450
720,654
(417,479)
( 1,125)
494,024
(10,149,570)
(1,490,412)
( 774.692)
(9.888.850)
8,790,382
1.557.820
162,406
(162.496)
0
110,828
(7,732)
103.096
562,448
3.175.063
$ 3.493.120 $_
244,391
$ 3.737.511
The accompanying notes are an integral part of the financial statements.
4

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Combined Statement of Cash Flows
For the Year Ended June 30, 2002
Loan	Hardship
Fund	Fees	Total
Reconciliation of operating income (loss) to net
cash provided (used) by operating activities
Excess of revenue over expenses	(534,272)	295,929	(238,343)
(Increase) decrease in loan hardship fees receivable	(110,629)	(110,629)
(Increase) decrease in loan receivable	(9,655,547)	-	(9,655,547)
(Increase) decrease in late payment receivable	(2,298)	-	(2,298)
Increase (decrease) in fixed asset depreciation	117,967	-	117,967
Increase (decrease) in accounts payable and
other liabilities	34,320	-	34,320
(Increase) decrease in Federal receivables	71,326	-	71,326
Increase (decrease) in liability due to State	(105,646) 	;	(105,646)
Net cash used by operating activities $	(10,074,150)	$ 185,300 $ (9,888,850)
The accompanying notes are an integral part of the financial statements.
5

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
1. Organization of the Fund
The Utah Drinking Water State Revolving Fund Program (the Program) was established in 1997
pursuant to Utah Code, Title 73, Chapter 10 and the Safe drinking Water Act (SDWA)
Amendments of 1996. 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 Utah Legislature enacted Utah Code Annotated (UCA) 19-4-101 et seq. establishing the Utah
Safe Drinking Water Board (the Board). UCA 19-4-104 empowers the Board with rule making
authority to meet the requirements of Federal law governing drinking water. UCA 19-1 -105
establishes the Division of Drinking Water which is tasked with the responsibility to administer
UCA 19-4-101 et seq. The Board has promulgated rules for making loans incorporating the
requirements of the Federal Safe Drinking Water Act at Utah Administrative Code R309.705.
Additionally, the Board is authorized by UCA 19-4-104(1 )(a)(v) and 19-4-104(2) to promulgate
rules for certification of operations and governing capacity development in compliance with
Section 1419 and 1420 of the Federal Safe Drinking Water Act.
The Department of Environmental Quality's Division of Drinking Water (Division) and the Board
jointly manage the Program. The Division determines the level of set-aside funding needed to
meet its obligations, reviews loan applications for eligibility, prioritizes eligible projects, monitors
loan repayments and conducts project inspections. The Board, an eleven-member board
appointed by the Governor, develops policies and procedures for program implementation and
authorizes loans under the Program. The Board reviews each loan applicant to determine its
ability to repay the loan, its readiness to proceed with the project and its ability to complete the
project.
The Division receives assistance and support from the Department of Environmental Quality's
Office of Support Services, the State Division of Finance, the State Attorney General's Office and
the State Treasurer's Office. The salaries and benefits of the employees, as well as indirect costs
based on direct salary costs, are charged to the Program. Employees charging time to the
Program are covered by the State of Utah personnel benefits plan. The Division of Finance
charges the Program a loan administration fee.
The Fund was capitalized by a series of grants from the U.S. Environmental Protection Agency
(EPA) starting in 1997. State's are required to provide an additional 20 percent of the Federal
capitalization grant amount as matching funds in order to receive the grant from EPA. As of June
30, 2002, EPA awarded $42,690,000 in capitalization grants to the State, and the State is required
to provide $8,538,000 to the Fund as its matching share.
The Program balances and activities are included in Utah's Comprehensive Annual Financial
Report (CAFR), which uses the modified accrual basis of accounting. Because certain funds are
combined, the Program assets, liabilities, and net assets are not identifiable in Utah's CAFR.
The accompanying notes are an integral part of the financial statements.
6

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements for the Program are presented as an enterprise fund. As such, the
Program is accounted for using the flow of economic resources measurement focus and using the
accrual method of accounting. Under the accrual method of accounting, revenues are
recognized when earned and expenses are recorded at the time the liability is incurred. All assets
and liabilities associated with the operations of the Fund are included in the balance sheet. The
State has elected to follow the accounting pronouncements of the Governmental Accounting
Standards Board (GASB), as well as statements issued by the Financial Accounting Standards
Board (FASB) on or before November 30, 1989, unless the pronouncements conflict with or
contradict GASB pronouncements.
Revenue and Principal Forgiveness Recognition
The Board receives administrative revenue and set-aside program revenue. These are
recognized when earned.
The board may authorize principal forgiveness to disadvantaged communities. Principal
forgiveness is recognized as an expense as loan draws are made.
Cash and Cash Equivalents
All monies of the Program are deposited with the State of Utah Treasurer's Investment Fund
(PTIF accounts) an external investment pool managed by the State Treasurer, and are
considered cash. Investment interest earnings on these deposits are received by the Program on
a monthly basis. According to State law, the Treasurer is responsible for maintaining the cash
balances and investing excess cash of the Program, as discussed in Note 3. Consequently,
management of the Program does not have any control over the investment of the excess cash.
The statement of cash flows considers all funds deposited with the Treasurer to be cash or cash
equivalents, regardless of actual maturities of the underlying investments. Shares in the PTIF are
valued at fair value in accordance with Governmental Accounting Standards Board Statement No.
31, "Accounting and Financial Reporting for Certain Investments and for External Investment
Pools," which requires all investments in debt and equity securities to e reported at fair value in
the balance sheet and all investment income, including changes in the fair value of investments,
to be reported in the statement of revenue and expense. Fair market value adjustments are
considered as cash equivalents.
Loans Receivable
Loans are funded by Federal capitalization grants from EPA, State matching funds, loan
repayments and fund earnings. The SRF monies are disbursed to borrowers on a cost
reimbursement basis. When the borrowers have incurred qualifying expenses, they request a
loan disbursement from the Program, and at that time, a disbursement is made and recorded in
the Program accounting records. Interest begins accruing when funds are disbursed to the
borrower. Repayment must begin no later than one year after completion of the project. Full
repayment must be received by the Program within 20 years of project completion.
The accompanying notes are an integral part of the financial statements.
7

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
2. Summary of Significant Accounting Policies (continued)
Hardship Fee Assessments
The Board has the option to charge a hardship fee assessment in lieu of interest. The loans that
have been closed to date have the hardship fee assessment. Hardship fees are calculated and
paid in the same manner as interest. The Program restriction for the use of hardship fees differs
from the restriction for the use of interest. Hardship fee assessments are accounted for in a
separate fund and can be used for purposes other than loans, including grants to disadvantage
communities. The hardship fee assessments vary from 0.535 percent to 4.92 percent There is
no provision for uncollectible accounts, as all repayments are current, and management believes
all loans will be repaid according to the loan terms.
Contributed Capital
In accordance with generally accepted accounting principles (GAAP), funds received from the
EPA and the State of Utah for the capitalization of the Fund are recorded under equity as non-
operating revenues
3. Cash and Cash Equivalents
All monies in the Fund is deposited with the State Treasurer's Office and are considered to be
cash. The Treasurer is responsible for maintaining and investing the pooled cash balances in
accordance with the Utah Money Management Act. Utah's Money Management Act requires the
Treasurer to invest these funds in a manner that (1) ensures maximum safety of principle, (2)
provides adequate liquidity to meet all operating requirements, and (3) achieves the highest
possible return on investment consistent with the primary objectives of security and safety. The
Treasurer is required to maintain a mix of investments in order to allow funds to be withdrawn at
any time to meet normal operating needs. The Fund's share of the investment income is based
on the average daily balance for the period and is credited to the Fund monthly. Details of the
investments can be obtained from the State Treasurer's Office.
All cash and investments are stated at cost with an investment fair market value adjustment.
Investments held by the State Treasurer's Office are not categorized because they are not
evidenced by securities that exist in physical or book entry form.
Loan	Hardship
Fund	Fee	Total
Cash
$ 872,336
$
53,998
$ 926,334
Investments
2,627,991

190,917
2,818,908
Less fair value adjustment
(7,207)

(524)
(7,731)
$3,493,120
$
244.391
$3,737,511
The accompanying notes are an integral part of the financial statements.
8

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
Loans Receivable
The Fund makes loans to qualified entities for projects that meet the eligibility requirements of the
Act. Capitalization grants, state match, interest earnings and revolving funds finance loans.
Effective hardship fees on loans vary between 0.535 and 4.92 percent and are generally repaid
over 20 years. Maturities are from eight to 20 years. Recipients make annual payments, starting
one year after the loan closes. Details of loans receivable as of June 30, 2002 are as follows:
Authorized
Loan	Amount Principal	Outstanding
Amounts	Disbursed Repaid	Balance
Fully disbursed loans $ 5,330,000	$ 5,330,000 $ 190,024 $ 5,139,976
Active loans 26.727.000	14.394.562 387.982	14.006.580
Totals $ 32.057.000	$ 19.724.562 $ 578.006 $ 19,146,556
Less principal forgiveness	(1.588.179)
Loans receivable	|_J7i558i377
Amounts due within one year	831,000
Loans receivable, net June 30, 2002
Non-current loans receivable, June 30, 2001	$ 17,558,377
Loans mature at various intervals through June 30, 2021. The scheduled minimum principle
repayments on loans for completed projects in subsequent years are as follows:
Year ending June 30:	Amount
2003	$ 831,000
2004	1,318,000
2005	1,384,000
2006	1,413,000
2007	1,449,000
Thereafter	11.251.377
$ 17.558.377
Fixed Assets
Fixed assets consist of the Division of Drinking Water's information system and associated
database. Utah uses the straight line depreciation method over a useful life of five years.
Liabilities
Liabilities for personal services and related benefits, contracts and supplies incurred prior to July
1, 2002 and paid after June 30, 2002 were accrued and entered as an expense.
The accompanying notes are an integral part of the financial statements.

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
7. Net Assets
The Fund is capitalized by Grants from EPA and matching funds from the state. All funds drawn
are recorded as non-operating revenues from the EPA and the State of Utah.
Utah's matching contribution has been provided from tax revenues deposited to the State drinking
water loan fund. As of June 30, 2002, EPA has awarded capitalization grants of $42,690,000 to
the State, of which $13,663,725 has been drawn for reimbursement of loan disbursements and
recorded as contributed capital. An additional $5,633,869 has been drawn for set-asides
expenditures since inception of the Program and recorded as revenue. The State has provided
matching funds of $8,538,000.
The following summarizes the EPA capitalization grants awarded, amounts drawn on each grant
as of the balance sheet date, and balances available for future loans:
Grant Funds
Grant	Total Draws	2002 Total Draws	Available,
Amount	June 30.2001 Draws June 30.2002 June 30.2002
1997	12,558,800	8,021,663	4,140,115	12,161,778	397,022
1998	7,121,300	1,016,793	4,379,094	5,395,887	1,725,413
1999	7,463,800	595,631	357,052	952,683	6,511,117
2000	7,757,000	0	713,447	713,447	7,043,553
2001	7.789.100 	0	73.799	73.799	7.715.301
Totals $ 42.690.000	$ 9.634.087	$ 9.663.507	$ 19.297.594	$ 23.392.406
8. Contingencies and Subsequent Events
Contingencies
The Program is exposed to various risks of loss related to torts, thefts of assets, errors or omissions,
injuries to state employees while performing Program business, or acts of God. A Fidelity Bond is
purchased for each contract. The sponsor and the State of Utah acting through the Drinking Water
Board are the named insured. There have not been any claims against the Fidelity Bond insurance.
The Program is also included in the Utah's Risk Management Fund that provides insurance in case
of loss or claims against the fund.
Subsequent Events
Subsequent to June 30, 2002, the EPA awarded the fiscal year 2002 capitalization grant to the State.
The grant provides $8,052,500 in additional funds, $6,384,100 to the loan fund and $1,668,400 to the
set-aside funds. The state 20 percent match of $1,610,500 will be added to the loan fund.
The accompanying notes are an integral part of the financial statements.
10

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UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
Drinking Water State Revolving Fund
Notes to Financial Statements
June 30, 2002
8. Contingencies and Subsequent Events (continued)
Loans to Copperton Improvement District and Duchesne City totaling $1,700,000 were closed in July
2002. A loan to Emigration Improvement District of $1,846,000 was closed in November 2002. With
the closing of the Emigration Improvement District loan the Division of Drinking Water is in
compliance with the DWSRF commitment rules.
No other subsequent events following the fiscal year-end required disclosure in these financial
statements.
The accompanying notes are an integral part of the financial statements.
11

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Independent Auditor's Report on the
Internal Control Structure Based on an
Audit of the Financial Statements
Performed in Accordance with
Government Auditing Standards

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v,	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
mm xj	WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
TO: Kevin Brown, Director
Division of Drinking Water
Department of Environmental Quality
State of Utah
We have audited the financial statements of Utah Department of Environmental Quality Drinking Water
State Revolving Fund Program (the Program) as of and for the year ended June 30, 2002, and have
issued our report thereon dated December 13, 2002.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and standards applicable to financial audits contained in 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 from material
misstatement.
The management of the Utah Department of Environmental Quality Drinking Water State Revolving Fund
is responsible for establishing and maintaining an internal control structure. In fulfilling its responsibilities,
estimates and judgements 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 Utah Department of Environmental
Quality Drinking Water State Revolving Fund for the year ended June 30, 2002, we obtained an
understanding of the internal control structure. With 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 over financial reporting would not necessarily disclose all matters
in the internal control over financial reporting 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 internal control components does not reduce to a
relatively low level the risk that misstatements 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.
13

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This report is intended for the information of management of the Utah Department of Environmental
Quality Drinking Water State Revolving Fund and the United States Environmental Protection Agency.
However, this report is a matter of public record and distribution is not limited.
Office of Inspector (General
Environmental Protection Agency
December 13, 2002
14

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Independent Auditor's Report
on Compliance with Requirements Applicable to the
Environmental Protection Agency's
State Revolving Fund Program
in Accordance with
Government Auditing Standards

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C.
OFFICE OF
INSPECTOR GENERAL
TO: Kevin Brown, Director
Division of Drinking Water
Department of Environmental Quality
State of Utah
We have audited the financial statements of the Utah Department of Environmental Quality Drinking
Water State Revolving Fund Program (the Program) as of and for the year ended June 30, 2002, and
have issued our report thereon dated December 13, 2002.
We have also audited the Program's compliance with requirements governing the following:
•	Allowability for Specific Activities;
•	Allowable Costs/Cost Principles;
•	Cash Management;
•	State Matching;
•	Period of Availability of Funds and Binding Commitments;
•	Program Income;
•	Reporting;
•	Sub-recipient Monitoring, and;
•	Special tests and provisions;
The above compliance requirements are applicable to the Utah Department of Environmental Quality
Drinking Water State Revolving Fund Program for the year ended June 30, 2002. The management of
the Program is responsible for it's compliance with those requirements. Our responsibility is to express an
opinion on those requirements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in 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 material noncompliance with the requirements of the
SRF program occurred. An audit includes examining, on a test basis, evidence about the Program's
compliance with those requirements. We believe that our audit provides a reasonable basis for our
opinion.
As part of obtaining reasonable assurance about whether the Utah Department of Environmental Quality
Drinking Water State Revolving Fund's financial statements are free of material misstatement, we
performed tests of its compliance with certain provisions of laws, regulations, and grants, noncompliance
with which could have a direct and material effect on the determination financial statement amounts. The
results of our tests disclosed no instances of noncompliance that we are required to report under
Government Auditing Standards.
In our opinion, the Program complied, with the exception of the condition discussed below, in all material
respects, with the specific program requirements listed above for the year ended June 30, 2002.
The Program did not make sufficient binding commitments as of June 30, 2002. The Program executed
binding commitments in the amount of $32,057,000 as of June 30, 2002. The minimum requirement is
$35,277,121. The Program executed additional commitments of approximately $3,546,000 by November
2002, which meets the binding commitment requirement.
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This report is intended for the information of management of the Program and the United States
Environmental Protection Agency. However, this report is a matter of public record and distribution is not
Environmental Protection Agency
December 13, 2002
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Supplemental Information

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State of Utah
Drinking Water State Revolving Fund
Schedule of Set-aside Expenses
Year Ended June 30, 2002
State Program	Technical	Local
Administrative	Management	Assistance	Assistance	Total
Salaries and Benefits $ 157,307	$ 1,158,692	$ -$	35,487	$ 1,351,486
Travel 2,755	11,031	-	-	13,786
Current Expense 14,360	92,697-	1,128	294,972
Data Processing 991	17,560	-	186	18,737
Contracts -	75,000	186,787	206,532	281,532
Indirect Expense 20,544	151,325	-	4,635	176,504
Depreciation Expense 	2 	117,967 	; 	2	117,967
Total $ 195.957	$ 1.624.272	$ 186.787	$ 247.968	$ 2.254.984
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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 8:
Regional Administrator
Water Division Director
Municipal Systems Director
DWSRF Coordinator
State of Utah:
Department of Environmental Quality
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