Audit 282255

Title: Background of the consent decree Accounting Policies: a. Scope of Presentation: The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal grant activity of the San Bernardino Municipal Water Department (the "Department"), a component unit of the City of San Bernardino, California (the City), under programs of the federal government for the year ended June 30, 2022. The information in this Schedule is presented in accordance with the requirements of the Uniform Guidance. Because the Schedule presents only a selected portion of the operations of the Department, it is not intended to and does not present the financial position, changes in net position or cash flows of the Department, nor does it present all federal programs of the City of San Bernardino as a whole. b. Basis of Accounting: Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance. Under the accrual basis of accounting, expenditures are recognized when incurred. Expenditures reported include any property or equipment acquisitions incurred under the federal program. The Department did not use the 10% de minimis indirect cost rate as covered in section 200.414 of the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. In 1996, the City filed a complaint against the United States of America, Department of the Army (Army) to recover damages, response costs and other available remedies relating to contamination alleged to have originated at a World War II Army installation known as Camp Ono. In March 2005, the United States Department Court, Central Department, entered judgment, in the form of a consent decree (Consent Decree), in the matter of City of San Bernardino v. United States of America. The consent decree settles the Citys and the States claims arising from the groundwater contamination allegedly caused by the Army. The Consent Decree contains a number of provisions obligating the City (through the Municipal Water Department) to operate and maintain the Newmark Groundwater Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998.The Consent Decree provided for a payment of $69 million from the Army to the City for performance of the work outlined in the consent decree. Upon entry of the Consent Decree, the City, through the Department, received title to all facilities constructed by the United States Environmental Protection Agency (EPA) for the Site and agreed to operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69 million payment consisted of $59 million for operation and maintenance and $10 million for the construction of certain capital facilities that would be required in the future. The funds are subject to strict limitations, contained in the Consent Decree, as to how they may be spent.Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be used only for (i) funding construction of treatment and directly related transmission systems that expanded the Departments capacity to deliver potable water, and (ii) funding work performed by the Department to complete construction of the Muscoy Operable Unit extraction system. These capital facility funds may not be used for costs incurred to operate, maintain, repair or retrofit components of the Site extraction or treatment systems constructed by EPA. In September 2007, the Muscoy Operable Unit was declared operational and functional.