Petroleum Storage Tank Release Indemnity Fund : financial statements (with independent auditors' report thereon)

              C 5600.3 P497r 2008-2009
c.l
Petroleum Storage Tank
Release Indemnity Fund
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
Financial Statements
June 30, 2009 and 2008
(With Independent Auditors' Report Thereon)
December 15,2009
Oklahoma Corporation Commission
Petroleum Storage Tank Release Indemnity Fund
We have audited the balance sheet-governmental funds/statement of net assets (cash basis) as
of June 30, 2009, of the Petroleum Storage Tank Release Indemnity Fund (the "Indemnity
Fund"), administered by the Petroleum Storage Tank Division of the Oklahoma Corporation
Commission, and the related statement of revenues, expenditures, and changes in fund
balances-governmental funds/statement of activities (cash basis) for the year then ended and
have issued our report thereon dated December 15,2009. Professional standards require that we
provide you with information about our responsibilities under generally accepted auditing
standards and Government Auditing Standards, as well as certain information related to the
planned scope and timing of our audit. We have communicated such information in our letter to
you dated January 30, 2009. Professional standards also require that we communicate to you the
following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies.
The significant accounting policies used by the Indemnity Fund are described in Note 2
to the financial statements. No new accounting policies were adopted and the application
of existing policies was not changed during 2009. We noted no transactions entered into
by the Indemnity Fund during the year for which there is a lack of authoritative guidance
or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by
management and are based on management's knowledge and experience about past and
current events and assumptions about future events.
The disclosures in the financial statements are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and
completing our audit.
1421 E. 45th Street· Shawnee, OK 74804
P: 405.878.7300 www.finley-cook.com F: 405.878.4780
Significant Audit Findings, Continued
Oklahoma Corporation Commission
Petroleum Storage Tank Release Indemnity Fund
December 15,2009
Page -2-
Corrected and Uncorrected Misstatements
There are no uncorrected financial statement misstatements.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with
management as a financial accounting, reporting, or auditing matter, whether or not
resolved to our satisfaction, that could be significant to the financial statements or the
auditors' report. We are pleased to report that no such disagreements arose during the
course of our audit.
Management Representations
We have requested certain representations from management that are included in the
management representation letter dated December 15,2009.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing
and accounting matters, similar to obtaining a "second opinion" on certain situations. If a
consultation involves application of an accounting principle to the Indemnity Fund's
financial statements or a determination of the type of auditors' opinion that may be
expressed on those statements, our professional standards require the consulting
accountant to check with us to determine that the consultant has all the relevant facts. To
our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting
principles and auditing standards, with management each year prior to retention as the
Indemnity Fund's auditors. However, these discussions occurred in the normal course of
our professional relationship and our responses were not a condition to our retention.
Other Required Communication
Oklahoma Corporation Commission
Petroleum Storage Tank Release Indemnity Fund
December 15, 2009
Page -3-
We as independent auditors are required to:
a. Communicate significant deficiencies and material weaknesses in internal
control to the audit committee or its equivalent.
b. Report directly to the audit committee (or equivalent) any fraud that causes a
material misstatement of the financial statement and any fraud involving
senior management. Fraud perpetrated by lower-level employees is also to be
reported if it resulted in an individually significant misstatement.
c. Report illegal acts that come to our attention (except those that are clearly
inconsequential).
We have nothing to report.
This information is intended solely for the use of the Oklahoma Corporation Commission, the
Storage Tank Advisory Council, Petroleum Storage Tank Division management, the Office of
the Auditor and Inspector of the State of Oklahoma, the Governor, and the Oklahoma Legislature
and is not intended to be and should not be used by anyone other than these specified parties.
Sincerely,
FINLEY & COOK, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
Nathan Atchison
Partner
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
Table of Contents
CASH BASIS FINANCIAL STATEMENTS
Independent Auditors' Report............................................................ 1
Basic Financial Statements
Balance Sheets-Governmental Funds/
Statements of Net Assets (Cash Basis) 3
Statements of Revenues, Expenditures, and
Changes in Fund Balances-Governmental Funds/
Statements of Activities (Cash Basis)......................................................................................... 4
Notes to Cash Basis Financial Statements 5
Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on
an Audit of Financial Statements Performed in
Accordance with Government AuditingStandards _12..
Schedule of Findings and Reponses................................................................................................... 21
Schedule of Prior Year Findings....... 22
r
INDEPENDENT AUDITORS' REPORT
Oklahoma Corporation Commission
Petroleum Storage Tank Release Indemnity Fund
We have audited the accompanying cash basis financial statements of the governmental activities and the
major fund of the Petroleum Storage Tank Release Indemnity Fund (the "Indemnity Fund"), administered by
the Petroleum Storage Tank Division of the Oklahoma Corporation Commission, as of and for the years
ended June 30, 2009 and 2008, which collectively comprise the Indemnity Fund's basic financial statements
as listed in the table of contents. These financial statements are the responsibility of the Petroleum Storage
Tank Division's management. Our responsibility is to express opinions on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States and
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 the fmancial 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
audits provide a reasonable basis for our opinion.
As described in Note 2, the financial statements were prepared on the cash basis of accounting, which is a
comprehensive basis of accounting other than accounting principles generally accepted in the United States,
and are not intended to present the financial position and results of operations in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1, the financial statements of the Indemnity Fund are intended to present the financial
position and the changes in financial position of only that portion of the governmental activities and each
major fund of the Petroleum Storage Tank Division of the Oklahoma Corporation Commission attributable to
the transactions of the Indemnity Fund. They do not purport to, and do not, present fairly the financial position
of the Petroleum Storage Tank Division ofthe Oklahoma Corporation Commission as of June 30, 2009 and
2008, and the changes in its financial position for the years then ended, in conformity with accounting
principles generally accepted in the United States.
In our opinion, the fmancial statements referred to above present fairly, in all material respects, the
respective cash basis financial position ofthe governmental activities and the major fund of the Indemnity
Fund as of June 30, 2009 and 2008, and the respective changes in cash basis financial position thereoffor the
years then ended, on the basis of accounting described in the accompanying notes.
(Continued)
- 1 -
1421 E. 45th Street· Shawnee, OK 74804
P: 405.878.7300 www.finley-cook.com F: 405.878.4780
INDEPENDENT AUDITORS' REPORT, CONTINUED
The Indemnity Fund has not presented management's discussion and analysis or a budget-to-actual
comparison that the Governmental Accounting Standards Board has determined are necessary to supplement,
although not required to be a part of, the basic financial statements.
In accordance with Government Auditing Standards, we have also issued a report dated December 15,2009,
on our consideration of the Indemnity Fund's internal control over financial reporting and on our tests of its
compliance with certain provisions oflaws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is to describe the scope of our testing of internal control over financial reporting
and compliance and the results of that testing, and not to provide an opinion on the internal control over
financial reporting or on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards and should be considered in assessing the results of our audit.
Shawnee, Oklahoma
December 15, 2009
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PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
BALANCE SHEETS-GOVERNMENTAL FUNDS/
STATEMENTS OF NET ASSETS (CASH BASIS)
June 30,2009 and 2008
2009 2008
General
Fund
Statement of
Net Assets
Assets
Current assets:
Cash and cash equivalents $ 15,363,020 15,363,020
Total assets $ 15,363,020 15,363,020
Liabilities
Liabilities $
Fund Balances
Reserved for encumbrances
Unreserved
Total fund balances
15,110,996
252,024
15,363,020
Total liabilities and
fund balances $ 15,363,020
Net Assets
Unrestricted $ 15,363,020
See Independent Auditors' Report.
See accompanying notes to cash basis financial statements.
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General
Fund
21,670,478
21,670,478
18,707-,630-
2,962,848
21,670,478
21,670,478
Statement of
Net Assets
21,670,478
21,670,478
21,670,478
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
STATEMENTS OF REVENUES, EXPENDITURES, AND
CHANGES IN FUND BALANCES-GOVERNMENTAL FUNDS/
STATEMENTS OF ACTIVITIES (CASH BASIS)
Years Ended June 30, 2009 and 2008
2009 2008
General Statement of General Statement of
Fund Activities Fund Activities
Expenditures/expenses:
Claims reimbursement $ 25,419,100 25,419,100 24,180,837 24,180,837
Storage tank inspection
and compliance 644,224 644,224 1,876,693 1,876,693
Claims processing 1,347,713 1,347,713 929,865 929,865
Administrative expenses 501,781 501,781 528,077 528,077
Allocation to the Oklahoma
Corporation Commission 816,628 816,628 1,052,279 1,052,279
Total expenditures/expenses 28,729,446 28,729,446 28,567,751 28,567,751
____ Progr~ r~venues:
Proceeds from motor fuel
tax assessment 21,534,525 21,534,525 22,391,663 22,391,663
Interest income 794,680 794,680 1,287,875 1,287,875
Deductible on claims 87,185 87,185 94,612 94,612
Other income 5,598 5,598 19,499 19,499
Net program revenue 22,421,988 22,421,988 23,793,649 23,793,649
General revenues
Changes in fund balances/
net assets (6,307,458) (6,307,458) (4,774,102) (4,774,102)
Fund balances/net assets:
Beginning of year 21,670,478 21,670,478 26,444,580 26,444,580
End of year $ 15,363,020 15,363,020 21,670,478 21,670,478
See Independent Auditors' Report.
See accompanying notes to cash basis financial statements.
-4-
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS
June 30, 2009 and 2008
(1) NATURE OF OPERATIONS AND REPORTING ENTITY
Principal Activity
The Petroleum Storage Tank Release Indemnity Fund (the "Indemnity Fund") is administered by the
Oklahoma Corporation Commission's (the "Commission") Petroleum Storage Tank Division
(the "Division"). The Indemnity Fund was created by a legislative act in 1989 to provide funding
for the rehabilitation of polluted sites due to releases of petroleum from storage tank systems into
the environment of the state. The Indemnity Fund encourages voluntary corrective action in a
manner and to a level of completion that protects the public health, safety, and welfare and
minimizes damage to the environment by reimbursing to eligible persons allowable costs incurred
for corrective actions to clean up eligible releases. Indemnity Fund monies are also used to pay the
salaries of employees of the Compliance and Inspection Department of the Commission who are
involved in the regulation of storage tanks pursuant to the Oklahoma Storage Tank Regulation Act.
The activities ofthe Indemnity Fund are subject to Title 17, Chapters 14 and 15 of the Oklahoma
Statutes Title 17 O.S. 350 et seq., which were last amended by Senate Bill 155, which was effective
November 1,2005, and Senate Bi1l1366, which was effective July 1,2006, and House Bill 1423,
which was effective July 1,2008.
The Indemnity Fund is currently funded by a $0.01 assessment on the sale of each gallon of motor fuel.
From July 1, 2004, through January 31, 2006, 25% of the assessment on the sale of each gallon of
motor fuel, diesel fuel, and blending materials was allocated to higher education as approved by the
Oklahoma Legislature. From February 1,2006, through June 30, 2006, the Indemnity Fund received
the full $0.01 assessment. Effective July 1, 2006, the first $1,000,000 received in each fiscal year from
the $0.01 assessment on motor fuel, diesel fuel, and blending materials is to be deposited directly into
the Commission's revolving fund. Eight percent (8%) of the remainder of the assessment collected
during each fiscal year is deposited into the Department of Environmental Quality's revolving fund.
The remaining assessment received will be deposited into the Indemnity Fund.
Effective July 1,2008, House Bill 1423 amended Title 17, Section 352, by defining the "motor fuel"
that the one cent ($0.01) per gallon assessment is based on. The Indemnity Fund was previously funded
by a one cent ($0.01) assessment on the sale of each gallon of motor fuel, diesel fuel, and blending
materials (as defmed by Title 68, Section 500.3 of the Oklahoma Statutes). House Bill 1423 condensed
the wording to only include "motor fuel" as it has the same meaning as "blended fuel" (the words
"diesel fuel" and "blending materials" were taken out of the statute). Per Title 68, Section 500.3,
blended fuel is defined as "a mixture composed of gasoline or diesel fuel and another liquid, other than
a de minimis amount of a product such as carburetor detergent or oxidation inhibitor, that can be used
as a fuel in a highway vehicle. This term includes gasohol, ethanol, and fuel grade ethanol."
See Independent Auditors' Report.
- 5 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(1) NATURE OF OPERATIONS AND REPORTING ENTITY, CONTINUED
Principal Activity, Continued
House Bill 1423 also authorized Underground Storage Tank Operator Training and authorized either
the Storage Tank Regulation Revolving Fund created in Section 315 of Title 17 or the Indemnity
Fund to be able to pay for this "training," up to $250,000.
In connection with the revenues received by the Indemnity Fund, currently the first $1,000,000
received in each fiscal year from the one cent ($0.01) assessment on motor fuel is to be deposited
directly into the Commission's revolving fund. Eight percent (8%) of the remainder of the
assessment collected during each fiscal year is to be deposited into the Department of Environmental
Quality's revolving fund. Effective July 1,2008, House Bill 1423 now states that ofthe remaining
assessment received, $500,000 is to be deposited each month into the Department of
Transportation's Weigh Station Improvement revolving fund until a total of$51 ,000,000 is reached.
The remaining portion each month will be deposited into the Indemnity Fund.
The amount paid to the Department of Transportation' s Weigh Station Improvement revolving fund
for the year ended June 30, 2009, was as follows:
Cumulative amount to be paid, beginning of year $
Payments during the year
51,000,000
(6,000,000)
Cumulative amount to be paid, end of year $ 45,000,000
Funds Included in Presentation
For purposes of this report, the Indemnity Fund (Fund 1185F) has been combined with Fund 205, a
revolving fund established by the Commission to pay the administrative expenses of the Indemnity
Fund utilizing monies transferred from the Indemnity Fund.
Financial Reporting Entity
The Indemnity Fund is included in the General Fund of the Petroleum Storage Tank Division of the
Oklahoma Corporation Commission. The accompanying financial statements are intended to present
only the changes in fmancial position of only that portion of the governmental activities and each
major fund of the Petroleum Storage Tank Division of the Oklahoma Corporation Commission
attributable to the transactions of the Indemnity Fund and not that of the General Fund of the
Petroleum Storage Tank Division ofthe Oklahoma Corporation Commission.
See Independent Auditors' Report.
-6-
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Entity, Continued
In accordance with the Governmental Accounting Standards Board, the Indemnity Fund's financial
statements should include the operations of all organizations for which the Indemnity Fund has
financial accountability. The Indemnity Fund has determined there are no other organizations for
which it has financial accountability.
Basis of Presentation
As further noted below, the financial statements have been prepared using the cash basis of
accounting, which is a comprehensive basis of accounting other than accounting principles generally
accepted in the United States.
Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements-and
Management's Discussion andAnalysis-for State and Local Governments (GASB 34), defmesthe
accounting principles to be used for the presentation of financial statements of the Indemnity Fund.
Government- Wide Financial Statements
The statements of net assets and statements of activities display information about the
Indemnity Fund as a whole. The Indemnity Fund's activities are all governmental in nature
and generally are financed primarily through assessment revenues received. The Indemnity
Fund has no business-type activities as defined by GASB 34.
Fund Financial Statements
Fund financial statements are normally organized into funds, each of which is considered to be
a separate accounting entity. A fund is accounted for by providing a separate set of self-balancing
accounts which constitute its assets, liabilities, fund equity, revenues, and
expenditures/expenses.
For the financial statement presentation, the Indemnity Fund has only one fund, which is the
General Fund. The General Fund is the operating fund of the Indemnity Fund and is used to
account for all activities of the Indemnity Fund.
See Independent Auditors' Report.
- 7 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
Measurement Focus and Basis of Accounting
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Measurement focus is a term used to describe "which" transactions are recorded within the various
financial statements. Basis of accounting refers to "when" transactions are recorded, regardless of
the measurement focus applied.
On the government-wide statements of net assets and the statements of activities, the
Indemnity Fund's activities are presented using the "economic resources" measurement focus
as defined below:
Measurement Focus
• The statements of net assets and the statements of activities utilize an "economic
resources" measurement focus. The accounting objectives of this measurement focus
are the determination of changes in net assets and financial positions. All assets and
liabilities (whether current or noncurrent) associated with their activities are normally
reported. However, due to the presentation of these financial statements on a cash
basis, only cash is reported.
In the fund financial statements, the "current financial resources" measurement focus is used
as defined below:
• The General Fund utilizes a "current financial resources" measurement focus. Only
current financial assets and liabilities are generally included on the balance sheet.
The operating statements present sources and uses of available spendable financial
resources during a given period. The fund uses fund balances as the measure of
available spendable financial resources at the end of the period, as limited by the use
of the cash basis of accounting. Because of the cash basis of accounting, the fund
balances total to the cash balance at the end of the year.
- 8 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Measurement Focus and Basis of Accounting, Continued
Basis of Accounting
The accompanying financial statements have been prepared using the cash basis of accounting
and are not intended to present the financial position and results of operations in conformity
with accounting principles generally accepted in the United States.
If the aforementioned financial statements were prepared in accordance with accounting
principles generally accepted in the United States, the following changes would be necessary:
• The Indemnity Fund would utilize the accrual basis of accounting in the government-wide
financial statements and the modified accrual basis of accounting in the fund
financial statements.
• The Indemnity Fund would capitalize and record on its accrual basis financial
statements, at cost, fixed assets (such as land, buildings, furniture, and equipment)
and depreciate such assets.
• The Indemnity Fund would record liabilities and long-term debt on its accrual basis
financial statements.
Cash and Cash Equivalents
Deposits in OK INVEST (see Note 3) and highly liquid investments with original maturities of
3 months or less are considered to be cash equivalents.
Deductibles
Eligible claims for reimbursement are subject to a co-payment equal to 1% of the eligible costs, up
to a maximum co-payment of $5,000.
-9-
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Indemnity Fund Maintenance Level
State statute sets forth a maintenance level of cash (presented herein as cash and cash equivalents)
for the Indemnity Fund in an amount equal to $5,000,000 plus the previous 6 months' cash
disbursements for claim reimbursements. In the event the Indemnity Fund's cash balance falls below
this specified maintenance level at any month-end on or before December 31, 2012, the one cent
($0.01) assessment (or applicable portion thereof) is to be deposited into the Indemnity Fund for at
least the following 3 calendar months. If the Indemnity Fund's cash balance exceeds the specified
maintenance level, the assessment (or applicable portion thereof) is to be deposited into other funds
as directed by state statute. Senate Bill 155, which was effective November 1,2005, amended State
Statute 17 O.S. 352(7) to define disbursements as funds expended or encumbered for the purpose of
calculating the regulatory maintenance level.
Encumbrances
Monies are encumbered for budgetary purposes as environmental cleanup projects are approved by
the Director of the Division. Encumbrances at June 30, 2009 and 2008, were $15,110,996 and
$18,707,630, respectively.
Advertising Costs
All costs associated with advertising are expensed as incurred.
Income Taxes
The Indemnity Fund is exempt from state and federal income taxes, and accordingly, no provision
for income taxes is reflected by the Indemnity Fund.
See Independent Auditors' Report.
- 10 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
(3) CASH AND CASH EQUIVALENTS
Cash and cash equivalents of the Indemnity Fund at June 30 consisted of the following:
Deposits in OK INVEST $ 15,363,020 21,670,478
OK INVEST is a fund that is managed by the state treasurer on a pooled basis as part of the deposits
of the State of Oklahoma and requires that financial institutions deposit collateral securities to secure
the deposits of such cash in each institution. The amount of collateral securities to be pledged for the
security is established by rules promulgated by the state treasurer. Deposits are invested overnight in
repurchase agreements and other various securities. In accordance with the state treasurer's policies,
the amount of collateral securities to be pledged by financial institutions through the state treasurer's
office are pledged at market value and must be at 110% of value to collateralize the amount on
deposit, less any federal insurance coverage. It is the policy of OK INVEST to invest in only
securities with a Moody's credit rating of A or higher.
The custodial credit risk for deposits is the risk that the Indemnity Fund will not be able to recover
deposits that are in the possession of any outside party. Deposits are exposed to custodial credit risk
if they are not insured or collateralized. At June 30, 2009 and 2008, all of the Indemnity Fund's
deposits were held in other governmental agencies, insured, or fully collateralized.
2009 2008
Third-party claims $ 24,774,841 23,599,665
Settlements 11,797 40,833
Suspicion of releases 632,462 540,339
$ 25,419,100 24,180,837
(4) CLAIMS REIMBURSEMENTS
Claims reimbursements for the years ended June 30 consisted of the following:
Third-party claims are those claims in which an eligible tank owner has received reimbursement
from the Indemnity Fund for allowable cleanup costs incurred.
See Independent Auditors' Report.
- 11 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
Settlements are payments to settle disputed claims for reimbursement (see Note 10).
(4) CLAIMS REIMBURSEMENTS, CONTINUED
Payments for suspicion of releases are payments to third parties for costs incurred to investigate and
assess a site for a confirmed release and to determine whether additional cleanup procedures are
necessary.
(5) OPERATING EXPENSES
Operating expenses at June 30 consisted of the following:
2009
Storage Tank
Administrative Claims Inspection and
Expenses Processing Compliance
Salaries and benefits $ 395,453 761,640 588,311
Professional services 91,577 512,113 51,756
Other 14,751 73,960 4,157
$ 501,781 1,347,713 644,224
2008
Storage Tank
Administrative Claims Inspection and
Expenses Processing Compliance
Salaries and benefits $ 382,617 762,047 1,864,157
Professional services 120,103 41,422 6,433
Other 25,357 126,396 6,103
$ 528,077 929,865 1,876,693
- 12 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
The overhead allocation paid to the Commission is determined by the Comptroller of the
Commission. For the years ended June 30, 2009 and 2008, amounts paid included $195,741 and
$161,450, respectively, for salaries of personnel in the Office of General Counsel and $620,887
and $890,829, respectively, for other general and administrative expenses of the Commission.
(6) ALLOCATION TO THE OKLAHOMA CORPORATION COMMISSION
Plan Description
(7) RETIREMENT PLAN
The Indemnity Fund indirectly contributes to the Oklahoma Public Employees Retirement Plan
(the "Retirement Plan"), a cost-sharing, multiple-employer public employee retirement system
administered by the Oklahoma Public Employees Retirement System (the "System"). The
Retirement Plan provides retirement, disability, and death benefits to plan members and
beneficiaries. The benefit provisions are established and may be amended by the Oklahoma
Legislature. Title 74 of the Oklahoma Statutes, Sections 901 through 932 and 935, as amended,
assigns the authority for management and operation of the Retirement Plan to the Board of Trustees
of the System. The System issues a publicly available annual financial report that includes fmancial
statements and required supplementary information for the Retirement Plan. That annual report may
be obtained by writing to the Oklahoma Public Employees Retirement System, 5801 N. Broadway
Extension, Suite 400, Oklahoma City, Oklahoma 73118 or by calling 1-800-733-9008.
- 13 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
Funding Policy
(7) RETIREMENT PLAN, CONTINUED·
Retirement Plan members and the Indemnity Fund are required to contribute at a rate set by statute.
The contribution requirements of Retirement Plan members and the Indemnity Fund are established
and may be amended by the Oklahoma Legislature. The contribution rates are as follows:
Fiscal Year 2009 Fiscal Year 2008
State Employees Indemnity Fund
All Salary All Salary
3.5% 14.5%
State Employees Indemnity Fund
All Salary All Salary
3.5% 13.5%
Fiscal Year 2007
State Employees Indemnity Fund
All Salary All Salary
3.5% 12.5%
The Indemnity Fund's contributions to the Retirement Plan for the years ended June 30, 2009, 2008,
and 2007, were approximately $261,000, $455,000, and $414,000, respectively, and were equal to its
required contributions for each year.
Deferred Compensation Plan
(8) OKLAHOMA STATE EMPLOYEES DEFERRED COMPENSATION PLAN AND
DEFERRED SAVINGS INCENTIVE PLAN
The State of Oklahoma offers its employees a Deferred Compensation Plan (the "Plan") as
authorized by Section 457 of the Internal Revenue Code (IRC), as amended by the Tax Reform Act
of 1986, and in accordance with the provisions of Sections 1701 through 1706 of Title 74 of the
Oklahoma Statutes.
The supervisory authority for the management and operation of the Plan is the Board of Trustees of
the Oklahoma Public Employees Retirement System (the "Board").
The Plan is available to all State of Oklahoma employees, as well as any elected officials receiving a
salary from the State of Oklahoma. Participants may direct the investment of their contributions in
available investment options offered by the Plan. The minimum contribution amount is the
equivalent of $25 per month, and participants are immediately 100% vested in their respective
accounts. All interest, dividends, and investment fees are allocated to participants' accounts.
- 14 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
Deferred Compensation Plan, Continued
(8) OKLAHOMA STATE EMPLOYEES DEFERRED COMPENSATION PLAN AND
DEFERRED SAVINGS INCENTIVE PLAN, CONTINUED
Participants may defer until future years up to the lesser of 100% of their compensation as defined by
Plan documents or the maximum amount allowed each year as determined by the Internal Revenue
Service, currently $16,500 for calendar year 2009.
The Plan offers a catch-up program to participants, which allows them to defer annually for the
3 years prior to their year of retirement up to twice that plan year's deferral limit. The amount of
additional contributions in excess of the normal maximum contributions to the Plan are also limited
to contributions for years in which the participant was eligible but did not participate in the Plan or
the difference between contributions made and the maximum allowable level. To be eligible for the
catch-up program, the participant must be within 3 years of retirement with no reduced benefits.
Participants age 50 or older may m~e additional contributions of up to $5,500 annually subject to
certain limits.
Deferred compensation benefits are paid to participants or beneficiaries upon termination, retirement,
death, or unforeseeable emergency. Such benefits are based on a participant's account balance and
are disbursed in a lump sum or periodic payments at the option of the participant or beneficiaries in
accordance with the Plan's provisions.
Effective January 1, 1998, the Board established a Trust and a Trust Fund covering the Plan's assets,
pursuant to federal legislation enacted in 1996, requiring public employers to establish such trusts for
plans meeting the requirements of Section 457 ofthe IRC no later than January 1, 1999. Under the
terms of the Trust, the corpus or income of the Trust Fund may be used only for the exclusive benefit
of the Plan's participants and their beneficiaries. Prior to the establishment of the Trust, the Plan's
assets were subject to the claims of general creditors of the State of Oklahoma. The Board acts as
trustee of the Trust. The participants' accounts are invested in accordance with the investment
elections of the participants. The Board is accountable for all deferred compensation received, but
has no duty to require any compensation to be deferred or to determine that the amounts received
comply with the Plan or to determine that the Trust Fund is adequate to provide the benefits payable
pursuant to the Plan.
Further information may be obtained from the Oklahoma State Employees Deferred Compensation
Plan's audited financial statements for the years ended June 30, 2009 and 2008. The Indemnity Fund
believes that it has no liabilities in respect to the Plan.
- 15 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
Deferred Savings Incentive Plan
(8) OKLAHOMA STATE EMPLOYEES DEFERRED COMPENSATION PLAN AND
DEFERRED SAVINGS INCENTIVE PLAN, CONTINUED
Effective January 1, 1998, the State of Oklahoma established the Oklahoma State Employees
Deferred Savings Incentive Plan (the "Savings Incentive Plan") as a money purchase pension plan
pursuant to IRC Section 401 (a). The Savings Incentive Plan and its related Trust are intended to
meet the requirements ofIRC Sections 401 (a) and 501(a).
Any qualified participant who is a State of Oklahoma employee that is an active participant in the
Oklahoma State Employees Deferred Compensation Plan is eligible for a contribution of the amount
determined by the Oklahoma Legislature, currently the equivalent of$25 per month. Participation in
the Savings Incentive Plan is automatic in the month of participation in the Plan and is not voluntary.
Upon cessation of contributions to the Plan, termination of employment with the State of Oklahoma,
retirement, or death, a participant will no longer be eligible for contributions from the State of
Oklahoma into the Savings Incentive Plan. Participants are at all times 100% vested in their Savings
Incentive Plan account. Participant contributions are not required or permitted. Qualified
participants may make rollover contributions to the Savings Incentive Plan, provided such rollover
contributions meet applicable requirements of the IRe. Plan participants may direct the investment
of the contributions in available investment options offered by the Savings Incentive Plan. All
interest, dividends, and investment fees are allocated to the participants' accounts.
Savings Incentive Plan benefits are paid to participants or beneficiaries upon termination, retirement,
or death. Such benefits are based on a participant's account balance and are disbursed in a lump sum
or periodic payments or may be rolled over to a qualified plan at the option of the participant or
beneficiaries.
(9) OTHER RELATED-PARTY TRANSACTIONS
Included in administrative expenses and claims processing are payments to other state agencies for
various goods and services totaling $70,022 and $80,136 for the years ended June 30, 2009 and
2008, respectively.
- 16 -
See Independent Auditors' Report.
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
The LUST Trust Fund Grant pays for the initial cost of cleaning polluted sites when the tank owner
cannot be located, is financially unable, or is unwilling to clean the site. After the site is cleaned,
application can be made to the Indemnity Fund on behalf of the LUST Trust Fund Grant to recover
those funds spent. Recovered funds are spent by the LUST Trust Fund Grant on other remediation
projects. There were no amounts paid during 2009 or 2008 from the Indemnity Fund to the LUST
Trust Fund Grant for such sites.
(9) OTHER RELATED-PARTY TRANSACTIONS, CONTINUED
(10) COMMITMENTS AND CONTINGENCIES
During the year ended June 30, 2004, the Indemnity Fund, along with the Division and the
Commission, entered into two settlement agreements regarding legal disputes over claim
reimbursements filed in previous years. The first settlement with ConocoPhillips was reached on
August 21,2003, for $3,600,000 and involved 46 cases for work that was completed between 1991
and 2000. Under this settlement agreement, the Indemnity Fund paid $1,000,000 from
September 2003 to June 2004 and paid $125,000 monthly from July 2004 to February 2006, with one
final payment of $100,000 in March 2006. The second settlement was reached on
November 25,2003, for $4,500,000 and involved 103 cases with 60 different tank owners. Under
this settlement, the Indemnity Fund paid $579,230 from January 2004 to June 2004, and paid
$150,000 monthly from July 2004 to August 2006, including an additional $20,770 throughout
that time.
In connection with the ConocoPhillips settlement described above, the Commission, the
Commissioners, and certain employees have been named as defendants in litigation, which alleges
that the Indemnity Fund has wrongfully paid monies that the claimants were not entitled to receive.
This case was brought by taxpayers on behalf of the State of Oklahoma (a "qui tam" action) to
recover monies and invoke penalties against the defendants, and asks for damages of $10,800,000.
Commission management believes that the purpose of this suit is to recover monies paid pursuant to
the settlement and invoke penalties against the defendants. The Commission's response to the
qui tam action was to file a declaratory judgment suit, which asked the district court to determine
whether the payment of the claims was lawfuL This case was before the Oklahoma Supreme Court,
and on August 20,2009, the trial court granted ConocoPhillips' motion for summary judgment on
some of the issues in the case. It is believed that when comprehensive motions for summary
judgment are presented (likely in late December 2009 or early January 2010), those motions will be
favorably received by the trial court. If those motions are denied, the case will likely go to trial
sometime in the spring of 20 1o. Similar qui tam litigation was filed on July 7, 2006, on the above-mentioned
second settlement. That litigation seeks damages of $13,500,000. The Commission
intends to vigorously defend any qui tam actions. At this time, Commission management has not
determined the amount of any adjustment that may result from this matter or whether such
adjustment, if any, would have a material adverse effect on the Indemnity Fund.
See Independent Auditors' Report.
- 17 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
NOTES TO CASH BASIS FINANCIAL STATEMENTS, CONTINUED
During the years ended June 30, 2006 and 2005, there was an investigation being conducted by the
State of Oklahoma Attorney General's Office and the Multi-County Grand Jury concerning activities
relating to the Indemnity Fund and the Division. This investigation is ongoing and relates to a prior
administration.
(10) COMMITMENTS AND CONTINGENCIES, CONTINUED
(11) SUBSEQUENT EVENTS
The Indemnity Fund has evaluated subsequent events through December 15, 2009, which is the date
the financial statements were available to be issued. There are no recognized or non-recognized
subsequent events included in the financial statements or related notes.
See Independent Auditors' Report.
- 18 -
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
ON COMPLIANCE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Oklahoma Corporation Commission
Petroleum Storage Tank Release Indemnity Fund
We have audited the accompanying cash basis financial statements of the governmental activities and the
major fund of the Petroleum Storage Tank Release Indemnity Fund (the "Indemnity Fund"), administered by
the Petroleum Storage Tank Division of the Oklahoma Corporation Commission, as of and for the years
ended June 30, 2009 and 2008, which collectively comprise the Indemnity Fund's basic financial statements
as listed in the table of contents, and have issued our report thereon dated December 15, 2009. Our report
included a paragraph noting that the financial statement was prepared on the cash basis of accounting, which
is a comprehensive basis of accounting other than accounting principles generally accepted in the United
States, and an explanatory paragraph stating that the basic financial statements of the Indemnity Fund are
intended to present the financial position and changes in financial position of only that portion of the
governmental activities and each major fund of the Petroleum Storage Tank Division of the Oklahoma
Corporation Commission attributable to the transactions of the Indemnity Fund. We conducted our audit in
accordance with auditing standards generally accepted in the United States and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller General of the
United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Indemnity Fund's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of expressing
our opinions on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Indemnity Fund's internal control over financial reporting. Accordingly, we
do not express an opinion on the effectiveness of the Indemnity Fund's internal control over
financial reporting.
A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record,
process, or report financial data reliably in accordance with accounting principles generally
accepted in the United States such that there is more than a remote likelihood that a misstatement
of the entity's financial statements that is more than inconsequential will not be prevented or
detected by the entity's internal control.
(Continued)
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the entity's internal control.
- 19 -
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
ON COMPLIANCE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, CONTINUED
Internal Control Over Financial Reporting, Continued
Compliance and Other Matters
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily identify all deficiencies
in internal control that might be significant deficiencies or material weaknesses. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above.
As part of obtaining reasonable assurance about whether the Indemnity Fund's financial statements
are free of material misstatement, we performed tests of its compliance with certain provisions of
laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct
and material effect on the determination of financial statement amounts. However, providing an
opinion on compliance with those provisions was not an objective of our audit, and accordingly, we
do not express such an opinion. The results of our tests disclosed no instances of noncompliance or
other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the Oklahoma Corporation Commission, the
Storage Tank Advisory Council, Petroleum Storage Tank Division management, the Office of the Auditor
and Inspector of the State of Oklahoma, the Governor, and the Oklahoma Legislature and is not intended to
be and should not be used by anyone other than these specified parties.
Shawnee, Oklahoma
December 15, 2009
- 20-
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
SCHEDULE OF FINDINGS AND RESPONSES
Year Ended June 30,2009
This Schedule of Findings and Responses includes compliance findings that we believe are reportable in
accordance with the reporting criteria set forth in Government Auditing Standards.
There were no findings noted during the year ended June 30, 2009.
- 21 -
PETROLEUM STORAGE TANK RELEASE INDEMNITY FUND
(Administered by the Petroleum Storage Tank Division of
the Oklahoma Corporation Commission)
SCHEDULE OF PRIOR YEAR FINDINGS
Year Ended June 30, 2009
There were no findings noted during the year ended June 30, 2008.
- 22-
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MAY 25 lOll