Letter to Steve Spitzer, Auditor for Loudoun Water

March 3, 2011

Mr. Steve Spitzer

Yount, Hyde & Barbour, P.C.

302 South Loudoun Street
Winchester, VA 22604

Mr. Spitzer: 

As the auditing firm of record for Loudoun Water (also known as LCSA) you are charged with performing an annual audit and expressing an opinion on Loudoun Water’s financials.  In your most recent audit from 2009 you state:

“In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Loudoun Water as of December 31, 2009, and the respective changes in financial position and the cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.”

Unfortunately, Loudoun Water’s financial report provides a distorted reflection of the operating performance and financial viability of the communal systems served by Loudoun Water.  As you may not know:

1. Loudoun Water considers communal users to be financially separate and distinct from users of the central system;
2. There are approximately 763 current communal users (with approx 2,000 communal users expected upon build out at the various communal communities);
3. Over a four year period (2006 to 2009), the communal systems incurred a cumulative loss of ($987,842);
4. In order to support the operations of each communal system, Loudoun Water has had to borrow funds from the central system;
5. Each communal system should be self sufficient with the respective developer paying for the installation of each communal system and subsidizing the ongoing maintenance of each communal system up and until a certain build out point in time; and
6. Communal users have had to rely on FOIA requests to better understand the financial picture of the communal systems.

Potential users of Loudoun Water’s financials could be current communal system customers as well as future communal system customers looking to purchase a house in a communal system community.  As a result, we expect that Loudoun Water would include a supplemental financial presentation on the communal systems in their 2010 Annual Report and provide disclosures as it relates to their financial viability (including the financial viability of each system and its reserves and borrowings).  Since Loudoun Water considers communal users to be financially separate and distinct from users of the central system, we also expect that your opinion consider and reflect this fact accordingly.

Thank you for your prompt attention to this very serious matter.

Sincerely,

Scott R. Lutz

cc: Mr. Fred Jennings - Board Member and Chairman, Loudoun Water

Mr. Dale Hammes - Board Member and General Manager, Loudoun Water

Mr. Edward Burrell - Board Member, Loudoun Water

Mr. Pravin Gandhi - Board Member, Loudoun Water

Mr. Charles Harris - Board Member, Loudoun Water

Mr. Mark Koblos - Board Member, Loudoun Water

Ms. Patti Psaris - Board Member, Loudoun Water

Mr. Johnny Rocca - Board Member, Loudoun Water

Ms. Tanja Thompson - Board Member, Loudoun Water

Mr. Ralph Watson - Board Member, Loudoun Water

Mr. Scott York - Chairman, Loudoun County 

Ms. Susan Klimek Buckley - Vice Chairman, Loudoun County

Mr. Jim Burton - Supervisor, Loudoun County

Ms. Lori Waters - Supervisor, Loudoun County

Ms. Sally Kurtz - Supervisor, Loudoun County

Mr. Stevens Miller - Supervisor, Loudoun County

Ms. Kelly Burk - Supervisor, Loudoun County

Ms. Andrea McGemsey - Supervisor, Loudoun County

Mr. Eugene Delgaudio - Supervisor, Loudoun County

Mr. Tim Hemstreet - Administrator, Loudoun County

Mr. Charles Yudd - Administrator, Loudoun County