An Open Letter to the Auditor

McCall Gibson Swedlund Barfoot Ellis PLLC

13100 Wortham Center Drive, Suite 235

Houston, Texas 77065

January 23, 2026

Dear Mr. Swedlund,

The Texas Commission on Environmental Quality requires Municipal Utility Districts to undergo an annual financial audit conducted in accordance with generally accepted auditing standards (GAAS). While such audits are often focused on the material fairness of the financial statements, GAAS further requires auditors to obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by error or fraud, and to consider internal control deficiencies, fraud risk factors, and compliance with laws and regulations that have a direct and material effect on the financial statements.

During the commencement of the District’s 2024 audit, I served as a duly elected and sitting member of the Board of Directors of the Williamson–Travis Counties Municipal Utility District No. 1 (“the District”). On November 14, 2024, I completed and submitted the annual fraud questionnaire (Exhibit A), in which I disclosed concerns regarding suspected fraud risk, deficiencies in internal controls, and potential noncompliance with applicable laws and regulations (Exhibit B), consistent with AU-C Sections 240 and 250.

Those concerns remain unresolved.

Unaccounted Water Deposit Funds – Audit Evidence and Internal Control Deficiency

Specifically, water account deposit funds associated with approximately eighty (80) customer accounts were unaccounted for. To date, neither the District’s operator nor its bookkeeper has produced cancelled checks, subsidiary ledgers, reconciliations, or other sufficient appropriate audit evidence documenting the disposition of these public funds.

The inability to obtain documentation supporting the existence and disposition of these deposits represents a deficiency in internal control over financial reporting and raises concerns regarding the completeness and existence assertions associated with cash and related liabilities. The absence of such documentation may also constitute a scope limitation requiring further audit consideration under GAAS.

Governance and Oversight Conditions Increasing Audit Risk

Since the completion of the 2024 audit period, changes in Board composition and voting alignment have reduced independent oversight. During this time, governance practices have deteriorated in ways that increase the risk of material misstatement and noncompliance, including weakened segregation of duties, diminished board-level monitoring, and increased reliance on committee-level actions without documented controls.

These conditions represent elevated fraud risk factors under AU-C Section 240.

Contractor Oversight Committee Failure and Noncompetitive Contracting

In May 2025, the District entered into a contract with Sage Management Services (“Sage”) to provide deed enforcement services. The annual contract value exceeded $50,000, yet the contract was executed without a formal competitive procurement process, contrary to applicable local government procurement requirements in effect at that time.

Sage’s proposal (Exhibit C), together with the subsequent day tour and night tour service contracts (Exhibit D), establishes the scope of services and compensation. Under these agreements, all work direction and invoice approvals are delegated to a two-member committee rather than the full Board.

Notably, these activities have been conducted entirely outside properly noticed public meetings. There has been no reporting to, or deliberation by, the full Board regarding contractor direction, scope changes, or related expenditures. A review of Board meeting minutes from May 2025 through the present confirms the absence of public discussion or disclosure of committee actions. These minutes are publicly available at wtcmud1.org.

From May 2025 through December 10, 2025, Sage submitted twenty-six (26) invoices totaling $56,734.75 (Exhibit E). Of that amount, $6,424.00 was billed as “additional services” on invoices #004, #006, #008, #010, #014, #017, #020, and #025 (Exhibit F).

These invoices are unsupported by underlying records demonstrating that the billed services were performed. In response to multiple Public Information Act requests seeking documentation substantiating the invoiced work, Sage—through its principal, Diana Sagnes—has repeatedly stated that “no responsive records” exist for the activities billed (Exhibit G). Additionally, the committee responsible for directing the contractor has produced no records evidencing authorization or approval of the additional services. (Exhibit H)

The lack of supporting documentation raises audit concerns regarding occurrence, accuracy, and authorization assertions, as well as potential management override of controls.

Litigation Funded with Public Money – Compliance and Related-Party Risk

In May 2025, the District, as plaintiff, filed suit in Williamson County (Cause No. 25-1224-C480) against three District residents, one a sitting board member and one a former resident, arising from activities protected by the First Amendment.

The District’s First Amended Petition was dismissed pursuant to the Texas Citizens Participation Act (TCPA), and the court ordered the District to pay defendants’ attorneys’ fees (Exhibit I) which totaled approximately $120,000.00. When combined with the District’s own legal expenditures, taxpayer-funded litigation costs now exceed $300,000.

The District subsequently filed a Third Amended Petition, which remains pending. That pleading involves allegations personal to individual board members rather than District operations or statutory purposes and requires individual legal representation.

On December 29, 2025, four plaintiff board members adopted a resolution (Exhibit J) authorizing the use of public funds to pay for their personal legal expenses arising from this litigation.

This action raises significant concerns under AU-C Section 250 regarding compliance with laws governing the use of public funds, as well as related-party considerations and the appropriateness of expense recognition for costs that may not serve a legitimate District purpose.

Summary of GAAS-Relevant Concerns

Taken together, these matters demonstrate:

• deficiencies in internal control over financial reporting;

• elevated fraud risk factors;

• noncompliance risks with laws and regulations having a material effect on the financial statements;

• unsupported expenditures lacking sufficient appropriate audit evidence;

• governance practices that impair effective oversight and transparency; and

• potential misclassification or improper authorization of public expenditures.

I submit this information for your consideration in connection with your responsibilities under GAAS, including risk assessment, audit planning, and the evaluation of internal control and compliance matters.

Respectfully,

-Linda Fabre

CC:

Texas State Auditor’s Office

Texas Commission on Environmental Quality

Office of the Attorney General of Texas

Index of Exhibits

Exhibit A – Fraud QuestionnaireCompleted and submitted by Linda Fabre on November 14, 2024, identifying fraud risk factors, internal control concerns, and potential noncompliance.

Exhibit B – Auditor DisclosureWritten disclosure provided to the District’s auditor detailing suspected fraud, internal control deficiencies, and legal compliance concerns.

Exhibit C – Sage Management Services ProposalProposal outlining deed enforcement services, scope of work, and base compensation.

Exhibit D – Sage Management Services ContractsExecuted service agreements, including day tour and night tour contracts.

Exhibit E – Sage Management Services InvoicesTwenty-six (26) invoices submitted between May 2025 and December 10, 2025, totaling $56,734.75.

Exhibit F – Additional Service InvoicesInvoices reflecting $6,424.00 in charges for “additional services,” including invoices #004, #006, #008, #010, #014, #017, #020, and #025.

Exhibit G – “No Responsive Information” Responses from SagePublic Information Act responses from Sage Management Services stating that no records exist to substantiate billed services.

Exhibit H – Committee Directives to SageAbsence of records evidencing committee authorization, direction, or approval of additional services billed.

Exhibit I – Motion to Dismiss (TCPA)Court filings and orders granting dismissal under the Texas Citizens Participation Act and awarding attorneys’ fees against the District.

Exhibit J – Resolution Authorizing Personal Use of Public FundsResolution adopted December 29, 2025, authorizing the use of District funds for individual board members’ personal legal expenses.