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Home My WebLink About05 AUDITORS 2000 01-17-00DATE: January 17, 2000 NO. 5 1-17-00 I n t e r- C o m TO: FROM: SUBJECT: William A. Huston, City Manager Ronald A. Nault, Finance Director SELECTION OF OUTSIDE AUDITORS FOR THE FIVE YEAR PERIOD BEGINNING JUNE 30, 2000 SUMMARY: The Audit Committee reviewed proposals for audit services at their meeting of January 6, 2000. They selected Diehl, Evans and Company, LLP as their recommendation to the City Council as the City's Auditors for the period June 30, 2000 through June 30, 2004. RECOMMENDATION: Authorize the Finance Director to sign an agreement with Diehl, Evans and Company, LLP for annual audit services beginning with the fiscal year ending June 30, 2000 through fiscal year ending June 30, 2004. FISCAL IMPACT: The proposed fees will be incorporated into the 2000/2001 budget. DISCUSSION: The City's Audit Committee has completed an extensive selection process that began in October 1999. Six proposals were received and reviewed by the Committee on January 6, 2000. The following matrix was prepared indicating the points assigned for technical qualifications, and the proposed pricing. Diehl, Evans & Company, LLP Lance, Soil & Lunghard Conrad and Associates, LLP Caporicci & Larson Moss, Levy & Hartzheim McGladrey & Pullen, LLP Technical Five Year Qualifications Price Total 335 295 290 272 25O 245 $115,800 $116 83O $128,779 $172,550 $100 02O $ 231 2OO Rona~A. Nault Finance Director CITY OF TUSTIN AUDIT PROPOSAL FOR THE YEA.R ENDING JUNE 30, 2000 (WITH AN OPTION FOR THE FOUR YEARS ENDING JU~'E 30, 2004) TITLE PAGE RFP Subject: Name of Proposer: Local Address: Telephone: Fax: Email: Contact Persons: Certified Audits on the City of Tustin For the Year Ending June 30, 2000 (With an Option for the Four Years Ending June 30, 2004) Diehl, Evans & Company, LLP Certified Public Accountants and Consultants 2121 Alton Parkway, Suite 100 Irvine, CA 92606-4906 (949) 399-0600 (949) 399-0610 nitinp~diehlevans.com Nitin P. Patel, CPA Engagement Partner Michael R. Ludin, CPA Consulting Partner Date: December 1, 1999 CITY OF TUSTIN TABLE OF CONTENTS December 1, 1999 Letter of Transmittal Licensing and Independence Firm Qualifications and Experience: Size and Location of Firm Range of Activities Participation in "Quality Review" Programs Education Programs Participation in Professional Organizations GFOA and CSMFO Award Pro.ams Experience With Government Bond Offerings Computer Auditing Capabilities Partners, Supervisors and Staff Qualification Experience: Audit Team Commitment Related To Personnel Nondiscrimination Policy Similar Engagements with Other Governmental Agencies: Similar Engagements With Other Municipal Entities City. Client References City. Client List Redevelopment Agency and Enterprise Fund Experience Water Districts and Special Districts Nonprofit Corporations and Joint Power Authorities Management Consulting Services Audit Scope and Approach: Entities To Be Included In Audit Reports To Be Issued and Due Dates Commitment to Deliver Reports on a Timely Basis Audits To Be In Accordance With GAAS and Other Requirements Audit Approach Single Audit Approach Page Number 1-2 4 4 4 5 5-6 6 7 8 10 10 11 12 13 13 14- 15 16 16 16 17 17-18 18 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) December 1, 1999 Audit Scope and Approach (Continued): Approach In Determining Laws and Regulations Subject to Audit Method of Sampling Management Letters Other Professional Services Retention Of and Access To Audit Workpapers 'Audit Timing Work Required By City Staff Segmentation of the Audit Hours, By Parmer and Staff Level Identification of Anticipated Audit Problems Attachment I - Resumes of Partners and Personnel Assigned to Audit Attachment II - Results of Ou~ide Quality Review Attachment III - Proposer Guarantees and Warranties Page Number 19 19 19 19 19 2O 20 21 22 23 - 25 26 27 DIEHL, EVA ,, COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 2121 ALTON PARKWAY, SUITE 100 IRVINE, CALIFORNIA 92606-4906 (949) 399-0600 · FAX (949) 399-0610 December 1, 1999 · RODNEY K. McDAN1EL. CPA MICHAEL R. LUDIN, CPA CRAIG W. SPRAKER, CPA NITIN P. PATEL. CPA · PHILIP H. HOL"rKAMP. CPA ° THOMAS M. PERLOWSKI, CPA ° HARVEY J. $CHROEDER, CPA ° A PROFESS[ONAL CORPORATION Mr. Ronald A. Nault Finance Director City of Tustin 300 Centennial Way Tustin, CA 92780 Dear Mr. Nault: We are pleased to present our proposal to serve as independent auditors for the City of Tustin. We have prepared this information in accordance with the guidelines set forth in your request for proposal. Why We Are The Best Qualified Finn We consider ourselves to be the best qualified firm to perform auditing and accounting services for the City of Tustin. Please consider these qualifications: Our'firm h~s ~XtenSive experience in auditing governmental entities including auditing the City of Tustin fi.om fiscal year 1985-86 through 1993-94. We currently audit eighteen cities, seventeen redevelopment agencies, nine water districts, nine other special districts, ' and over thirty nonprofit corporations and joint power authorities. Unlike many of the large, national and international accounting fro'ns, we have a relatively Iow staff turnover rate. This has allowed us to keep continuity in our engagement teams fi-Om year to year, and has allowed our professional staff to gain extensive municipal auditing experience· Since they are familiar with municipal procedures and records, this will eliminate much disruption to your staff. We make'a commitment to retain the same staff on the audit from year to year, except where such personnel leave the fm'n. Ifa staff member is replaced, we also make a commitment to replace that person with staff of at least equal experience. The City will require a single audit of its federal grants, in accordance with Government Auditing Standards and OMB Circular A-133. We perform single audits on substantially all of our city clients. -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET CARLSBAD. CALIFORNIA 92008-2389 (760) 729-2343 · FAX (760) '~ .9-._34~ 013 W. VALLEY PARK%V:4~: SUITE 330 ESCONDIDO. CALIFORNIA oa..0_5._:)98 ~ ~- (760) 741-3141 · F.&X (760) 741-08o0 Wh, ~e Are The Best Qualified Firm (continued) You.have expressed a desire to again submit your reports for the national and California award programs. We have extensive experience in assisting our city clients in obtaining the GFOA "Certificate of Achievement for Excellence in Financial Reporting" and the CSMFO "Outstanding Award". We have worked closely with GFOA reviewers to resolve questions on reports, and Three members of our audit team are "reviewers" for the CSMFO award program. Over the past five years, all of our city clients that have applied have received the GFOA and CSMFO awards. We will assist you to ensure that the City's financial statements continue to meet all appropriate reporting standards. We are a full service CPA finn. Our Management Consulting Department can provide the City with wide variety of services, as detailed on pages 14 and 15. We make a commitment to deliver all necessary reports based on the timetable presented herein on page 16. Also, our understanding of the work to be perfonned is set forth on pages 16 through 21. Our goal is to provide the City with the highest quality of.service, including a CAFR which meets all required reporting standards and a comprehensive management letter which is practical and helpful to management in improving operations. Also, our goal is to maintain a close, personal relationship with you and your staff, one which is a year-round working relationship. You should feel comfortable in calling on us for advice at any time. We will always be available should you require our services. We respectfully request that we be selected as the independent auditors for the City for the year ending June 30, 2000 with an option fc~r the four years ending June 30, 2004. We look forward to personally meeting with you to discuss our qualifications. We thank the City for the oppommity to present our proposal. Please feel free to contact me, or Mr. Michael Ludin, at (949) 399-0600 if you have any questions_. This proposal c0nstitutes, a finn and irrevocable offer for 90 daYs fro/n the date of thii letter. Mr. Ludin and I are authorized to represent our finn, and bind the firm to a contract. Very truly yours, DIEHL, EVANS & COMPANY, LLP Nitin P. Patel, CPA Engagement Partner nlCENSING AND INDEPENDL~,CE Our finn, and all of our certified personnel, are properly licensed to practice public accounting in California. Also, we meet the independence requirements of "Governmental Auditing Standards" (1994 Edition), as published by the U.S. General Accounting Office. Our finn is independent of the City and its component units as defined by the 1994 Governmental Auditing Standards. -3- FIK.., QUALIFICATIONS AND EX~,.~,dENCE SIZE AND LOCATION OF THE FIRM Diehl, Evans & Company, LLP is a Southern California accounting firm with offices in Irvine, Carlsbad and Escondido. We are one of the oldest CPA finns in Southern California, with over 70 years of public practice experience. Diehl, Evans & Company, LLP has extensive experience in governmental auditing and accounting. Over twenty thousand hours per year are devoted to this area of our practice for over 100 governmental units including cities, redevelopment agencies, water districts, special districts, nonprofit corporations and joint power authorities. Your City would be served from our Irvine office, which has three parmers, two principals, four managers and approximately ten other professional staff members. RANGE OF ACTIVITIES Diehl, Evans & Company, LLP is a full .service CPA fn'rn. We offer a broad range of services, including: Certified Audits Compilations and Reviews Limited Procedure Reviews Tax Planning Income Tax Preparation Management Consulting Services' Our specific services for governmental agencies are more fully-set forth in this proposal. PARTICIPATION IN "QUALITY REVIEW" PROGRAMS In 1986;6-m- firm began"ah -annfifil internal quality-revie~ prOgram, Wh~reby'all three Offices are reviewed for compliance w/th all current accounting and auditing requirements. Formal repons of these reviews are presented to the partners, and adjustments in our auditing and reporting procedures are made as necessary. In January, 1997, our firm underwent a quality review by a group of outside CPAs, under provisions of the AICPA Quality Review Program. These reviews are required every three years. The 1997 review included a review of our audits of governmental agencies. On January 30, 1997 we received a final report with an unqualified opinion on our systems and procedures. A copy of the outside CPA's report is included herein at Attachment II. Accordingly, we are confident that our current auditing standards and techniques meet all existing requirements. No re~m.datory action has ever been taken against any office of our firm due to substandard work. We had no significant deficiencies noted in any federal or state desk reviews over the past three years. -4- EDUCATION PROGRAM~,. Diehl, Evans & Company, LLP has a formal continuing education program. All firm auditors are required to obtain 40 hours of continuing education per year, and at least 24 hours of government related continuing education courses every two years. Our staff is continually expanding their knowledge of the governmental industry through our in-house training programs, programs offered by the AICPA, the California Society of Certified Public Accountants and other professional organizations, and through on-the-job training. We also publish an Auditing Manual For Governmental Entities for use by our staff. The manual isupdated at least annually. Noted below is a description of certain in-house education courses taken by our parmers and staff to meet the governmental continuing education requirements. All personnel involved with governmental auditing are required to attend these courses. · Understanding, and AUditing, Deposits and Investments of California Governmental Units · Reviews of Internal Controls in Accordance With Statements on Auditing Standards 55 and 78 · Assessing Audit Risk and Materiality in Conducting An Audit · Understanding the Gann Computation · Redevelopment Agency Com. pliance Audits - Interpreting the Health and Safety Code · Computer Auditing in the Governmental Environment · The Single Audit - New Provisions under OMB Circular A-133 Laws and Regulations in the Government Sector PARTICIPATION IN PROFESSIONAIJ ORGANIZATIONS Our partners and staff are actively involved in professional organizations in the governmental accounting field. Noted below is a summary of our participation in various national and California governmental organizations. GFOA. GASB and FASB. Our fn-m is an associate member of the Government Finance Officers Association of the United States and Canada (GFOA). Also, we have subscriptions with the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standard Board (FASB). We receive all GASB and FASB Statements, Interpretations, Technical Pronouncements and Newsletters. We regularly analyze these pronouncements and advise our governmental clients of changes in accounting rules. -5-. PARTICIPATIOn, ~N PROFESSIONAL ORGANIZ&, ~ONS' (CONTINUED) CSMFO and CRA Our partners (Mr. Michael Ludin, Mr. Craig Spraker and Mr. Nitin Patel) and our Director of Management Consulting (Mr. Bill Morgan) are associate members of the California Society of Municipal Finance Officers (CSMFO). Our personnel regularly attend local CSMFO chapter meetings throughout Southern California, and the annual statewide conference. We often provide public speakers for these meetings. Our firm also is an active member in the California Redevelopment Association (CRA). We receive monthly newsletters from CRA to keep us up to date on legal developments affecting redevelopment agencies. Mr. Morgan periodically serves as a public speaker for seminars and workshops sponsored by CRA. CSCPA Mr. Ludin, Mr. Spraker,' Mr. Patel, Mr. Morgan and several of our managers are all members of the Governmental Accounting and Auditing (GAA) Committee of the Orange County Chapter, California Society of Certified Public Accountants (CSCPA). Mr. Ludin and Mr. Morgan have both served as chairman of this committee, and have been involved over the years in preparing position papers issued on governmental accounting matters. GFOA AND CSMFO AWARD PROGRAMS The panner and manager will be involved in all 'phases of report preparation or review, including the drafting of footnotes. Reporting checklists will be used to assure compliance with all reporting requirements. Based on the high quality of our review process, we have been able to assist various cities in obtaining the GFOA "Certificate of Achievement for Excellence in Financial Reporting" and the "Outstanding Award" for financial' reporting fi.om CSMFO. During the past five years, the following clients received awards: Big Bear Lake Del Mar Los Alamitos Burbank Garden Grove Palm Desert Cerritos Healdsburg Placentia Chino Huntington Beach Rancho Palos Verdes Claremont Irvine Redondo Beach Coronado Lakewood San Clemente San Juan Capistrano Santa Clarita Signal Hill Simi Valley Thousand Oaks Westminster -6- EXPERi~,CE WITH GOVERNMENT BON~ OFFERINGS Most of our governmental clients regularly issue bonds and other financing'vehicles. Our firm is often involved with the following types of financing: Tax Anticipation Notes Tax Allocation Bonds Revenue Bonds Certificates of Participation Special Assessment District Bonds Residential Mortgage Revenue Bonds Industrial Development Bonds Municipal Sale/Leaseback Arrangements Lease Purchases Bank Notes The Firm provides a variety of services in connection with these financing arrangements, depending on the extent of our association with the offering. Under guidelines provided by the AICPA, we are "associated with" an offering if we provide any of the following services: 1. Manually sign the auditors' report included in the offering document. 2. Provide a "consent letter" or "comfort letter" in connection with the official statement. 3. Review drafts of the official statement at the City's request. 4. Assist in the preparation of supplemental financial information included in the official statement. Under these circumstances, we perform a "subsequent events" review of the City's financial condition immediately prior to the effective date of the offering. Such reviews are not part of our standard fee arrangements, and would be subject to a separate fee quotation. Finally, we regularly issue separate certified audit reports on individual bond issues, such as mortgage revenue bonds and industrial development bonds. -7- COMPUTER AUDITING CAPABILITIES In connection with our initial evaluation of internal controls, we will perform a review of your EDP systems. Our review will include the f611owing areas: · Organizational controls. · Physical controls over the hardware and peripheral equipment. · Operational controls (input, processing and output controls). More specifically, our auditors verify to what extent the City is utilizing: · Terminal controls (password restrictions, etc.) · Program access restrictions · Master file change controls · On-line editing · Batch and hash total controls · Back-up procedures · Management review of documents and reports provided by the computer system After our intemal controls evaluation, we will determine to what extent computer auditing techniques will be utilized.'-' For some-testirig~-we 'may audit "through" ~e City's EDP - produced records, rather than "around" them. The extent of our computer auditing will be determined based on our analysis of the cost effectiveness of these techniques. For cities that use a fully-integrated, on-line computer system, our audit staff members may become knowledgeable with the City's procedures for accessing and making "inquiries" into the various computer applications. In some instances, we may be able to randomly access and print-out sample data without significant assistance from City staff. Otherwise, we may need to .request that City programmers assist us in accessing and printing-out the desired data. Alternatively, we may download selected City data into our portable computers, and then perform random audit tests on the data using our own computer-auditing software programs. Each of our audit staff members is equipped with portable computers that are used to assist in workpaper preparation, trial balance adjustments, etc. We utilize Accountants Trial Balance, Lotus 1-2-3, Excel, Word, WordPerfect, dBase and other programs to assist us in our audit work. -8- PARTNERS, SUPL~t~SORS AND STAFF QUALIFICATION EXPERIENCE AUDIT TEAM The audit team will consist of the engagement partner, audit manager, senior and one staff accountant. The engagement partner will be Mr. Nitin P. Patel, CPA. He will be the primary contact for all matters involving the City audit and will be responsible for assuring that all work for the City is performed in a complete and timely manner. Mr. Michael R. Ludin, CPA, will act as constflting partner on any unusual accounting or auditing problems. Ms. Beth Alessi, CPA, will serve as the audit manager. She will coordinate the engagement, supervise the senior accountant, schedule all field work, monitor time budgets, review all workpapers and resolve any accounting or auditing problems prior to submission of final reports. . The audit senior will assume responsibility for all field work, prepare the audit plan and audit programs, review and analyze internal controls, research accounting and auditing problems, prepare the City's financial statements, prepare management letters and supervise staff assistants. Resumes for the above partners and personnel are included at Attachment I on pages 23 through 25. COMMITMENT RELATED TO PERSONNEL We-make a commitment to retain the same personnel on the City from year to year, except where such personnel leave the" firm, or where-the change is approved by the City. If a staff member is replaced, we make a commitment to replace that person with staff of at least equal experience. NONDISCRIMINATION POLICY Our firm has a policy to provide equal employment oppommities to all qualified persons without regard to race, color, age, sex, religion, national origin or handicap. -9- SIMILAR ENGAGv. MENTS WITH OTHER GOVEIea'~MENTAL AGENCIES SIMILAR ENGAGEMENTS WITH OTHER MUNICIPAL ENTITIES Your request of proposal called for a maximum of five similar engagements, ranked by total staff hours. These are set forth below: Engagement Total Staff C'ity Panner Hours Garden Grove Ludin 1,000 Huntington Beach Patel 1,000 Palm Desert Patel .. 700 Westminster Patel 700 Cathedral City Patel 500 Certified audits were performed on the financial statements of all of these cities and their component units for the year ended June 30, 1999 or September 30, 1998. Client references for these cities are included below. CITY CLIENT REFERENCES One means of judging the high quality of our auditing and accounting services would be contact with some of our existing clients. We are including the names and phone numbers of the city clients mentioned above. We encourage you to contact any of these individuals. _ .~ City of Cathedral City Mr. Dudley Haines Director of Administrative ServiceS (760) 770-0340 City of Palm Desert Mr. Paul S. Gibson Director of Finance (760) 346-0611 Citv of Garden Grove Mr. Anthony J. Andrade Controller (714) 741-5061 City of Westminster Ivir. Brian Mayhew Director of Finance (714) 898-3311 City of Huntington Beach Mr. Dan Villella Director of Finance (714) 536-5225 -10- CITY CLIENT LIST We have listed below the cities which were under contract with us during the past five fiscal years. For your information, we are including the 'approximate population and the period of service. City Population From Beaumont 10,200 Big Bear Lake 5,400 Burbank 98,700 Cathedral City 36,000 Cerritos 59,400 Chino 64,000 Claremont 37,000 Commerce Coronado 26,500 Cypress 46,397 Del Mar 4,860 Downey 87,200 Encinitas Garden Grove Hesperia Healdsburg Huntington Beach 53,000 ' 151,376 9,300 159,600 Irvine 127,220 Lakewood 76,700 La puehte 34,200 Los Alamitos 12,307 Palm Desert 25,000 Placentia 45,003 Rancho Palos Verdes 41,000 Redondo Beach 64,000 San Clemente 43,000 San Juan Capistrano 28,948 Santa Clarita 147,000 Seal Beach 26,366 Signal Hill 8,500 Simi Valley 110,000 Thousand Oaks 109,000 Westminster 79,000 Period of Service 1992 1993 1996 1997 1969 1995 1991 1999 1970 1993 1994 1987 1960 1986 1994 1997 1991 1997 1984 1963 1993 1974 1963 1963 1996 1988 1978 1971 1992 1986 1973 1964 1993 1996 1992 1993 1992 1963 1962 I997 1993 1963 1997 To 1995 1997 Present Present Present Present 1995 Present Present 1995 Present Present 1984 1995 Present Present 1997 Present 1990 1972 · 1997 Present 1971 1996 Present 1991. 1981 1974 Present 1998 1983 1969 Present 1998 1995 1998 1996 1996 Present Present 1997 1980 Present Substantially all of the above engagements were performed through the firm's Irvine Office. -11- Re, DEVELOPMENT AGENCY EXPEeclENCE Currently, we audit the following seventeen redevelopment agencies. Burbank Redevelopment Agency Huntington Beach Redevelopment Agency Cathedral City Redevelopment Agency Lakewood Redevelopment Agency Cerritos Redevelopment Agency Matin County Redevelopment Agency Chino Redevelopment Agency Palm Desert Redevelopment Agency Commerce Redevelopment Agency Rancho Palos Verdes Redevelopment Agency Coronado Redevelopment Agency Signal Hill Redevelopment Agency Downey Redevelopment Agency Simi Valley Redevelopment Agency Garden Grove Redevelopment Agency Westminster Redevelopment Agency Hesperia Redevelopment Agency ENTERPRISE FUND EXPERIENCE Most cities audited by our fmu have a water utility enterprise fund. Noted below is a partial listing of 'other enterprise funds audited by our f'm'n over the,past five years: City Big Bear Lake Burbank Cerritos Chino Claremont Coronado Del Mar Downey Healdsburg Huntington Beach Lakewood Redondo Beach San Juan Capistrano Santa Clarita Seal Beach Simi Valley Westminster Enterprise ........................... Water _ Water, Electric, Refuse, Golf Reclaimed Water Water, Sewer, Sanitation, Storm Transit, Sewer, Sanitation, Cemetery Golf Course, Sewer Sewer Golf Course, Transit System . Water, Sewer, Electric, Transit, Airport Water, Golf, Housing, Refuse Water Harbor Water, Sewer TranSit Sewer Water, Sanitation, Transit Water W~ l ER DISTRICTS AND SPECIAL D~STRICTS Noted below is a listing of water and special districts audited by our firm over the past year. Water Districts Borrego Water District Castaic Lake Water Agency Cucamonga County Water District Devil's Den Water District E1 Toro Water District La Puente Valley County Water District Mesa Consolidated Water District Newhall County Water District Trabuco Canyon Water District S_vecial Districts Beach Cities Health District Dana Point Sanitation District Downey Cemetery District Garden Grove Sanitation District Midway City Sanitary District Orange County Cemetery District Orange County Vector Control District Sunset Beach Sanitary District Valley Wide Recreation and Park District NONPROFIT CORPORATIONS AND JOINT POWER AUTHORITIES Noted below is a listing ofnonp;ofit corporations and joint power authorities audited by our fn'm over the past year. A substantial number of these entities are "component units" which are combined into the general purpose financial statements of cities or other organizations which exercise oversight responsibility. -Cathedral City C0rr~unibd-Serx;ice District Cathedral City Public Financing Authority Coronado Financing Authority Coronado Improvement Corporation Del Mar Public Facilities Corporation Discovery Museum of Orange County Downey Civic Center Corporation Downey Recreational Area Authority Downey Water Facilities Corporation Garden Grove Cable Corporation Garden Grove Fire Training Facility Garden Grove Improvement Corporation Garden Grove Library Corporation .... Garden Groge Willowi~k Golf Course Human Options, Inc. Huntington Beach Public Financing Authority Huntington Beach Public Improvement Corp. International Fire Code Institute, Inc. Irvine Child Development Center Operating Corporation Irvine Senior Foundation Irvine Un/fled School District- District Advisory Forum Public Cable Television Authority South County Senior Services Southeast Area Animal Control Authority United Cerebral Palsy Association of Orange County -13- MANAGEMENt! ~ONSULTING SERVICES FOR ~ALIFORNIA CITIES We are a full service CPA firm. Our Management Consulting Department can provide the City with a wide variety of services as detailed below. Computer System Design and Installation Computer System "User Needs" Assessment (including detailed department by department analysis for developing computer software specifications) Analysis of Computer System Hardware Architecture Development of Vendor R.FPs and Evaluation of Vendor Responses · ASsistancewith Contract Negotiations · Selection and Installation of New "Financial Management System" Software Design and Implementation of New ACcounting Systems · Review of Accounting Policies and Procedures for Compliance with Generally Accepted Accounting PrinciPles (GAAP), State Controller's Guidelines, etc. · Design of Chart-of-Accounts · Design of Budgetary Structure · Preparation of Accounting Manuals · Training of City Staff In Governmental Accounting Internal Control Reviews · -Review of-Computer-Related. Controls (including physical security over file servers-and other- hardware, password controls, data back-up procedures, disaster recovery plans and internet security) · Review of City's Investment Policy for Compliance with California Government Code · Review of Controls Over Cash and Investments (including vault controls, wire transfer controls, collateralization of deposits, third-party safekeeping agreements, monthly investment reports, etc.) · Review of Purchasing and Competitive Bidding Procedures · Review of Controls Over Inventories and Supplies Revenue Enhancement and Cost Recovery Services · Analysis of User Fees and Charges (to maximize City revenues, while complying with legal requirements such as Proposition 4, Proposition 218 and AB 1600) · Cost Allocation Plans (including "Activity Based Costing" plans for'monitoring the performance and efficiency of various City activities) · Cost Allocation Plans In Compliance With Federal and State Grant Programs -14- MANAGEMENT CONS'vL, TING SERVICES FOR CALII~uRNIA CITIES (CONTINUED) Cable'Television Consulting Services · Assistance With Cable TV Franchise Transfers and Renewals · Cable TV Franchise Fee Reviews · Cable TV Rate Regulation Reviews · Expert Witness Testimony Regarding Cable Issues Reviews of Solid Waste Haulers and Trash Rate Negotiations · Review of Solid Waste Hauler's Financial and Operating Data · Review of Solid Waste Hauler's "Rate Setting Methodology" · Trash Rate Surveys · Trash Rate Negotiations Performance and. Operational Reviews of Municipal Golf Courses · Revenue Enhancement Services (including the maximizing of greens fees, cart fees, golf tournament fees and gross profits from the operation of club houses, pro shops and snack bars) · Fee Surveys of Surrounding Golf Courses · Development of Golf Course Marketing Plans and Capital Budgets · Review of Cost Controls and Competitive Bidding for All Areas of Operations (including costs of capital improvements, administrative salaries, golf course maintenance salaries and purchases of fertilizer, chemicals and seed) .. · ..... Human Resource and Payroll Services · Design and Implementation of Retirement Plans, Cafeteria Plans, Deferred Compensation Plans, and Other Employee Benefit Plans (including plans for part-time, seasonal and temporary workers) · Tax Planning on Govemmental Tax Issues · Assistance with Payroll Tax Reporting and Compliance · Development of"Accountable Expense Reimbursement Plans" for the Proper Reporting of Travel and Entertainment AUDIT SCOPE AND APPROA,_.d ENTITIES TO BE INCLUDED IN AUDIT City of Tustin Tustin Redevelopment Agency Tustin Public Financing Authority REPORTS TO BE ISSUED AND DUE DATES City of Tustin- Comprehensive Annual Financial Report Tustin Redevelopment Agency - Annual Report, Including Report on Compliance Management Letter Report on Compliance with Article XIIIB Appropriation Limit Single Audit Reports: Independent Auditors' Report on General Purpose Financial Statements and Supplementary Schedule of Expenditures of Federal Awards ............ Independent Auditors' Report on Compliance and on Internal Controls Over Financial Reporting Based. on Audit of Financial Statements Performed in Accordance 'With Government Auditing Standards Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133. Due Dates October 30 October 30 October 30 October 30 November 30 COMMITMENT TO DELIVER REPORTS ON A TIMELY BASIS If all books and records, schedules and documents are made available to us by August 15, we make a commitment to have audit team members available and to provide all reports by the due dates specified above. -16- AUDITS TO BE IN ~-,,2CORDANCE WITH GAAS AND oTHER REQUIREMENTS We will audit the general purpose financial statements of the City and the component units noted on the preceding page. The financial statements of all entities where the City exercises oversight will be combined with the City's financial statements, in accordance with GASB Statement 14. Our audits will be in accordance with generally accepted auditing standards as set forth by the AICPA, and will include such auditing procedures as we consider necessary under the circumstances. The combining, individual fund and account group financial statements will be subjected to auditing procedures as we consider necessary in relation to the general purpose financial statements taken as a whole. The scope of our audits will not include any statistical information, and we will not express an opinion concerning it. Our audits will conform with the guidelines set forth in the AICPA's Industry Audit Guide, Audits of State and Local Governmental Units. Also, each examination will comply with the standards for financial and compliance audits contained in the Government Auditing Standards (1994 Edition), issued by the U.S. General Accounting Office, and the requirements of OMB Circular A-133. Our audit of the Redevelopment Agency will include an audit on compliance in accordance with Health and Safety Code Section 33080.1 and Sections I through V of the "Guidelines for Compliance Audits of California Redevelopment Agencies" issued by the State Controller's Office. Also, we will perform a limited procedures review of the City's Gann Spending Limitation Computation as required by Section 1.5 of Article XIIIB of the California Constitution. Our review will be performed in conformance with the provis!on of the "League of California Cities Uniform Guidelines". . AUDIT APPROACH Planning and Initial Work: After our appointment as auditors, members of our audit team will meet with you and your staff to discuss the scope and timing of the audits and any accounting issues known at that time. We will schedule about two weeks of interim audit work during May or June each year. During our initial audit, we will prepare narratives or other documentation of the major internal accounting control systems, such as revenue and cash receipts, cash disbursements, purchasing and accounts payable, payroll, inventory, property and equipment, grant administration and the budget process. These are used to evaluate the systems of internal control and to revise our standard audit programs as needed. During the audit work in subsequent years, we will note changes in the systems, if any. Each year we will select a random sample of transactions from throughout the year to determine that the systems are functioning as described to us. We will identify the strengths of the systems upon which we can rely in planning our substantive tests and in setting materiality limits. Our internal control review will meet all the requirements of AICPA Statement on Auditing Standards No. 55, "Consideration of the Internal Control Structure in a Financial Statement Audit", as amended by Statement on Auditing Standards No. 78. -17- AUDIT APPROACH (CONTINUED) 2. Final Audit Work: During the final audit work, we will concentrate on auditing the final amounts that appear in the City's CAFR. Our work may include: · Confirmation of cash and investments, major receivables, long-term debt and major revenues if appropriate. · Detailed audit of all significant balance sheet and revenue and expenditure/expense accounts for each fund group. · Analytical procedures on balance sheet and revenue and expenditure accounts, to evaluate and explain unusual fluctuations from prior year balances or current year budgeted amounts. Our f'mn uses comprehensive audit programs for Cities, Redevelopment Agencies and Single Audits. The programs are amended, as necessary, for each audit. SINGLE AUDIT APPROACH The single audit will be perfo .r~ed in accordance with all the requirements of the Single Audit Act Amendments of 1996, OMB Circular A-133, Government Auditing Standards issued by the GOA (the "Yellow Book") and AICPA Statement on Auditing Standards No. 68, "Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance". When we begin the single audit, we will identify, the Major and Nonmajor Federal Financial Assistance Pro~m'ams of the city. EaCh Major-ahd-Nonmajor program will be identified as either a low risk or high risk program. Programs to be tested will be selected based on our assessment of risk for each program. We will identify the types of activities that are either specifically allowed or prohibited by the laws, regulations, and contract or grant agreements pertaining to the prograrns and document an understanding of the internal controls the City has to provide reasonable assurance that federal awards are expensed only for allowable activities or costs. We' will test the internal controls that are in place to determine if they are effective in detecting material noncompliance. We will select a sufficient number of transactions to support a low level of assessed control risk. If no exceptions in the function of key controls are noted, we will conclude that a low level of control risk was achieved. If weaknesses in the internal controls are noted, we will modify our audit program as needed. Our compliance testing will include testing on the 14 compliance areas as applicable that are identified in the OMB Circular A-133 Compliance Supplement. We will use the OMB Circular A-133 Compliance Supplement to identify' program specific requirements. If the information for testing specific requirements is not identified in the Compliance Supplement, we will use the grant agreement.' As part of our single audit, we will request that the City complete the "Data Collection Form" required to be completed by the Single Audit Act Amendments of 1996. The form will assist us in 'identifying the federal programs which will be required to be tested. -18- A~PROACH IN DETERMINING LAWS AND REGULATIONS SUBJECT TO AUDIT Under provisions of AICPA Statement on Auditing Procedures No. 68, Management of the City is responsible for identifying to its outside auditors any laws and regulations which would have a significant effect on the audit. This would include federal laws (such as federal grant regulations), State laws (such as permitted investments under the California Government Code) and local laws (such as restrictions on special revenues levied by the City). After our selection as auditors, we will consult with City officials regarding these matters, to determine what laws and regulations need to be evaluated in connection with our audit. METHOD OF SAMPLING AICPA Statement on Auditing Standards No. 39 allows an auditor to utilize either judgement sampling or statistical sampling techniques, based on the auditor's professional evaluation. We anticipate using judgment sampling techniques. We will not detemaine our sample sizes for substantive testing of year-end balances until our preliminary evaluation of internal controls. MANAGEMENT LETTERS In connection with each audit, .a complete review of internal controls will be made of all significant accounting procedures. Our firm uses an internal control questionnaire and a computer systems questionnaire to develop information for the management letter. Upon the completion of each audit and discussion with appropriate City staff, our firm will submit a management letter which shall identify weaknesses observed during these reviews and throughout the audit, assess their effects on financial management and recornm, e~d _steps toward eliminating the weaknesses. OTHER PROFESSIONAL SERVICES We will be available for any other professional assistance you require to research and answer accounting and reporting problems raised by the City, regardless of the time of year. Such assistance may include, but is not limited to, tax questions, the review of bond documents, cost allocation programs and employee benefit pro~mams. We also will keep the City informed of new developments affecting municipal finance and reporting, changes in grant mles and regulations, etc. We will be available for training sessions on any accounting or computer matters, and we will be available to attend City Council (Board of Directors) meetings as needed. RETENTION OF AND ACCESS TO AUDIT WORKPAPERS In accOrdance with provisions of OMB Circular A-133 and GAO requirements, our audit workpapers will be maintained for at least three years after the date of the report. These workpapers will be made available as necessary to your cognizant audit agency (or its designee), to GAO representatives, or to any other federal or state agency needing access to the workpapers. Also, our firm will respond to any reasonable inquiries of successor auditors and we will allow any successor auditors to review our workpapers. -19- AUDIT TIMING Assuming that the City's books are closed and ready for examination and that all necessary schedules and documents are available for our use by August 15 each year, the time schedule for the various phases of the audit would be approximately as follows: Entrance Conference with all Key Finance 'Department Personnel Entrance Conferences with Audit Committee and Finance Director Interim Work Progress Conference with Audit Committee Inventory Observations/Confirmation Mailings Entrance Conference with Finance Director Year-end Field Work Exit Conference with Finance Director Deliver Reports Week of April 10 Week of April 10 May- June June 12 June 30 August 14 August 15- September 30 October 2 See Due Dates on Page 16 WORK REQUIRED BY CITY STAFF Our fixed annual fees contemplate that conditions satisfactory to the normal progress and Completion of the examination will be encountered and that City accounting personnel will furnish the agreed-upon assistance in connection with th~ audit. However, if unusual circumstances are encountered which make it necessary for us to do additional work, we shall report such conditions to the responsible City officials and provide the City with an estimate of the additional accounting fees involved. Noted below is a listing of work required by City staff to assist in the audit. 1. Technical assistance in familiarizing our staff with: · The flow of information through the various departments and accounting systems. · Reports generated by your accounting system. · 'The system of internal controls. · Controls established to monitor compliance with federal grants. 2. Preparation of trial balances for all funds, after posting of all year end journal entries. 3. Preparation of schedules supporting all major balance sheet accounts, and selected revenue and expenditure 'accounts. 4. Typing of all confirmation requests. 5. Pulling and refiling of all supporting documents required for audit verification. 6. Assistance with the preparation of the CAFR and footnotes, as needed. 7. Preparation of the transmittal letter and all statistical tables for the CAFR. - 20 - SEGMENTATION P ~ THE AUDIT HOURS, BY PAR....,ER AND STAFF LEVEL Partner Manager Senior Other Total City Audit: Audit planning 4 Preparation of audit programs - Review and documem system of internal controls, including EDP system - Other interim work (Staff) - Year-end audit work (Senior and Staff) - Analysis and resolution Of special audit problems 4 Report and management letter preparation - Report and management letter review 16 Subtotal City Audit 24 Redevelopment Agency 4 Single Audit of Federal Grants 2 Subtotal - Other 6 TOTAL HOURS 30 8 4 - 16 8 8 - 16 16 , 44 60 16 40 40 90. 90 180 8 8 66 82 32 44 126 .240 434 16 36 34 8 24 28. 62 24. 60 62 152 68 186 302 90 586 -21 - IDENTh._.~AITON OF ANTICIPATED AU~iT PROBLEMS We do not anticipate any audit problems based on our attendance at the bidders conference. - 22- ATTACHMENT I RESUMES OF PARTNERS AND PERSONNEL ASSIGNED TO AUDIT PAR' '.S AND PERSONNEL ASSIG/' ?0 AUDIT NITIN P. PATEL. CPA Position Engagement Partner Education University of California at Irvine Bachelor of Arts in Economics California State University at Long Beach Masters of Accounting Program Professional Organizations American Institute of Certified Public Accountants California Society of Certified Public Accountants California Society of Municipal Finance Officers (CSMF0) - Associate Member CSMFO Professional and Technical Standards Review Committee - Report Reviewer for Award Pro.am Range of. Experience Has been with Diehl, Evans & Company, LLP since 1986 with emphasis in governmental accounting and financial reporting. Responsible for finn's in-house governmental accounting and auditing training programs. Experience includes supervision of over one hundred audits of govemrnental agencies including cities, redevelopment agencies, non-profit corporations, joint powers authorities and special districts. Other experience includes providing consulting services for governmental agencies including special internal control reviews, cost allocation plans, cable television rate reviews, reviews of City Treasurer operations and transient occupancy tax reviews of city hotels/motels. - 23 - Position PARTNERS A~,w PERSONNEL ASSIGNED TO a.~OlT (CONTINUED) MICHAEL R. LUDIN, CPA Consulting Partner Education California State University, Fullerton Bachelor of Arts in Business Administration, with concentration in Accounting, 1975 Professional Organizations Range of · Experience American Institute of Certified Public Accountants California Society of Certified Public Accountants Governmental Accounting and Auditing Committee of the Orange County Chapter, California Society of CPAs, Past Chairman Associate Member of Government Finance Officers Association (GFOA) Associate Member of California Society of Municipal Finance Officers (CSMFO) CSMFO Professional and Technical Standards Committee - Report Reviewer for Award Program Has been with Diehl, Evans & Company, LLP since 1978 with emphasis in governmental auditing and financial reporting. Experience includes supervision of over one hundred audits of governmental agencies including cities, redevelopment agencies, nonprofit corporations, and joint power authorities. Public sp.eaker on.municipal accounting and frequent instructor at finn's in-house governmental accounting and auditing seminars. Managing Director of firm's Irvine office. - 24 - PARTNERS A,,,_,, PERSONNEL ASSIGNED TO A,_,DIT (CONTINUED) Position Education BETHANY A. ALESSI, CPA Audit Manager Bemidji State University, Bemidji, Minnesota Bachelor of Science, Accounting 1990 Stunma Cum Laude Range of Experience Has been with Diehl, Evans & Company, LLP since July 1990. She has audited and prepared financial reports on cities, redevelopment agencies, nonprofit corporations and federal and state grants. 'Experience includes auditing for the following clients: City of Burbank City of Cerritos City of Irvine City of Ontario City of ffancho Palos Verdes City of Santa Clarita City of Tustin City of Westminster A.S. Foundation/Orange County ...................... Delhi-cbfnTmfinity-cente3 Human Options International Code Council, Inc. International Conference of Building Officials International Fire Code Institute Irvine Child Development Center Mental Health Associatibn of Orange County Palos Verdes Library District Orange Trust San Clemente Seniors, Inc. South County Senior Services Temple Beth E1 United Cerebral Palsy Association Vocational Visions Women's Transitional Living Center, Inc. _ 25_ ATTACHMENT II RESULTS OF OUTSIDE QUALITY REVIEW '.IICHAEL R. ADCC)CK. C.P.A. I H(')MA:s F.. AHI-RN. C.I' A, BRL'CT£ I. BAR IEI L.~. C.?.A. BRIAN I. t. HRI'~ FI-iNy,.)N. ¢'.I'.A. (;ARY L. CHRI~T£NSON. C.P.A. (;HARLE$ P. COPEL~ND. I)(~NALD A. DE t;O()D. C.P.A. t. INDA S. DEVLIN. C.P.A. RHEE ELIKER. C.P.A. ~'ING K. ~U. C.P.A. DOUGh5 R. McADAM. C.P.A. JESSIE C. PO~'ELL. C.P.A. JAMES L. SOREN. C.P.A. KIRK G. STITT. C.P.A. NO~ L. FEASLEY. C.P.A. DAVID P. TUTTLE. C.P.A. SOREN * McADAM * BARTELLS CERTIFIED PUBLIC ACCOUNTANTS. INC. ' July 11, 1995 MEMBERS A',SOCIATED REGIONAL ACCOUNTING FIRMS IARAF) AMERIC),N INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVAT£ COMPANIES PIL~CTIC£ SECTION To Oscar Armijo, CPA We have reviewed the system of quality control for the accounting and auditing practice of Oscar Armijo, CPA (the firm) in effect for the year ended December :31, 1994. Our review was conducted in conformity with standards established by the Peer Review Board of the American Institute of Certified Public Accountants (AICPA). We tested compliance with the f'u'm's quality control policies and procedures to the extent we considered appropriate. These tests included a review of selected accounting and auditing engagements. In performing Our review, we have given consideration to the quality control standards issued by the AICPA. Those standards indiCate that a f'mn's system of quality control should be appropriately comprehensive and suitably designed 'in relation to the fh'm's size, organizational strucnae, operating policies, and the nature of its practice. They state that variance in individual performance can affect the degree of compliance with a finn's quality control system and, therefore, recognize that there may not be adherence to all policies and procedures in every case. In our opinion, the system of quality control for the accounting and auditing practice of Oscar Armijo, CPA in effect for-the-year ended-December 31,- 1994 met the objectives of ............ quality control standards established by the AICPA and was being complied with during the year then ended to provide the ftrm with reasonable assurance of conforming with professional standards in the conduct of that practice. SOREN · McADAM · BARTELLS Certified Public Accountants, Inc. By: David P. Turtle, CPA -26- 2068 Orange Tree Line. Suite 100 · Post Office Box 8010 · Redlands, CA 92375-1210 · (909) 798-2222 · (909) 824-51 I0 · Fax (909) -,98-9772 Riverside Office * ti.lt. Sharp Financial (:enter * 2155 (]hicago Avenue. Suite 100 ~' Riverside. (;,-k ')2507 * tg09) 683-0672 * Fax t90'1) 61q6---Sl) ATTACHMENT III PROPOSER GUARANTEES AND WARRANTIES PRe 5ER GUAI~4,NTEES AND W. ANTIES mo Bo C~ D~ The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required. Proposer warrants that it is willing and able to obtain Professional Liability Insurance providing limits not less than one (1) million dollars of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof, or show evidence of the ability to provide substitute security equal to the same limit. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Tustin. Propose warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans & Company, LLP -Date:--- December 1, 1999 -27- CITY OF TUSTIN FEE PROPOSAL FOR THE YEAR ENDING JUNE 30, 2000 (WITH AN OPTION FOR THE FOUR YEARS ENDING JUNE 30, 2004) DIEHL, EVAN.., (,T COMPANY,.LLP CERTIFIED PUBLIC ACCOUNTANTS &z CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONs 2121 ALTON PARKWAY, SUITE 100 IRVINE, CALIFORNIA 92606-4906 (949) 399-0600 · FAX (949) 399-0610 December 1, 1999 ' RODNEY K. McDANIEL CPA MICHAEL R. LUDIN, CPA CRAIG W. SPRAKER, CPA NITIN P. PATEL, CPA * PHILIP H. HOLTKAME CPA ' THOMAS M. PERLOWSKI, CPA ° HARVEY J. SCHROEDER. CPA · A PROFESSIONAL CORPORATION Mr. Ronald A. Nault Finance Director City of Tustin 300 Centennial Way Tustin, CA 92780 Dear Mr. Nault: At your request, we have submitted our statement 6f qualifications under a separate cover. The following informatiOn is included herein: 1. Maximum fees for the audits. 2. Composition of our current audit fee. 3. Hourly rates for special services. Please con~act US ifther-e-~e any questions regarding the fees or hourly rates quoted herein. Very truly yours, DIEHL, EVANS & COMPANY, LLP- By Nitia P. Patel, CPA Engagement Parmer -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET CARLSBAD. CALIFORNIA 92008-2389 ~ ,9-,,34 (760) 729-2343 · FAX (760) '~ '~ 013 W. VALLEY PARKXVA'L SUITE 330 ESCONDIDO. CALIFORNIA 92025-2598 (760) 741-3141 · F.-LX ~760) 741-0890 MAXIMUM FEES Our maximum fees for the year ending June 30, 2000 with an option for the four years ending June 30, 2004: 2000 2001 2002 2003 2004 City Audit $ 17,200 $ 15,500 $ 16,100 $ 16,700 $ 17,300 Redevelopment Agency 3,600 3,300 3,500 3,700 3,900 Single Audit of Federal Grants 3.000 2.700 2,900 3,100 3.300 TOTALS $ 23.800 $ 21.500 $ 22.500 $ 23.500 $ 24.500 Note: The implementation of Government Accounting Standards Board Statements No. 34, Basic Financial Statements and Management's Discussion and Analysis - for State and Local Governments will require additional work. Any additional fees will be negotiated with the City based on the amount of additional work involved with implementation of Statement No. 34. COMPOSITION OF CURRENT AUDIT FEE Our proposed fee for the year ending June 30, 2000 is computed as follows: Standard Hours Rates Partner 30 x $ 175.00 = $ 5,250 Manager 68 x 90.00 = 6,120 Senior Accountants 186 x 65.00 = 12,090 Staff'Accountants 262 x 55.00 = 14,410 Cler/cal 40 x 40.00 1,600 Out-of-Pocket ----" 200 ~'~(o 39,670 . Discount (40%) (15.870) TOTAL $ 23.800 HOURLY RATES FOR SPECIAL SERVICES If the City wishes us to perform consulting or other services outside the scope of the services described herein, a separate written request from the City will be required. Our hourly rates for these services during each year under the basic contract will be as follows: Nitin Patel, CPA - Parmer 2000 2001 2002 2003 2004 $175 $180 $185 $190 $195 Michael Ludin, CPA- Parmer 175 Bill Morgan, CPA - Director of Management Consulting 180 185 190 195 175 180 185 190 195 Managers 90 95 100 105 110 Senior Accountants 65 70 75 80 85 55 60 65 70 75 Staff Accountants -3-