CC 2013-07-09_08.c. Agreement for Audit ServicesMEMORANDUM
TO: CITY COUNCIUSUCCESSOR BOARD
FROM: DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES -orv-
SUBJECT: CONSIDERATION OF AMENDMENT TO AGREEMENT FOR AUDIT
SERVICES
DATE: JULY 9, 2013
RECOMMENDATION:
It is recommended that the City Council/Successor Agency to the Dissolved Arroyo
Grande Redevelopment Agency Board approve the first amendment to the agreement
with the audit firm of Moss, Levy, & Hartzheim, Certified Public Accountants.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The costs for audit services are $22,300 for FY 2013-14. The appropriation for audit
services has been included in the FY 2013-14 & FY 2014-15 Bi-Annual Budget. No
additional appropriation is needed.
BACKGROUND:
Municipalities and businesses hire auditors to produce annual financial statements and to
conduct evaluations of the entity's internal control. The auditor is responsible for
determining that the financial statements do not include material errors and do not
misrepresent the City's financial condition. In the evaluation of internal controls, the
auditor appraises procedures that could allow collusion, theft or fraud.
ANALYSIS OF ISSUES:
The City has contracted with the firm of Moss, Levy, & Hartzheim for the last twelve years,
following a competitive bid process. The City has been very satisfied with the firm's
performance, responsiveness, and the audit documents. The most current contract
expired June 30, 2013.
Although it may not result in a change of auditors, best practices recommend that from
time to time it is prudent to competitively bid audit services to ensure the City is receiving
the best services for the best price. Normally, staff would have issued a Request for
Proposals (RFP) for auditing services during the 2012-13 fiscal year and executed a
contract with the auditing firm prior to the end of the fiscal year. Due to the unexpected
staff vacancy in the Administrative Services department and other workload priorities, this
did not occur. Staff recommends executing a one year extension to the agreement with
Moss, Levy & Hartzheim in order to prepare the audit for the year ended June 30, 2013.
Item 8.c. - Page 1
CITY COUNCIL
AWARD OF AUDIT SERVICES CONTRACT
JULY 9, 20013
PAGE2
Staff will issue an RFP during the 2013-14 fiscal year in order to continue following best
practices related to obtaining auditing services. The contractor is amenable to this
proposal and has provided an audit engagement letter describing the services they will
provide. This engagement letter is consistent with the services provided to the City in prior
years. While the contract amount does not require Council approval, because the auditors
are responsible to "those charged with governance" and not management, it is appropriate
for the Council to approve the contract.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
-Approve staff recommendation;
-Do not approve staff recommendation;
-Modify staff recommendation and approve;
-Provide direction to staff.
ADVANTAGES:
The City's audit for the fiscal year ending June 30, 2013 will be performed by the same
firm that has performed the audit for the past several years. Given the staffing turnover
and timing of the audit, this is an efficient and effective approach, rather than attempting
to transition in a new Director of Administrative Services concurrently with issuing an
RFP for audit services. Ideally, the contract for auditing services would be awarded in
the spring, well before fiscal year end. In addition, the firm's familiarity with City
processes, policies and fiscal circumstances will be helpful to the new Director.
DISADVANTAGES:
Entering into a one year extension with the current audit firm delays the competitive bid
process, however it does not violate any state or federal laws related to the audit or the
City's procurement policies related to consultant services. Staff believes this
disadvantage is outweighed by the advantages.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Wednesday, July 3, 2013. The Agenda
and report were posted on the City's website on Friday, July 5, 2013. No public
comments were received.
Attachment(s):
1. Proposed First Amendment to Consultant Agreement
Item 8.c. - Page 2
CONSUL TANT SERVICES AGREEMENT
AMENDMENT NO. 1
This First Amendment ("First Amendment") to the Consultant Services Agreement
("CSA") by and between the CITY OF ARROYO GRANDE and MOSS, LEVY &
HARTZHEIM LLP is and entered into this day of July, 2013, based on the
following facts:
WHEREAS, the parties entered into a CSA dated April 13, 2010 to provide auditing
services; and
WHEREAS, the CSA expired June 30, 2013; and
WHEREAS, the parties desire to revive and amend the CSA.
NOW THEREFORE, the parties agree that the CSA is hereby revived and in full force
and effect and, subject to the terms and conditions of this First Amendment as set forth
below:
1. Term shall be on the day first set forth above and continue in effect until June 30,
2014, unless sooner terminated.
2. Consultant shall perform the tasks described and set forth in Exhibit A, attached
hereto and incorporated herein by reference.
3. Consultant shall be paid at the rates and terms as set forth in Exhibit A.
4. Except as modified herein, all other terms and conditions set forth in the CSA
shall remain unchanged.
IN WITNESS WHEREOF, CITY and CONSUL TANT have executed this First
Amendment the day and year first above written.
MOSS, LEVY & HARTZHEIM LLP
CITY OF ARROYO GRANDE
Tony Ferrara, Mayor
ATTACHMENT 1
Item 8.c. - Page 3
, ;
MOSS, LEVY & HARTZHEIM LLP
PARTNERS
RONALD A LEVY, CPA
CRAIG A HARTZHEIM, CPA
HADLEY Y HUI, CPA
May 23, 2013
To City Council
City of Arroyo Grande
PO BOX 550
Arroyo Grande, CA 93421
CERTIFIED PUBLIC ACCOUNTANTS
2400 PROFESSIONAL PARKWAY. SUITE 205
SANTA MARIA. CA 93455
TB.: 805.925.2579
FAX: 805.925.2147
www.mlhcpas.com
We are pleased to confirm our understanding of the services we are to provide the City of Arroyo Grande for the fiscal
year ended June 30, 2013. We will audit the financial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information, Including the related notes to the financial
statements, which collectively comprise the basic financial statements of the City of Arroyo Grande as of and for the fiscal
year ended June 30, 2013. Accounting standards generally accepted in the United States of America provide for certain
required supplementary information (RSI), such as management's discussion and analysis (MD&A), to supplement the
City of Arroyo Grande's basic financial statements. Such information, although not a part of the basic financial statements,
Is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part
of our engagement, we will apply certain limited procedures to the City of Arroyo Grande's RSI In accordance with
auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of
management regarding the methods of preparing the information and comparing the Information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our
audit of the basic financial statements. We wtll not express an opinion or provide any assurance on the information
because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
The followlng RSI Is required by generally accepted accounting principles and will be subjected to certain limited
procedures, but will not be audited:
1) Management's Discussion and Analysis.
2) Budgetary Comparison Schedules
3) OPEB
We have also been engaged to report on supplementary information other than RSI that accompanies the City of Arroyo
Grande's financial statements. We will subject the following supplementary information to the auditing procedures applied
In our audit of the financial statements and certain additional procedures, including comparing and reconciling such
Information directly to the underlying accounting and other records used to prepare the financial statements or to the
financial statements themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America and will provide an opinion on It In relation to the financial statements as a
whole:
1) Nonmajor Governmental Funds Financial Statements
2) Individual Nonmajor Funds Budgetary Comparison Schedules
Audit Objectives
The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented,
in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of
the supplementary Information referred lo in the second paragraph when considered in relation lo the financial statements
as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of
OFFICES: BEVERLY HILLS · CULVER CITY· SANTA MARIA
MEMBER AMERICAN INSTITUTE OF CPAs ·CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS· CALIFORNIA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS
EXHIBIT A
Item 8.c. - Page 4
America and the standards for financial audits contained in Government Auditing Standards, Issued by the Comptroller
General of the United States, and will Include tests of the accounting records of the City of Arroyo Grande and other
procedures we consider necessary to enable us to express such opinions. We cannot provide assurance that unmodified
opinions will bE! expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add
emphasis-of-matter or other-matter paragraphs. If our opinions on the financial statements are other than unmodified, we
will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form
or have not formed opinions, we may decline to express opinions or to issue a report as a result of this engagement.
We will also provide a report (that does not include an opinion} on internal control related to the financial statements and
compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could
have a material effect on the financial statements as required by Government Auditing Standards. The reports on internal
control and compliance will each Include a paragraph that states that the purpose of the report is solely to describe the
scope of testing of internal control over financial reporting and compliance, and the result of that testing, and not to
provide an opinion on the effectiveness of Internal control over financial reporting or on compliance, and that the report is
an integral part of an audit performed in accordance with Government Auditing Standards In considering Internal control
over financial reporting and compliance. The paragraph will also state that the report is not suitable for any other purpose.
If during our audit we become aware that the City of Arroyo Grande Is subject to an audit requirement that is not
encompassed In the terms of this engagement, we will communicate to management and those charged with governance
that an audit in accordance with U.S. generally accepted auditing standards and the standards for financial audits
contained in Government Auditing Standards may not satisfy the relevant legal, regulatory, or contractual requirements.
Management Responslbllltles
Management Is responsible for the basic financial statements and all accompanying information as well as all
representations contained therein. As part of the audit, we will assist with preparation of your financial statements and
related notes. You will be required to acknowledge in the written representation letter our assistance with preparation of
the financial statements and that you have reviewed and approved the financial statements and related notes prior to their
Issuance and have accepted responsibility for them. You agree to assume all management responsibllltles for any
nonaudlt services we provide; oversee the services by designating an individual, preferably from senior management, who
possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of the services; and accept
responsibility for them.
Management is responsible for establishing and maintaining effective internal controls, including evaluating and
monitoring ongoing activities, to help ensure that appropriate goals and objectives are met; for the selection and
application of accounting principles; and for the preparation and fair presentation of the financial statements in conformity
with U.S. generally accepted accounting principles.
Management is also responsible for making all financial records and related Information available to us and for ensuring
that management is reliable and financial information Is reliable and properly recorded. You are also responsible for
providing us with (1) access to all Information of which you are aware that is relevant to the preparation and fair
presentation of the financial statements, (2} additional information that we may request for the purpose of the audit, and
(3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence.
Your responsibilities Include adjusting the financial statements to correct material misstatements and for confirming to us
in the written representation letter that the effects of any uncorrected misstatements aggregated by us during the current
engagement and,pertalning to the latest period presented are immaterial, both Individually and in the aggregate. to the
financial statements taken as a whole.
You are responsible for the design and Implementation of programs and controls to prevent and detect fraud, and for
informing us about all known or suspected fraud affecting the government Involving (1} management, (2} employees who
have significant roles In Internal control, and {3} others where the fraud could have a material effect on the financial
statements. Your responsibilities Include informing us of your knowledge of any allegations of fraud or suspected fraud
affecting the government received in communications from employees, former employees, granters, regulators, or others.
In addition, you are responsible for identifying and ensuring that the entity complies with applicable laws, regulations,
contracts, agreements, and grants for taking timely and appropriate steps to remedy any fraud, violations of contracts or
grant agreements, or abuse that we may report.
You are responsible for the preparation of the supplementary Information in conformity with U.S. generally accepted
accounting principles. You agree to include our report on the supplementary information In any document that contains
and indicates that we have reported on the supplementary information. You also agree to include the audited financial
statements with any presentation of the supplementary information that includes our report thereon OR make the audited
financial statements readliy available to users of the supplementary information no later than the date the supplementary
Item 8.c. - Page 5
Information is issued with our report thereon. Your responsibilities include acknowledging to us in the written
representation letter that (1) you are responsible for presentation of the supplementary Information in accordance with
GAAP; (2) that you believe the supplementary Information, including its form and content, Is fairly presented in
accordance with GAAP; (3) that the methods of measurement or presentation have not changed from those used in the
prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant
assumptions or interpretations underlying the measurement or presentation of the supplementary information.
Management is responsible for establishing and maintaining a process for tracking the status of audit findings and
recommendations. Management Is also responsible for identifying for us previous financial audits, attestation
engagements, performance audits or other studies related to the objectives discussed in the Audit Objectives section of
this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and
recommendations resulting from those audits, attestation engagements, performance audits, or other studies. You are
also responsible for providing management's views on our current findings, conclusions, and recommendations, as well
as your planned corrective actions, for the report, and for the timing and format for providing that information.
Audit Procedures-General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to
be tested. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the
financial statements are free of material misstatement, whether from (1) errors, (2) fraudulent financial reporting, (3)
misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the entity or to acts
by management or employees acting on behalf of the entity. Because the determination of abuse is subjective,
Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse.
Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because we
wlll not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be
detected by us, even though the audit is properly planned and performed in accordance with U.S. generally accepted
auditing standards and Government Auditing Standards. In addition, an audit is not designed lo detect Immaterial
misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the
financial statements. However, we will inform the appropriate level of management of any material errors, any fraudulent
financial reporting, or misappropriation of assets that come to our attention. We will also inform the appropriate level of
management of any violations of laws or governmental regulations that come to our attention, unless clearly
inconsequential. Our responsibility as auditors Is limited to the period covered by our audit and does not extend to later
periods for which we are not engaged as auditors.
Our procedures will Include tests of documentary evidence supporting the transactions recorded in the accounts, and may
include tests of the physical existence of Inventories, and direct confirmation of receJvables and certain other assets and
liabilities by correspondence with selected individuals, funding sources, creditors, and financial Institutions. We will
request written representations from your attorneys as part of the engagement, and they may bill you for responding to
this Inquiry. At the conclusion of our audit, we will require certain written representations from you about the financial
statements and related matters.
Audit Procedures-Internal Control
Our audit will include obtaining an understanding of the entity and Its environment, including internal control, sufficient to
assess the risks of material misslatement of the financial statements and to design the nature, timing, and extent of further
audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider
relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and
detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect
on the fi.nanclal statements. Our tests, if performed, will be less In scope than would be necessary to render an opinion on
Internal control and, accordingly, no opinion will be expressed in our report on Internal control Issued pursuant to
Government Auditing Standards.
An audit Is not designed to provide assurance on internal control or to identify significant deficiencies or material
weaknesses. However, during the audit, we will communicate to management and those charged with governance
internal control related matters that are required to be communicated under AICPA professional standards and
Government Auditing Standards.
Item 8.c. - Page 6
Audit Procedures-Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we
will perform tests of the City of Arroyo Grande's compliance with the provisions of applicable laws, regulations, contracts,
agreements, and grants. However, the objective of our audit will not be to provide an opinion on overall compliance and
we will not express such an opinion In our report on compliance issued pursuant to Government Auditing Standards.
Engagement Administration, Fees, and Other
We may from time to time, and depending on the circumstances, use third-party service providers In serving your account.
We may share confidential information about you with these service providers, but remain committed to maintaining the
confidentiality and security of your information. Accordingly, we maintain Internal policies, procedures, and safeguards to
protect the confidentiality of your personal Information. In addition, we will secure confidentiality agreements with all
service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine
that they have appropriate procedures in place to prevent the unauthorized release of your confidential information lo
others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide
your consent prior to the sharing of your confidential Information with the third-party service provider. Furthermore, we will
remain responsible for the work provided by any such third-party service providers.
We understand that your employees will prepare all cash or other confirmations we request and will locate any documents
selected by us for testing.
We will provide copies of our reports to the City; however, management Is responsible for distribution of the reports and
the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information,
copies of our reports are to be made available for public inspection.
The audit documentation for this engagement Is the property of Moss, Levy and Hartzheim LLP and constitutes
confidential Information. However, pursuant to authority given by law or regulation, we may be requested to make certain
audit documentation available to a federal agency providing direct or indirect funding, or the U.S. Government
Accountability Office for purposes of a quality review of the audit, to resolve audit findings, or to carry out oversight
responsibflities. We will notify you of any such request. If requested, access to such audit documentation will be provided
under the supervision of Moss, Levy and Hartzheim LLP personnel. Furthermore, upon request, we may provide copies of
selected auditdocumenlallon to the aforementioned parties. These parties may intend, or decide, lo distribute the copies
or information contained therein lo others, Including other governmental agencies.
The audit documentation for this engagement will be retained for a minimum of five years after the report release date. If
we are aware that a federal awarding agency or audltee is contesting an audit finding, we will contact the party(ies)
contesting the audit finding for guidance prior to destroying the audit documentation.
We expect to begin our audit on approximately July 1, 2013 and to issue our reports no later than December 15, 2013.
Ron A. Levy is the engagement partner and is responsible for supervising the engagement and signing the reports or
authorizing another individual to sign them. Our fee for these services will be at our standard hourly rates plus out-of-
pocket costs (such as report reproduction, word processing, postage, travel, copies, telephone, etc.) except that we agree
that our gross fee, including expenses, will not exceed $22,300. Our standard hourly rates vary according to the degree of
responsibility involved and the experience level of the personnel assigned to your audit. Our invoices for these fees will be
rendered each month as work progresses and are payable on presentation. In accordance with our firm policies, work
may be suspended if your account becomes 30 days or more overdue and may not be resumed until your account is paid
in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed
upon written notification of termination, even If we have not completed our report. You will be obligated to compensate us
for all time expended and to reimburse us for all out-of-pocket costs through the date of termination. The above fee is
based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be
encountered during the audit. If significant additional time Is necessary, we wlll discuss it with you and arrive at a new fee
estimate before we Incur the additional costs.
Item 8.c. - Page 7
We appreciate the opportunity to be of service to the City of Arroyo Grande and believe this letter accurately summarizes
the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our
engagement as described in this letter, please sign the enclosed copy and return it to us.
Very truly yours,
Ron A evy
RESPONSE:
This fetter correctly sets f he ui iderstazding of the City of Arroyo Grande.
Management signature:
Title: '
Date: d7.57i-?
Governance signature:
Title:
Date: