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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: