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Home My WebLink AboutC27540 Selection of Auditors for FY End 06/30/08Contract No. C27540 CITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT REQUEST: APPROVE THE SELECTION OF DIEHL EVANS & CO., LLP, AS THE CITY OF PALM DESERT AUDITORS FOR FISCAL YEAR ENDING JUNE 30, 2008 WITH THE OPTION TO EXTEND FOR UP TO SIX ADDITIONAL YEARS, AND AUTHORIZE STAFF TO NEGOTIATE A CONTRACT IN AN AMOUNT NOT TO EXCEED $75,000 SUBMITTED BY: PAUL S. GIBSON, FINANCE DIRECTOR DATE: MARCH 27, 2008 CONTENTS: PROPOSAL FROM DIEHL EVANS & CO. LLP Recommendation: That the City Council: 1. approve the selection of Diehl Evans and Co., LLP as City of Palm Desert's auditors for the fiscal year ending June 30, 2008, with the option to extend service for up to an additional six years through June 30, 2014; and 2. authorize staff to negotiate a contract in an amount not to exceed $75,000 for the fiscal year ending June 30, 2008. Background: On February 1, 2008, staff issued a Request for Proposals for certified public accountants to audit the City's financial statements for the fiscal year ending June 30, 2008, with the option to extend the contract for up to an additional six years through June 30, 2014. Interviews were conducted by the Audit Subcommittee on March 12, 2008. Following the interviews, it was the consensus of the committee to rank the firms interviewed in order of preference as follows: 1. Diehl Evans & Co., LLP 2. Mayer Hoffman McCann 3. Moreland & Associates G:\Finance\Niamh Ortega\Staff Reports\SR -Auditor Selection FY Ending June 30 2008.Doc Staff Report Limited Procedures Review & Transient Occupancy Tax Collection and Reimbursement March 27, 2008 Page 2of2 This information was presented to the Audit, Investment and Finance Committee at the regular meeting of March 25, 2008, and the Committee recommends that the City Council approve the selection of Diehl Evans & Co., LLP as the City of Palm Desert's auditors for the fiscal year ending June 30, 2008 with the option to extend for up to an additional six years, and authorize staff to negotiate a contract on behalf of the City of Palm Desert in an amount not to exceed $75,000 for the fiscal year ending June 30, 2008. Submitted by: Pau S. Gibson, Finance Director nmo Approval: Carlos L. Orteg City Manager CITY COUNCIL ACTION: APPROVED DENIED RECEIVED OTHER MEETING DATE F `� - bt l - Gi AYES: )_o/% ie (vat , /Lw1 NOES: N1°StJ-P ABSENT: Afr377-P ABSTAIN: A/n-Y42 VERIFIED BY: 14X /i94i21 Original on File wit)City Clerk's Office G:\Finance\Niamh Ortega\Staff Reports\SR - auditor selection FY ending June 30 2008.doc CITY OF PALM DESERT TECHNICALAUDIT PROPOSAL FOR THE YEAR ENDING ` � JUNE 30, 2008 � � ``` (WITH AN OPTION FOR EACH OF � ; THE SIX YEARS ENDING j JUNE 30, 2014) � � i 1 ; 1 �:�� .� ��, ' I ! i � � , _ � � � TITLE PAGE RFP Subject: Certified Audits on the City of Palm Desert For the Year Ending June 30, 2008 (With an Option for Each of the Six Years Ending June 30, 2014) Name of Proposer: Diehl, Evans & Company, LLP Certified Public Accountants and Consultants � Local Address: 2121 Alton Parkway, Suite 100 ' Irvine, CA 92606-4906 Telephone: (949) 399-0600 . i €.., Fax: (949) 399-0610 � , i ' Website: www.diehlevans.com , ; C Email: nitinp@diehlevans.com I � Contact Persons: Nitin P. Patel, CPA Engagement Partner � Robert J. Callanan, CPA � Concurring Review Partner � Date: February 22, 2008 I 1 �� E� �e� � � � � � _� 1 1 � ' CITY OF PALM DESERT TABLE OF CONTENTS , February 22, 2U08 ; Page Number Letter of Transmittal l - 2 Section I - Independence: Independence 3 Section II - License to Practice in the State of California: � � , License to Practice in the State of California 3 �.� , Section III - Firm Qualifications and Experience: � � Size and Location of Firm � 3 i ` Range of Activities 3 � Participation in"Quality Review" Programs 3 Education Programs 4 Participation in Professional Organizations 4 - 5 � Computer Auditing Capabilities 5 ; Governmental Tax Consulting 5 Performance and Operational Studies 6 � Redevelopment Consulting Services 6 - 7 i Reviews of City Treasurer Operations 7 - 8 Cable Television and Broadband Consulting Services 8 ; ) Reviews of Solid Waste Haulers and �.:.i Assistance With Trash Rate Negotiations 9 - 14 Litigation Support and Dispute Resolution Services 10 - 11 '�`�{ Fraud Investigations 11 - 12 �_.f Hotel/Motel Transient Occupancy T� Reviews 12 Business License Operation Reviews 12 � Section IV- Partner, Supervisory and Staff Qualifications and Experience: Audit Team 13 i Commitment Related to Personnel 13 � Nondiscrimination Policy 13 Audit Team Resumes 14 - 15 � ' Section V - Similar Engagements with Other Governrnent Entities: � GFOA and CSMFO Award Programs 16 Similar Engagements with Other Municipal Entiries 16 City Client References 16 � City Client List 17 � CITY OF PALM DESERT TABLE OF CONTENTS ' (CONTINUED) February 22, 2008 Page Number Section V- Similar Engagements with Other Government Entities (Continued): Redevelopment Agency Experience 18 Enterprise Fund Experience 18 Water Districts and Special Districts 19 Nonprofit Corporations and Joint Power Authorities 19 Section VI - Identification ofAnticipated Audit Problems 19 Section VII - Specific Audit Approach: ' � Entities to be Included in Audit 20 Reports to be Issued and Due Dates 20 � Commitment to Deliver Reports on a Timely Basis 20 Audits to be in Accordance with GAAS and Other Requirements 20 Audit Approach 21 Single Audit Approach 21 - 22 ; Approach in Determining Laws and Regulations Subject to Audit 22 Method of Sampling 23 ; Management Letters 23 � Other Professional Services 23 i Retention Of and Access To Audit Workpapers 23 Audit Timing 23 k ; Work Required by City Staff 24 �.; ,+. � Segmentation of the Audit Hours by Partner and Staff Level 25 �.._') Attachment I - Results of Outside Quality Review � Proposer Guarantees, Proposer Warranties and Proposer Bid Documents � � - 1 a I , , � DIEHL, EVANS � COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS d�CONSULTANTS MicrinE�x.�untn.crn A PARTNERSHIP MCLIJDING ACCOIR:TANCY"fOF.YOKATIONS CItAIG W.SPRAAFR CPA NITIh P.PATEL.CYA � ROBERT J.CALI.A1dAN.CPn � 2121 ALTON PARKWAY,SUITE 100 `PHILiP H.HOLTKAMY,CPA `THOMAS M.PERLOWSIiI,CPA IRVINE,CALIFORNIA 92606-4956 •HARVEY J.SCHROEDER.CPA (949)399-0600•FAX(949)399-0610 KENNLTH R.AMES,CPA www.dieh(evans.com � •WILLIAM C.PENTZ.CYA F�+UT�U��Z� �OOO •APROFESSIONALCORI'OI2ATIOV ;' Mr. Paul Gibson Director of Finance City of Palm Desert i 73-510 Fred Waring Drive Palm Desert, CA 92260 �„;. E� � Dear Mr. Gibson: ; � We are pleased to present our proposal to serve as independent auditors for the City of Palm Desert. We have prepared this information in accordance with the guidelines set forth in your request for proposal. � Why We Are The Best Qualified Firm i We consider ourselves to be the best qualified firm to perform auditing and accounting services for the i City of Palm Desert. Please consider these qualifications: ; • Diehl, Evans and Company, LLP has been providing auditing services to governmental agencies since 1950. A significant part of our practice is devoted to providing professional services to your , � specialized industry and over the past year, our firm audited twenty-nine cities, twenty-eight �, � redevelopment agencies and many other governmental agencies. � ;' � � Our firm has devoted a substantial amount of time and resources in order to provide governmental ' � agencies with quality audits. Our knowledge of the industry is best demonstrated by the fact that i... our clients who apply for the "Outstanding Award in Financial Reporting" issued by the California � Society of Municipal Finance Officers (CSMFO) and the "Certificate of Achievement in Financial � Reporting" issued by the Government Finance Officers Association (GFOA) consistently receive these awards. A list of these clients is presented on page 16 of this proposal. i ( • We understand that we provide a service to the City. Our audit approach is tailored to meet all technical requirements while maintaining professional skepticism without forgetting that we 1 provide a service. We are able to achieve this by partner involvement in all phases of the audit and assigning experienced governmental audit staff to the engagement. Partner involvement will result in decisions being made on a timely basis and experienced staff will minimize disruption to your I staf�: I - 1 - 1 � OTHER OFFICES AT: ?965 ROOSEVELT STREET 613 W.VALLEY PARKW'AY,SUITE 330 CARLSBAD.CALIFORNIA 92008-2389 ESCONDIDO,CALIFORNIA 92025-2598 (760)729-2343•PAX(760)729-2234 (760)741-3141•FAX(760)741-9890 � The scope of our services for the year ending June 30, 2008 would be as follows: • A financial audit of the basic financial statements of the City of Palm Desert in accordance with Governmental Auditing Standards to be included in the Comprehensive Annual Financial Report (CAFR). � A financial and compliance audit of the Palm Desert Redevelopment Agency. • A financial audit of the Palm Desert Recreation Facilities Corporation. • A Single Audit of Federal Grants to be performed to meet the requirements of the U.S. Office of Management and Budget (OMB) Circular A-133. • An agreed-upon procedures review of the calculation of the City's GANN Appropriations Limit (GANN), as required by Section 1.5 ofArticle XIIIB of the California Constitution. • A management letter containing any comments or recommendations resulting from our review of the systems of internal controls in connection with the financial and compliance audits. • A report on compliance with the Investment Policy of the City of Palm Desert (every three ` years) starting in the year ending June 30, 2010. We make a commitment to deliver all necessary reports based on the timetable presented herein on ' page 20. Also, our understanding of the work to be performed is set forth in Section VII. Our goal is to provide the City with the highest quality of service, including a CAFR which meets all '� i required reporting standards and a comprehensive management letter which is practical and helpful to ' management in improving operations. We are confident that our service and experience will be of benefit to the City and will provide added value over and above the performance of the audit itself. � Throughout the year, you should feel comfortable in calling us for advice, as we are never too busy to meet the needs of our clients. We encourage you to verify our level of service, as well as the availability of Ms. Daphnie Fuertez, the audit manager, and myself by contacting the references ; provided in this proposal. We respectfully request that we be selected as the independent auditors for the City for the year ending � June 30, 2008. We look forward to personally meeting with you to discuss our qualifications. ; We thank the City for the opportunity to present our proposal. Please feel free to contact me, or �; Mr. Robert J. Callanan, at (949) 399-0600 if you have any questions. This proposal constitutes a firm and irrevocable offer for fiscal years 2007-2008, 2008-2009, 2009-2010, 2010-2011, 2011-2012, �-; 2012-2013 and 2013-2014. Mr. Callanan and I are authorized to represent our firtn, and bind the firm � to a contract. �:, � Very truly yours, I DIEHL, EVANS & COMPANY, LLP � p � By: /v.�. �- 1 «�-Q � Nitin P. Patel, CPA ' Engagement Partner ) ! i - 2 - � SECTION I-Il\TDEPENDENCE Diehl, Evans and Gompany, LLP is independent of the City and its component units as defined by the 1994 Governmental Auditing Standards as amended by Amendment No. 3 on January 25, 2002. Also, we meet the independence requirements of "Governmenta] Auditing Standards" (2007 Edition), as published by the U.S. General Accounting Office. We will pro�ride written notice to the City of any professional ' relationships entered into during our term as auditors for the City. We have not provided auditing or any other services to the City during the past five years. SECTION II-LICENSE TO PRACTICE IN THE STATE OF CALFIORNIA Our firm and all of our certified personnel are properly licensed to practice public accounting in Califomia. i SECCTION III-FIRM QUALIFICATIONS AND EXPERIENCE SIZE AND LOCATION OF THE FIRM � Diehl, Evans & Company, LLP is a Southem California accounting firm with offices in Irvine, Carlsbad and r,,, Escondido. We are one of the oldest CPA firms in Southern California, with over 75 years of public practice ' ; experience. t.� Diehl, Evans & Company, LLP has extensive experience in providing auditing, accounting and consulting � :� services in the governmental sector. Over twenty thousand hours per year are devoted to this area of our ' ' practice for nearly 100 governmental units including cities, redevelopment agencies, water districts, special districts,nonprofit corporations and joint power authorities. � Our firm has 50 employees which includes 45 professional staff members. Your City would be served from our Irvine office,which has 25 professional staff members. � RANGE OF ACTIVITIES , ' Diehl, Evans&Company, LLP is a full service CPA firm.We offer a broad range of services, including: ; jCertified Audits Tax Planning Compilations and Reviews Income Tax Preparation � Agreed-Upon Procedure Reviews Consulting Services '' ' Financial Services �_� �T ; Our specific services available to governmental agencies are more fully set forth in this proposal. �,,j PARTICIl'ATION IN"QUALITY REVIEW"PROGRAMS � In 1986, our firm began an annual intemal quality review program, whereby all three offices are reviewed for � compliance with all current accounting and auditing requirements. Formal reports of these reviews aze presented to the partners, and adjustments in our auditing and reporting procedures are made as necessary. � In January 2006, our firm underwent a quality review by an independent CPA firm, under provisions of the ' AICPA Quality Review Program. These reviews are required every three years and covered our audits of governrnental agencies. We received a fmal report dated January 13,�2006 with an unqualified opinion on our i systems and procedures. A copy of the independent CPA firm's report is included herein at Attachment II. ! Accordingly,we are confident that our current auditing standards and techniques meet all existing requirements. i No regulatory 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. I � i - 3 - l EDUCATION PROGRAMS Diehl, Evans & Company, LLP has a formal continuing education pro�,�am. All firm auditors are required to obtain 80 hours of continuing education every two years in the accounting and auditing area as required by , Government Auditing Standards, and at least 24 hours of government related continuing education courses. Our staf� is continually expanding their knou-ledge of the gavernmental industry through our in-house training programs, programs offered by the AICPA, the Califomia Society of Certified Public Accountants and other � professional organizations, and through on-the-job training. We also publish an Auditing Manual For Govemmental Entities for intemal use by our staff.The manual is updated at least annually. Noted below is a description of certain in-house education courses taken by our partners and staff to meet the governmental continuing education requirements. All personnel involved with governmental auditing are required to attend these courses. • Implementation of GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis-for State and I,acal Governments • 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 Statement on Auditing Standards No. 99 - Consideration of Fraud in a Financial Statement ;� � Audit � r • Redevelopment Agency Compliance Audits -Interpreting the Health and Safety Code • Computer Auditing in the Governmental Environment • The Single Audit-New Provisions under OMB Circular A-133 s j • Laws and Regulations in the Government Sector � • Understanding the Risk Assessment Standards � PARTICIl'ATION IN PROFESSIONAL ORGANTZATIONS 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. � AICPA � Our fum is a member of the AICPA Governmental Audit Quality Center. The Center is a firm-based voluntary j membership Center whose primary purpose is to promote the importance of quality governxnental audits to purchasers of governmental audit services. The Center provides members with an online forum tool for sharing , best practices, as well as discussions on audit,accounting,and regulatory issues. As a member of the Center,the ` � firm receives updates on changes in auditing and accounting standards that effect governmental audits. The �-' quality control partner is required to attend an annual web cast to discuss auditing and reporting issues effecting governmental audits. Our firm uses the resources of the Center to maintain the quality of our governmental j audits. ) GFOA, GASB and FASB � Our firm is an associate member of the Government Finance Officers Association of the United States and � Canada (GFOA). j Also,we have web based access to the latest pronouncements issued by the Governmental Accounting Standards � Board (GASB) and the Financial Accounting Standard Board (FASB), including Interpretations, Technical Pronouncements and Newsletters. We regularly analyze these pronouncements and advise our governmental � clients of changes in accounting rules. i CSMFO and CRA i Three of our Irvine office partners (Mr. Michael Ludin, Mr. Nitin Patel and Mr. Robert Callanan) and our Director of Consulting Services (Mr. William S. 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 1 meetings. -4 - � ' PARTICII'ATION IN PROFESSIONAL ORGANIZATIONS (CONTINUED) CSMFO and CIZA(Continuedj Our firm is alsa an active member in the California Redevelopment Association (CRA). We receive monthly nev��sletters 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 All partners, 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.Patel,Mr. Ludin and Mr.Morgan have each served as chairman of this committee. Mr. Ludin and Mr. Morgan have been involved over the years in preparing position papers issued on govemmental accounting matters. Mr.Patel is a member of the State Governmental Accounting and Auditing Committee. COMPUTER AUDITING CAPABII.,ITIES Each of our audit staff members is equipped with laptop computers with engagement software that are used for f.,, workpaper preparation and preparation of financial statements. Utilizing Microsoft Excel or other spreadsheet f ; programs, we will transfer the trial balance data through direct input or through downloading from the client's � ' accounting system. This will allow us to perform analytical reviev��s of accounts and preparation of financial statements. This process will reduce the time included in preparation of lead schedules and the financial �'j statements. 1 , GOVERNMENTAL TAX CONSULTING � Over the years, Diehl, Evans & Company, LLP has developed a wide knowledge of tax issues related to governmental entities and their employees. Our Tax Department regularly issues tax opinions to governmental agencies setting forth the tax consequences of various proposed transactions. We also assist our governmental � clients with tax reporting and compliance requirements. Each year our firm publishes a "Government Tax Manual". This manual is distributed to both client and �' nonclient governmental units at a series of tax workshops which are normally presented in December each year. � Noted below are areas where we have extensive experience in assisting clients with their tax questions: `�� Taxation of Employee Fringe Benefits • Expense Reimbursement Plans • Fringe Benefit Rules Related to Automobiles and Other Vehicles � � • Accident and Health Plans � : • Cafeteria Plans • 457 Deferred Compensation Plans � • Group Term Life Insurance Plans Tax Reporting.and Compliance 1 • Employee vs. Independent Contractor Issues I • Form W-2 and Form 1099 Reporting � , • Payroll Tax Reporting • Workers'Compensation Tax Issues lOther Areas of Emphasis • Formation of Government-Related Nonprofit Corporations ( • Selection of Retirement Plans , • Social Security and Medicare Issues � 1 - 5 - 1 PERFORMANCE AND OPERATIONAL STUDIES Noted below are examples of perforniance and operational studies conducted by our firn1. �� Cc�unt �of San Bernardino • Comprehensive review of County's cash management system • Review of billing and collection procedures in over 30 County departments (included surveys and interviews of department personnel) • Cost benefit analysis for implementing centralized remittance processing , • Analysis of procedures for the collection of slow pay and delinquent accounts • Report of findings and recommendations to San Bernardino Grand Jury Note: Work performed as a subcontractor of Arroyo Associates, Inc. Coachella tia1leYAssociation of Governments(CVAG) ' • Performance and operational review of regional street sweeping operation for all desert cities in the i Coachella Valley • Analysis of capital equipment and personnel requirements for street sweeping operations � ' • Computation of cost per curb mile �-' • Mailing of surveys to other municipal agencies that operate street sweeping operations • Benchmark comparison of street sweeping operations with other Westem U.S. cities t" � • Recommended changes in operating procedures ; { Note: Arroyo Associates,Inc. acted as a subcontractor of DE&Co on this engagement. � Cit�of Carson • Performance and operational review of City's "Neighborhood Pride Program" (affordable housing � rehabilitation program) � • Review or systems and procedures for monitoring compliance with program guidelines and Federal and California regulations ' • Review of competitive bidding procedures for residential rehabilitation projects j • Preparation and mailing of surveys to housing rehabilitation program participants, to assess citizen satisfaction with program , • Recommendations for changes in program operations and procedures �j REDEVELOPMENT CONSULTING SERVICES ` � Overview :� . ;::.1 Our firm has extensive experience in providing consulting services to California redevelopment agencies. We , regularly consult with redevelopment officials - including executive directors, finance officers, community � development directors, proj ect managers, housing administrators and redevelopment attomeys - on various redevelopment issues.Noted below are examples of services provided in the redevelopment field. � Redevelopment Handbook I Periodically, the firm publishes a Redevelopment Handbook covering subjects of interest to California � redevelopment agencies. The Handbook discusses current legislative developments, California court cases, � health and safety code requirements, suggestions for the planning and financing of economic development , activities, accounting and reporting principles applicable to redevelopment agencies and reporting requirements J of the State of California.This Handbook is widely distributed to redevelopment officials throughout California. � � - 6 - i REDEVELOPMENT CONSULTING SERVICES (CONTINLJED) Mana�ement Studies for Redevelopment A e�ncies ' In prior years, we have performed management studies for three Califomia redevelopment agencies - the Burbank Redevelopment Agency, the Marin County Redevelopment Agency and the South Gate Redevelopment Agency. These studies included the following services: • Review of operational policies and procedures • Review for compliance with provisions of the Health&. Safety Code • Updating of chart of accounts to comply with state law • Mailing of surveys to other redevelopment agencies, to establish benchmark comparisons for staPFing and expenditure levels • Analysis of Disposition and Development Agreements(DDAs) RedeveloQment-Related Dispute Resolution and ,� Litigation Support Services ; Noted below are examples of dispute resolution and/or litigation support services provided by our firm arising out of disputes between Califomia redevelopment agencies and their developers. ` In one situation, a Southem California redevelopment agency entered into a development agreement with a local � company to construct commercial office buildings on land owned by the agency. Management of the agency �- , suspected that the developer had overcharged the agency for construction costs on the buildings. Our firm was retained to do an investigation of building construction costs. As a result of our review, the redevelopment � agency filed a claim with the developer to recover improperly charged construction costs. Our firm then was retained by the redevelopment agency's attorneys to assist in preparing for litigation and in negotiating a � settlement with the developer. � Also, another Southern California redevelopment agency entered into a Disposition and Development � Agreernent (DDA) with an outside developer to construct and operate a commercial shopping center. Under terms of the DDA, the agency was to share in the distribution of net rental income from the operation of the � sho m center. However the sho in center never roduced net distributable income, in art because of PP� g , PP g P P � excessive charges against the project by the developer. Our firm was retained by the redevelopment agency to i analyze the propriety of costs and expenses charged to the project, and to assist the agency in negotiating a i settlement in its dispute with the developer. `� In another instance, a Southern Califomia redevelopment agency entered into an agreement with a developer to construct a low and moderate income housing project for the agency. The developer experienced a significant cost overrun on the project, and then submitted a claim to the agency for reimbursement of the excess costs. The redevelopment agency's attomey retained our firm to analyze the cost overruns and assist the agency in ; 1 settlement negotiations with the developer. �...1 Finally, a Southern Califomia redevelopment agency entered into an agreement with a developer to reimburse ithe developer for certain project costs based on the agency reaching certain levels of tax increment revenue. The y agency and developer has a dispute over the amount of the reimbursement. Our firm was hired to analyze the reimbursement claim and assist the parties in resolving the dispute. � REVIEWS OF CTTY TREASURER OPERATIONS i Examples of reviews of City Treasurer Operations are included below. i j Citv of Huntington Beach � • Review of cash management procedures and internal controls in City Treasurer's office and offsite i locations, including City libraries, beach and campground parking facilities, community centers and the ' Police Department jail • Review of City's investment policy and monthly investment reports for compliance with the California ; Govemment Code ) • Recommendations for improvements in cash management system - 7 - � ' REVIEV�'S OF CITY TREASURER OPERATIONS (CONTINUED) City of Mission Viejo • Review of investment policies of City, redevelopment agency and financing authority • Testing of all monthly investment reports for compliance with California Government Code • Review of intemal controls over City Treasurer's operation • Review of 3`�party safekeeping arrangements and deposit collateral agreements � Analysis of wire transfer controls, mutual fund investments and system for selecting and monitoring broker/dealers City of Palm Desert � Review of internal controls over City Treasurer's operation • Analysis of investment policy and monthly investment reports � • Review of intemal controls at outside firm used to process City's parkin�tickets CABLE TELEVISION AND BROADBAND CONSLTLTING SERVICES Our Consulting Services Department offers a wide range of services to California cities and counties with �.., respect to the cable television and broadband industries. Our cable work for governmental agencies can be � grouped into three broad categories of service: L ; � Cable TV Franchise Fee Compliance Reviews - We have reviewed the cable franchise agreements of �` ? numerous cities and counties, and then have written programs to review compliance with various key ; financial provisions of the agreements. Our concentration has been on verifying the proper reporting of "gross revenues"(including advertising revenues)and the proper and timely payment of franchise fees. � • Franchise Compliance Reviews - We have worked closely with certain cities on the transfer of their franchise from one cable operator to another. We have participated in negotiations between the City and its cable operators; have assisted in drafting transfer resolutions, settlement agreements, City staff reports, etc. Also, we have performed comprehensive "due diligence" reviews of cable and open video system (OVS) � operators for our city clients. j • Expert Witness Services - Mr. William Morgan has acted as an "expert witness" for the City and County of San Francisco and the County of Santa Cruz in cable television litigations. ? Since 1991, we have provided cable TV consulting services to over sixty Califomia cities and counties, a including: ! City of Alhambra City o Glendale City of Ontario �j City of Berkeley City of Glendora City of Orange City of Burbank City of Grand Terrace City of Pasadena ,,� City of Camarillo City of Hawthorne City of Perris �` City of Carlsbad City of Hemet City of Rancho Cucamonga � City of Chico City of Hermosa Beach City of Rancho Santa Margarita City of Chino City of Huntington Beach City of Richmond + City of Chino Hills City of Irvine City of San Bernardino � City of Concord City of Laguna Beach City of San Clemente City of Costa Mesa City of Laguna Niguel City and County of San Francisco � City of Cypress City of Lake Forest City of San Juan Capistrano � City of Dana Point City of Lakewood City of San Marcos City of Del Mar City of La Palma City of Solana Beach City of Desert Hot Springs City of Lawndale City of Stanton I City of Duarte City of Lomita City of Temecula � City of El Cerrito City of Long Beach City of Vista City of Encinitas City of Los Angeles City of Walnut City of Escondido City of Manhattan Beach City of West Covina � City of Fontana City of Milpitas City of Westminster � City of Fountain Valley City of Montclair Butte County City of Fremont City of Moorpark Contra Costa County � City of Fullerton City of Moreno Valley Marin County City of Garden Grove City of Oceanside San Diego County - 8 - ! REVIEWS OF SOLID WASTE HAULERS AND ASSISTANCE WITH TRASH RATE NEGOTIATIONS Noted below are examples of cities and counties for which we have reviewed the solid waste hauler and/or assisted with trash rate negotiations. Cityof Irvine Our fimrn was retained by the City of Irvine to perform an annual agreed-upon procedures review of its waste hauler, Waste Management of Orange County. The City was primarily concerned with customer service issues and the waste hauler's compliance with various provisions of the franchise agreement. These engagements have included a: • Review of the franchise agreement i • Review of the waste hauler's accounting systems and procedures • Physical inventories of coinmercial and residential trash containers • Review of the propriety of disposal charges from the landfill site • Survey of residential users regarding customer service issues • Trash rate surveys of all Orange County cities �� Cit,y of Garden Grove €::.� Our firm was retained by the City of Garden Grove to perform an agreed-upon procedures review of the �`�j propriety of franchise fee payments made by its solid waste hauler, Taormina Industries, for a two and one-half ; year period. This engagement has involved a review of the solid waste franchise agreement, tracing of reported revenues to the waste hauler's books and records and testing of the mathematical accuracy of periodic franchise � fee reports. The City also retained our firm to review the methodology and propriety of proposed trash rate increases. Citv of Signal Hill I { Our firm was retained by the City of Signal Hill to perform an agreed-upon procedures review of its waste hauler, EDCO Disposal Corporation. The purpose of the review was to accumulate financial data to assist the � City in trash rate negotiations. In connection with this engagement, we performed a: � • Review of the organizational structure of the waste hauler • Determination of how the waste hauler's accounting system allocated revenues to Signal Hill with ' ' regard to residential, commercial, industrial and roll off bins, and recycling revenues �-� • Examination of the disposal(tipping) fees for appropriateness to Signal Hill • Review of the allocation methodology used by the waste hauler to distribute costs between cost centers, ;�) including the allocation methodology for driver labor costs t:.I � Review of EDCO Disposal's rate setting methodology iRegional Waste Mana�ement Authoritv � The Regional Waste Management Authority (the "RWMA" or the "Authority") consists of the following I Northern Califomia governmental agencies: � City of Yuba City City of Gridley City of Marysville Sutter County ( City of Live Oak Yuba County �, City of Wheatland 1 � - 9 - � � REVIEWS OF SOLID WASTE HAULERS AND ' ASSISTANCE VdITH TRASH RATE NEGOTIATIONS (CONTINUED) Re�Tional Waste Management AuthoritY(Continued) The RWMA retained our firm to assist the Authority in verifyin� and analyzing certain financial data submitted by Yuba-Sutter Disposal, Inc. (a subsidiary of Norcal Waste Systems, Inc., San Francisco) in connection with a � proposed trash rate increase.As part of this engagement,we performed the following services: • Review of the rate setting methodology used by the waste hauler • Review of the waste hauler's financial statements for expenses not allowable in the rate setting process • Comparison of"dump fees"charged to Authority members with other California dump sites • Review of expenses for non "arms length"related-party transactions • Assistance to the Authority members in negotiating new trash rates with the waste hauler I Cities of Dana Point, Sau Clemente and San Juan Capistrano, and th�Countv of Orange ` The above Orange County cities, along with the County of Orange, entered into certain agreements with Solag ' Disposal Company (now C R & R) to conduct a "pilot" recycling program over a six month period. Our firm was retained to determine the actual cost of the pilot recycling program and to detemune the amount of � j recycling revenue generated from the sale of recycled materials. Because of the condition of the waste hauler's accounting records at that time, it was necessary for us to reconstruct all cost data for the pilot program. ��} Citv of Lakewood k � , i Our firm was retained to do an agreed-upon procedures review of the City's waste hauler, B-Z Disposal. The � City was primarily concerned about excessive losses incurred by the waste hauler, and possible non "arms-length"transactions with affiliated persons or entities.The engagement involved a: • Review of the City's franchise agreement ! • Investigation of the waste hauler's revenues and expenses for unusual items t • Recalculation of the waste hauler's profit after deducting questioned expenses • Analysis of dump fees for both residential and commercial routes � • Review of the waste hauler's tax returns • Comparison of the refuse rates with other cities in the area • Fiscal impact study on the reduction of refuse collection from biweekly to weekly • Cost study on the effects of using the SERRF project dumpsite in Long Beach vs. the County landfill in � Puente Hills � LITIGATION SUPPORT AND DISPUTE RESOLLTTION SERVICES �_t Examples of litigation support services provided by our firm are presented below. ; Countv of Santa Cruz vs. Charter Communications, Inc. and Mr. Paul Allen � Deposition and Expert Witness Testimonv � In December 1998,Mr. Paul Allen(billionaire co-founder of Microsoft)acquired Charter Communications, Inc., a St. Louis,MO-based cable television company. The County denied Charter's request for a change of control of the cable franchise. In April 1999 Charter and Mr.Allen filed a Complaint for Declaratory Relief in United i States District Court, Northern District of California, seeking to overtum the County's actions. Mr. William � Morgan was retained by the County to prepare a Declaration In Support of Sununary Judgment and other litigation support services. Mr. Morgan provided a deposition in this case in November 2000 and expert witness i testimony in Federal Court in February 2001. In March 2001, the District Court rendered a decision in favor of iCharter. In September 2002, the Ninth Circuit reversed the decision and ruled in favor of the County. During 2003 Charter filed a petition for a writ of certiorari with the U.S. Supreme Court. In January 2004, the U.S. Supreme Court denied certiorari. Accordingly,the County of Santa Cruz ultimately prevailed in this action. � - 10 - � LITIGATION SUPPORT A�1D DISPUTE RESOLUTION SERVICES (CONTINL)ED) City and County of San Francisco vs. Viacom Cable Expert Witness Testimonv ; In 1996, Viacom Cable sued the City and County of San Francisco (the City) for a refund of $33 million in � previously paid possessory interest taxes. In May 1997, Mr. Morgan was retained by the City to prepare a special report on certain fmancial aspects of the litigation and then testify as an expert witness before the Assessment Appeals Board. This assignment required over two years of advance research and hearing preparation. In May 2000, Mr. Morgan presented four days of expert witness testimony before the Assessment Appeals Board, and was then retained to represent the City in a mediation of this case. (See below.) Mediation Services ; ui June 2000, the pariies to this litigation agreed to suspend hearings before the Assessment Appeals Board and submit to nonbinding mediation through a retired judge employed by JAMS. Mr. Morgan was retained by the � City to prepare mediation e�ibits and assist the City in presenting its case before the Mediator. The mediation concluded in August 2000. In September 2000, the mediation settlement agreement was submitted to the , Assessment Appeals Board for approval,resulting in a favorable settlement for the City. �i � ' City of Garden Grove vs. Adult Bookstores �� Expert Witness Testimonv In early 1999, seven adult bookstores located within the City of Garden Grove, CA (the Plaintiffs) filed an � action for injunctive relief in United States District Court, Central District of Califomia, against the City. The Plaintiffs alleged violations of their civil rights resulting from enforcement of the City's adult use ordinances. In June 1999, the case was stayed pending resolution of one financial-related issue before an Arbitrator with � American Arbitration Association (AAA). In July 1999, Mr. Morgan was retained by the City Attorney to , perform a special study on the financial consequences of relocating these adult bookstores to other geographical ' areas of the City. Mr. Morgan testified as an expert witness on behalf of the City at four AAA administrative hearings. The City received a favorable ruling from all four hearings. In March 2000, the case was again stayed � pending a decision by the Ninth Circuit Court of Appeals in a related matter. ; FRAUD INVESTIGATIONS ! �i Our firm has conducted numerous fraud investigations for Califomia govemmental agencies. Examples of such investigations are noted below. fm �� Cit�ofNational City, CA The San Diego County District Attorney's Office filed a felony complaint against a City of National City � Finance Department employee, alleging various counts of embezzlement and fraudulent misappropriation of J public funds. In June 2001, Diehl, Evans & Company, LLP was retained to conduct a follow-up fraud investigation of the suspect, and to provide internal control and fraud prevention recommendations to the City. � The investigation was completed in November 2001. Phoenix,AZ Police Department � A Diehl, Evans & Company, LLP private industry client with offices in California and Arizona experienced a management employee fraud at one of its Arizona facilities. Our firm was retained by the Company's attorney to perform a criminal fraud investigation. Work was coordinated with, and submitted to, the Phoenix Police ; Department. The report to the Phoenix Police Department included a chronological nanative of the alleged } crime, personal data about the suspect and victims, witness statements, financial spreadsheets of the alleged fraudulent transactions and original copies of documentary evidence supporting the findings. l - 11 - � FRAUD INVESTIGATIOI�TS (CONTINUED) Citv of Burbank Police Department. and L.A. District P,ttornev's Office Diehl, E��ans & Company, LLP was retained by the Burbank Police Department, Criminal Investigations Division,to conduct a fraud investigation of a public accountant operating within the City of Burbank.The work ! was coordinated with, and submitted to, the Los Angeles District Attomey's Office. The services included an analysis of business records confiscated through search warrants and subpoenaed bank records,a review of case files prepared by police detectives, the tracing of cash receipts and cash disbursements related to embezzled funds and the preparation of reports to be used at trial by the District Attomey's Office. The suspect was subsequently convicted and incarcerated. ' HOTEL/MOTEL TRANSIENT OCCUPANCY TAX REVIEWS i Over the past fifteen years, our firm has developed extensive experience in performing limited procedures reviews on various hotels and motels for compliance with City Transient Occupancy Tax (TOT) Ordinances. In many instances,our work has uncovered substantial noncompliance by hotel operators and the underreporting of transient occupancy taxes to the City.These engagements normally include the following procedures: • A review of the City's TOT Ordinance to identify all major areas requiring compliance by the hotel, and a `� review of the City's internal policies and procedures for monitoring the receipt of TOT. • Documentation of each hotel's intemal controls over the accounting for,and reporting of, room rents. �"i . Verification of"exemptions"taken by the hotel for government employees and"non-transient"guests. k � • Testing of the mathematical accuracy of annual, quarterly or monthly TOT reports; computation of late payment penalties and interest due to the City. � Noted below are seven cities for which we have performed TOT reviews, together with the number of hotels reviewed. � Big Bear Lake 25 ! Burbank 15 Coronado 2 � Irvine 13 � Manhattan Beach 8 Mission Viejo 2 Palm Desert g 1 73 �; {,i BUSINESS LICENSE OPERATION REVIEWS ii �.,) Our firm has conducted an extensive review of the business license operation of the City of El Segundo. T'his review included the following procedures: � � • Review of business license tax ordinances,with recommended revisions • Preparation of business license intemal program, for use by City staff • Preparation of standard audit program for use in review of individual businesses I • Preparation of business license renewal checklist and various "action notices" to be mailed to City businesses • On-site reviews of approximately 35 El Segundo-based businesses, for compliance with City's business i license tax ordinance i .� � � - 12 - � SECTION IV-PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS AND E�PERIENCE AUDIT TEAM The audit team assembled consists of individuals who have extensive experience auditing governmental ; agencies and are familiar with municipal accounting. In addition, each team member's skill and experience developed working in other industries our firm serves can be applied to the individual requirements of the City of Palm Desert. ' The personnel assigned to the engagement team are as follows: ; 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. Robert J. Callanan, CPA, will be the Concurring Review Partner and will perform a quality review of all reports issued in connection with the audit. He will also consult in the accounting treatment of unusual �z. transactions or audit issues. ; ; �- ' Ms. Daphnie Fuertez, CPA, will serve as the audit manager. She will schedule the fieldwork, supervise the staff accountants,review the workpapers and assist in the audit of any complex or unusual audit areas. � � The audit senior will be Ms. France J. Lee, CPA. She will be onsite perfornung the fieldwork including performing tests of internal controls, substantive tests of balances, analytical tests and prepare financial � statements. Resumes for the above partners and personnel are included at pages 14- 15. � COMMITMENT RELATED TO PERSONNEL 1 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 J commitment to replace that person with staff of at least equal experience. � � NONDISCRIMINATION POLICY �i Our firm has a policy to provide equal employment opportunities to all qualified persons without regard to race, j� ' color,age, sex,religion,national origin or handicap. C � �, � 1 I � � - 13 - 1 ' ALTDIT TEAM RESUMES NITIN P. PATELtCPA Position Engagement Partner Education University of California at Irvine -Bachelor of Arts in Economics ; California State University at Long Beach-Masters of Accounting Program Licensina Certified Public Accountant in California since 1988 Professional Organizations American Institute of Certified Public Accountants i California Society of Certified Public Accountants '� California Society of Municipal Finance Officers(CSMFO) -Associate Member CSMFO Professionai and Technical Standards Review Committee-Rep�rt Reviewer for Award Program Governmental Accounting and Auditing Committee of Orange County-Committee Chairman (2001-2002) California Accounting and Auditing Committee Member r.., Range of Experience � '� • Has been with Diehl, Evans & Company, LLP since 1986 with emphasis in governmental accouriting and � = financial reporting. • Responsible for firm's in-house governmental accounting and auditing training programs. • Experience includes supervision of over one hundred audits of governmental 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 � intemal control reviews, cost allocation plans, cable television rate reviews, reviews of City Treasurer operations and transient occupancy tax reviews of city hotels/motels. � ROBERT J. CALLANAN.CPA � � Position Concurring Review Partner � Education Aquinas College, Grand Rapids, Michigan - Bachelor of Arts, Business Administration, 1988 and Bachelor of Science,Accounting, 1988 . ; Licensing Certified Public Accountant in California since 1993 �-s ProfessionalOrsanizations American Institute of Certified Public Accountants-Member t � California Society of Certified Public Accountants -Member �.! California Society of Municipal Finance Officers(CSMFO) -Associate Member , CSMFO Professional and Technical Standards Committee-Report Reviewer for Award Program � Ran�e of Experience � • Seventeen years of experience as Certified Public Accountant with Diehl, Evans&Company, LLP • Two years of experience as Chief Financial Officer of a mortgage lending corporation � • Overall Experience includes: ( 1. Extensive supervision of audits of governmental agencies including cities, redevelopment agencies, water districts, other special districts,non-profit corporations and joint power authorities. � 2. Numerous presentations of accounting, auditing,tax and personnel topics at in-house training programs 3. Conversion of an accounting system 4. Review and development of accounting control procedures, chart of accounts and internal accounting � reports 5. Several operational reviews of internal control systems, such as cash management, business licensing and grant accounting � - 14 - � AUDIT TEAM RESLJMES (CONTINUED) DAPHIV'IE FUERTEZ, CPA Position Audit Manager Education De La Salle University, Philippines -Bachelor of Science in Accounting, 1995 � LicensinQ Certified Public Accountant in California since 2001 Range of Experience Has been with Diehl, Evans & Company, LLP since September 1948. She has audited and prepared financial reports on cities, redevelopment agencies and nonprofit corporations. Experience includes auditing for the following clients: Cities: Water Districts: , City of Alhambra Castaic Lake Water Agency City of Diamand Bar El Taro Vv'ater District City of Downey Laguna Beach County Water District City of Indian Wells Rancho California Water District City of Lake Elsinore Santa Clarita Water Company �, City of Mission Viejo Trabuco Canyon Water District � ; City of Montebello Special Districts: �-j City of Palm Desert Coachella Valley Association City of Rancho Palos Verdes of Governments �] City of San Juan Capistrano Downey Cemetery District ' ; City of Santa Clarita Other Entities: City of Thousand Oaks Southeast Area Animal Control Authority � City of Tustin United Cerebral Palsy Association City of Westminster Prior Exuerience Prior to working for Diehl,Evans&Company, LLP, she worked for Union Incorporated in � Irvine, CA for two years as a staff accountant. Her routine duties as staff accountant included verifying daily � cash receipts, sales reports and processing weekly payroll. Other duties included preparing month-end journal entries, assisting in the annual closing process and account reconciliation reports. � Continuin�Professional Education For the period of January 1, 2005 through December 31, 2007 -Total Government Hours 89.00 � €� 1 FRANCES J.LEE. CPA ��,f Position Audit Senior �� j Education University of California, Riverside - Bachelor of Science, Business Administration, 2004 and Bachelor of Art, Economics, 2004 I Licensing Certified Public Accountant in California since 2007 Range of Experience Joined Diehl, Evans & Company, LLP in July 2004, concentrating on audits and the ` preparation of financial reports for governmental agencies. Other experience includes audits of nonprofit � organizations and 401(k)Plans. Prior audit engagements with Diehl,Evans &Company,LLP include: Cities: Special Districts: � City of Chino Cove Communities Services Commission City of Buena Park Pomona-Walnut-Rowland City of Downey Joint Water Line Commission � City of Fullerton City of Indian Wells Continuing Professional Education } For the period of January 1, 2005 through December 31, 2007-Total Government Hours 97.00 1 ' - 15 - � SECTION V- SIMILAR ENGAGEMEMENTS Vt'ITH OTHER GOVERNMENT ENTITIES GFOAAI�II�CSMFO AVJARD PROGRAMS ' The partner 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 reviev��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 ' from CSMFO. During the past five years,the following clients received awards: Alhambra Fullerton Lake Elsinore Santa Clarita Cerritos Garden Grove Lakewood Signal Hill Chino Healdsburg Mission Viejo Simi Valley ' Commerce Hesperia Montebello Temecula � Coronado Huntington Beach Norwalk Thousand Oaks Del Mar Indian VVells Pico Rivera Tustin , Diamond Bar Irvine San Juan Capistrano Westminster ' SIMII,AR ENGAGEMENTS WITH OTHER MLINICIPAL ENTITIES �.' Your request for proposal called for a maximum of five similar engagements, ranked by total staff hours. These ;; ; �--: are set forth below: �� Engagement Total Staff ' � City Partner Hours Alhambra Patel 600 Thousand Oaks Patel 600 � Healdsburg Patel 500 Westminster Patel 500 Indian Wells Patel 350 � Certified audits were performed on the financial statements of all of these cities and their component units for the year ended June 30, 2007. 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. i�� Cit�of Alhambra City of Healdsburg City of Indian Wells Citv of Thousand Oaks Citv of Westminster Mr. Dean Johnson Mrs.Tamera Haas Mr. Kevin McCarty Ms. Candis Hong Ms. Sherry Johnson Financial Services Finance Director Director of Finance Director of Accounting � Manager Services Administrative Svcs. Manager 626-570-5017 707-431-3311 760-346-2489 805-449-2200 714-898-3311 1 I � I i � l � I - 16 - � �� 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. Period of Service C�� Population From To ; Alhambra 87,410 2005 Present Avalon 3,340 2006 Present Buena Park 79,175 2004 Present Cerritos 52,560 1969 Present Chino 77,580 1995 Present Commerce 13,300 1999 2005 � Coronado 26,425 1970 2007 � Del Mar 4,380 1994 2005 Diatnond Bar 59,975 2005 Present Downey 109,720 1987 Present 1960 1984 Encinitas 59,525 2006 Present Fullerton 132,790 2004 Present i�'' Garden Grove 166,075 1994 2003 �-� Healdsburg 11,050 2003 Present 1991 1997 � + Hesperia 77,985 1997 Present ' Huntington Beach 194,460 2007 Present � � 1997 2002 � 1984 1990 1963 1972 Indian Wells 4,930 2003 2007 Irvine 186,850 2000 Present j 1993 1997 � Lake Elsinore 39,260 2005 Present Lakewood 80,470 1974 Present � 1963 1971 � Mission Viejo 94,985 2005 Present Montebello 63,290 2002 Present Norwalk 105,835 2001 Present ' l Oceanside 176,644 2007 Present �"� Pico Rivera 64,680 2004 Present San Fernando 24,119 2007 Present '� j San Juan Capistrano 34,675 2005 Present ;,�� 1993 1998 Santa Clarita 168,255 2002 Present 1991 1996 � Signal Hill 10,850 1962 Present j Simi Valley 118,690 1997 2003 Temecula 65,800 2002 2007 � Thousand Oaks 124,360 1993 P1997 t 1963 1980 � Tustin 69,100 1999 2004 Westminster 89,525 1997 Present � Substantially all of the above engagements were performed through the firm's Irvine Office. I � - 17 - � REDEVELOPMENT AGENCY EXPERIENCE Over the past year we audited twenty-eight redevelopment agencies. Alhambra Redevelopment Agency Lakevvood Redevelopment Agency Avalon Redevelopment Agency Marin County Redevelopment Agency Buena Park Redevelopment Agency Mission Viejo Redevelopment Agency Cerritos Redevelopment Agency Montebello Redevelopment Agency Chino Redevelopment Agency Norwalk Redevelopment Agency Coronado Redevelopment Agency Oceanside Community Development Commission Downey Redevelopment Agency Pico Rivera Redevelopment Agency Fullerton Redevelopment Agency San Fernando Redevelopment Agency Healdsburg Redevelopment Agency San Juan Capistrano Redevelopment Agency Hesperia Redevelopment Agency Santa Clarita Redevelopment Agency ! Huntington Beach Redevelopment Agency Signal Hill Redevelopment Agency Indian Wells Redevelopment Agency Temecula Redevelopment Agency Irvine Redevelopment Agency Thousand Oaks Redevelopment Agency Lake Elsinore Redevelopment Agency Westminster Redevelopment Agency �., ENTERPRISE FUND EXPERIENCE j �, 4- ' Most cities audited by our firm have a water utility enterprise fund. Noted below is a partial listing of water utility and other enterprise funds audited by our fum over the past five years: t' t ; e City Enterprise Alhambra Water, Sewer, Storm Drain, Sanitation, Golf Course Avalon Harbor, Sewer, Saltwater, Solidwaste,Hospital � Buena Park Water Cerritos Reclaimed Water # Chino Water, Sewer, Sanitation System � Coronado Golf Course, Sewer � Del Mar Sewer Downey Golf Course,Transit System , Encinitas Water, Sanitation � Fullerton Water,Refuse Garden Grove Water, Sanitation,Mobile Home Parks Healdsburg Electric,Water, Sewer,Transit �� Lakewood Water Mission Viejo Animal Services,Television Montebello Water, Golf,Transit System �f 1 Norwalk Transit �.:i Oceanside Harbor Pico Rivera Water � San Femando Water, Sewer San Juan Capistrano Water, Sewer � Santa Clarita Transit � Signal Hill Water � Simi Valley Water, Sanitation,Transit Thousand Oaks Water, Sewer, Golf Tustin Water 1 Westminster Water , � � - 18 - � WATER DISTRICTS AND OTHER SPECIAL DISTRICTS Noted below is a listing of water and special districts audited by our firm over the past year. Water Districts Borrego Water District Pomona-Walnut-Rowland Joint Jurupa Community Services District Water Line Commission La Habra Heights County Water District Puente Basin VVater Agency Laguna Beach County Water District Rowland Vi�ater District Las Virgenes Municipal Water District San Dieguito V�'ater District Municipal Water District of Orange County Walnut Valley Water District Orange County Water District Other Special Districts Coachella Valley Association Downey Cemetery District ; of Governments Sunset Beach Sanitary District Costa Mesa Sanitary District Valley Wide Recreation and Park District t ; Victor Valley Reclamation Authority �. , `` ' NONPROFIT CORPORATIONS AND JOINT POWER AUTHORITIES � ` Noted below is a partial listing of nonprofit corporations and joint power authorities audited by our firm over the .� past year. A substantial number of these entities are "component units" which are combined into the basic financial statements of governmental organizations which exercise oversight responsibility. � Buena Park Foundation Las Virgenes Municipal Water District and Cal State L.A.Metrolink Authority Trinofo Sanitation Conej o Open Space Conservation Agency Norwalk Financing Authority � Coronado Financing Authority Oceanside Public Financing Authority ' Coronado Improvement Corporation Pico Rivera Water Authority Cove Community Public Safety Commission Public Cable Television Authority 4 Del Mar Public Facilities Corporation Redwood Empire Financing Authority j Downey Civic Center Corporation San Juan Capistrano Housing Corporation Downey Recreational Area Authority Santa Clarita Watershed Recreation � Downey Water Facilities Corporation and Conservation Authority � j Encinitas Ranch Golf Authority South County Senior Services Healdsburg Public Improvement Corporation Southeast Area Animal Control Authority _ Lake Elsinore Financing Authority Walnut Valley Building Corporation '� � Lake Elsinore Recreation Authority , i..i ; SECTION VI-IDENTIFICATION OF ANTICIPATED AUDIT PROBLEMS We do not anticipate any unusual audit problems. , i 1 i � ! , i � - 19 - i � � SECTION VII - SPECIFIC AUDIT APPROACH ENTITIES TO BE INCLUDED 1N AUDIT City of Palm Deseri Palm Desert Redevelopment Agency(including Palm Desert Housing Authority Corporation) � Palm Desert Recreation Facilities Corporation Palm Desert Financing Authority REPORTS TO BE ISSUED AND DUE DATES Draft Final ' Due Dates Due Dates ; City of Palm Desert-Comprehensive Annual Financial Report October 17 October 31 Palm Deseri Redevelopment Agency-Annual Report,Including Report on Compliance October 17 October 31 Palm Desert Recreation Facilities Corporation October 17 October 31 Management Letter October 17 October 31 Report on Compliance with Article XIIIB Appropriation Limit September 30 October 31 �; Letter regarding confumations Not Applicable October 17 � � Single Audit Reports: November 30 December 31 • Independent Auditors'Report on Compliance and on Internal Controls Over Financial Reporting Based f'`; 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 and Supplementary � Schedule of Expenditures of Federal Awards. COMMITMENT TO DELNER REPORTS ON A TIMELY BASIS ; If all books and records, schedules and documents are made available to us by September 8�', we make a commitment to have audit team members available and to provide all reports by the due dates specified above. � AUDITS TO BE IN ACCORDANCE WITH GAAS AND OTHER REQUIIZEMENTS F We will audit the fmancial statements of the City and the component units noted above. 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 audit will be in accordance with auditing standards generally �--� accepted in the United States of America as set forth by the AICPA, and will include such auditing procedures as we consider necessary under the circumstances. We will apply certain limited procedures, which consist iyj principally of inquiries of management regarding methods of ineasurement and presentation of required ) supplementary information. However, we do not audit such information and do not express an opinion on it. Any supplemental fmancial statements will be subjected to auditing procedures as we consider necessary in � relation to the fmancial statements taken as a whole. The scope of our audit will not include any statistical � information,and we will not express an opinion conceming 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 fmancial and compliance audits contained in the Government Auditin� Standards (2007 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. 1 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 l conformance with the provision of the"League of California Cities Uniform Guidelines". i - 20 - 1 AUDIT APPROACH Our firm uses a governmental audit program w�hich we will modify to the City of Palm Desert's operations based on the requirements of Statement of Auditing Standards (SAS) 104 thru 111 (Risk Assessment Standards). Our audit programs are organized using risk assessment procedures to identify testing of internal controls and general ledger account balances. 1. Planning and Interim Work: Gather information about the City and its environment, including internal control: • Preaudit conference with the City to establish process of communication between the audit team and City staff. • Establish scope of working and timing of fieldwork. i • Evaluate the design of internal controls that are relevant to the audit and determine whether the control, either individually or in combination is capable of effecting, preventing or detecting and correcting material misstatements. • Determine that the controls have been implemented, that is, that the controls exist and that the City � is using it. � • Specific areas to review include: ; ; - Accounts payable/cash disbursements {--' - Accounts receivable/cash receipts - Payroll disbursements ('; - Utility billing process , ) - Investment compliance - Property and equipment � = Grant administration Budget process - Redevelopment Agency compliance � 2. Final Audit Work: � During the fmal audit work, we will assess "risk" of material misstatement based on understanding of the � City's audit environment, including its internal control, to identify account balances to audit that appear in t the City's financial statements. Our work may include: • Confirmation of cash and investments balances and testing of bank reconciliations. � • Confirm significant receivable balances or review subsequent cash receipts to verify receivable �� balance. • Search for unrecorded liabilities. ` ' • Test capital asset additions and depreciation expense. � i • Confirm long-term debt balances and review the accounting treatment of debt issued or refunded. • Test support for other significant assets or liabilities. � • 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. � • Review of attorney letters for significant legal matters affecting the City's financial position. � The audit workpapers will be reviewed by our management team in the field so that at the conclusion of the fieldwork we are able to report any adjustments or findings. An exit conference will be held to review any significant adjustments or fmdings. � SINGLE AUDIT APPROACH � The single audit will be performed in accordance with all the requirements of the Single Audit Act Amendments � of 1996, OMB Circular A-133, Government Auditin� 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 Govemmental Financial Assistance". � - 21 - 1 SINGLE AUDIT APPROACH (CONTINIJED) Our -audit will include tests of transactions related to major federal award programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that materia] misstatements or noncompliance may exist and not be detected by use. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements or major programs. However, we will inform you of any material errors and any fraudulent financial reporting or misappropriation of assets that comes to our attention. We will also inform you of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. We will include such matters in the reports required for a Single Audit. We will perform tests of controls to evaluate the effectiveness of the design and operation of controls that we ! consider relevant to preventing or detecting material noncompliance with compliance requirements applicable to each major federal award program. However, our tests will be less in scope than would be necessary to render , an opinion on those controls and, accordingly, no opinion will be expressed in our report on internal control � issued pursuant to OMB Circular A-133. ; We will plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with �� applicable laws and regulations and the provisions of contracts and grant agreements applicable to major � � programs. Our procedures will consist of the applicable procedures described in the OMB Circular A-133 "Compliance Supplement"for the types of compliance requirements that could have a direct and material effect �'�i on each of the City's major programs. The purpose of those procedures will be to express an opinion on the ` j City's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. � When we begin the single audit, we will identify the Major and Nonmajor Federal Financial Assistance Programs of the City. Each Major and 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. i ! 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 programs 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 select a sufficient number of transactions to support a low level of assessed control risk. If no �r 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 intemal controls are noted, we will modify our audit program as needed. `� As part of our single audit,we will request that the City assist in completing the Data Collection Form.The form (::_� will assist us in identifying the federal programs which will be required to be tested. � DETERMINING LAWS AND REGULATIONS SUBJECT TO AUDIT � Under provisions of AICPA Statement on Auditing Procedures No. 74, 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 Govemment 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. If a City is not able to ; identify specific laws and regulations that effect it, we have references (Califomia Government Code and Health and Safety Code) to the more common laws, rules and regulations in our standard audit programs for the usual ; activities of a California City or Redevelopment Agency which will assist us in identifying laws and regulations � to review in the audit. i � - 22 - � METHOD OF SAMPLING Our approach is to utilize random sampling based in our testing of the internal control systems related to cash receipts, cash disbursements, payrall and utility billings. Based on a statistical conclusion used by the firm our sample sizes can range from 25 to 60 transactions. A random sample selection allows each item in the population of an equal chance of bein� selected. In addition, for disbursements, we may� select a stratified sample of all transactions over a specified dollar amount for review. 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, computer systems questionnaire and narration to gain an understanding of the.internal control process as part of our audit. We will identify weaknesses and after � discussion with the appropriate City staff, we will submit a management letter which will identify weaknesses observed during these reviews and throughout the audit. The management letter will also assess the effect of the management letter comments on thc financial reporting process and re�ommend steps towards eliminating the weaknesses. j 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 �"� programs. We also will keep the City informed of new developments affecting municipal finance and reporting, ) � changes in grant rules and regulations,etc. We will be available for training sessions on any accounting matters, and we will be available to attend City Council meetings as needed. � RETENTION OF AND ACCESS TO AUDIT WORKPAPERS In accordance with provisions of OMB Circular A-133, GAO requirements, and the California Board of � Accountancy, our audit workpapers will be maintained for at least seven years after the date of the report. These i 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 irespond to any reasonable inquiries of successor auditors and we will allow any successor auditors to review our ` workpapers. AUDI'T TIMING : � �-j 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 September 1 each year, the time schedule for the various phases of the { � audit would be approximately as follows: � ; �..� Completed Bv � Entrance Conference with Finance Director Week of June 1, 2008 i� Inventory Observations/Confirmation Mailings June 30, 2008 Audit Plan and List of Schedules to be Prepared By the City June 30, 2008 Interim Work Week of July 11,2008 � Progress Conference with Finance Director Week of July 11, 2008 ! Year-end Field Work September 8 to 26,2008 Exit Conference with Finance Director September 26,2008 iDeliver Reports See Due Dates on Page 20 I J - 23 - 1 WORK REQUIRED BY CITY STAFF Our fixed annual fees contemplate that conditions satisfactory to the nornlal progress and completion of the : examination w�ill be encountered and that City accounting personnel will furnish the agreed-upon assistance in connection with the audit. Hov��ever, 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 flovv of information through the various departments and accounting systems. • Reports generated by your accounting system. • The system of intemal controls. • Controls established to monitor�ompliance with federai 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. If applicable,assistance with the preparation of the CAFR and footnotes, including: a. Determination of major funds. � b. Determination of general and program revenues and allocation of program revenues to: i 1. charges for services, 2. operating grants and contributions,and � 3. capital grants and contributions. i c. Detemuning components of net assets into capital assets net of related debt, restricted and unrestricted Y assets. ��' d. Assistance in determining the amounts to be reported (1) in the Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of ' Activities and (2) the Reconciliation of the Balance Sheet of Governmental Funds to the Statement of r � � , �_; Net Assets. � e. Consolidation of intemal service fund activity into governmental activities or business-type activities in I the government-wide financial statements. 7. Preparation of the management's discussion and analysis, transmittal letter and all statistical tables for the � CAFR. i i � � � I ) - 24 - � SEGMENTATION OF THE AUDIT HOURS BY PARTNER AND STAFF LEVEL Staff Supenrisory and Partner Manager Staff Clerical Total City Audit and Financial Statements: Planning and interim fieldwork 4 4 35 32 75 Final fieldwork 4 16 85 78 183 Review 8 12 - - 20 ; Financial Statements 4 7 - 40 51 Subtotal City Audit and i Financial Statements 20 39 120 150 329 ; Redevelopment Agency: � ' Audit 8 16 70 70 164 �. , Financial Statements 4 - 10 4 18 � � Recreation Facilities Corporation: � Audit 4 8 24 16 52 Financial Statements 4 - 12 4 20 ; � Single Audit 2 - 16 26 44 i Gann Limit Verification - - 3 - 3 ; Investment Policy �.�; Compliance Verification 8 - 32 4 44 �1 Subtotal Other 30 24 167 124 345 '�'.i TOTAL HOURS 50 63 287 274 674 ; � I 1 1 � � i ; , 1 - 25 - I 1 i ATTACHMENT I RESULTS OF OUTSIDE QUALITY REVIEVV I �.._. , i ` !,) �,.,' : j ! � � � � �, 7 �i«' � � ;....f l a } I � S I � l I HEIDENREICH � HEIDENREICH CERTIFIED PUBLIC ACCOUNTANTS '12020 S.Warner-Elliot Loop#121 15545 Bear Valley Rd.#B Phoenix,AZ 85044-2700 Hespena,CA 92345 (480)704-6301 fax 785-4619 (760)948-2898 fax 948-7712 sheidenreich(�att.net ' January 13, 2006 To the Owners Diehl, Evans and Company, LLP We have reviewed the system of quality control for the accounting and auditing practice of Diehl, Evans and Company, LLP (the firm) in effect for the year ended September 30, 2005. A system of quality control encompasses the firm's organizational structure, the policies adopted and procedures established to provide it with reasonable assurance of conforming with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of CPAs (AICPA). The firm is responsible for designing a system of quality control and complying with it to provide the firm reasonable assurance of conforming with professional standards in all material respects. Our responsibility is - to express an opinion on the design of the system of quality control and the firm's compliance � '. with its system of quality control based on our review. �,-, Our review was conducted in accordance with standards established by the Peer Review Board + i of the AICPA. During our review, we read required representations from the firm, interviewed firm � personnel and obtained an understanding of the nature of the firm's accounting and auditing practice, and the design of the firm's system of quality control sufficient to assess the risks implicit � in its practice. Based on our assessments, we selected engagements and administrative files to test for conformity with professional standards and compliance with the firm's system of quality control. The engagements selected represented a reasonable cross-section of the firm's accounting and auditing practice with ernphasis on higher-risk engagements. The engagements ; selected included among others, audits of Employee Benefit Plans and engagements performed under Government Auditing Standards. Prior to concluding the review, we reassessed the adequacy of the scope of the peer review procedures and met with firm management to discuss � the results of our review.We believe that the procedures we performed provide a reasonable ; basis for our opinion. . � In performing our review, we obtained an understanding of the system of quality control for the � firm's accounting and auditing practice. In addition, we tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's poiicies and procedures on selected engagements. Our review was �� based on selected tests therefore it would not necessarily detect all weaknesses in the system of � ; quality control or all instances of noncompliance with it. There are inherent limitations in the effectiveness of any system of quality control and therefore noncompliance with the system of � quality control may occur and not be detected. Projection of any evaluation of a system of quality , control to future periods is subject to the risk that the system of quality control may become j inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. I � In our opinion, the system of quality control for the accounting and auditing practice of Diehl, Evans and Company, LLP in effect for the year ended September 30, 2005, has been designed ( to meet the requirements of the quality control standards for an accounting and auditing practice j established by the AICPA and was complied with during the year then ended to provide the firm with reasonable assurance of conforming with professional standards. � As is customary in a system review, we have issued a letter under this date that sets forth � comments that were not considered to be of sufficient significance to affect the opinion expressed in this report. � �a�„�K. � �C�a�K. � Heidenreich & Heidenreich Certified Public Accountants HEIDENREICH 8� HEIDENREICH CERTIFIED PUBLIC ACCOUNTANTS 12020 S.Warner-Elliat Loop#121 15545 Bear Valley Rd.#B Phoeniz,AZ 85044-2700 Hesperia,CA 92345 (480)704-6301 fax 785-4619 (760)948-2899 fax 948-T712 sheidenreich�iatt.net January 13, 2006 To the Owners Diehl, Evans and Company, LLP , We have reviewed the accounting and auditing practice of Diehl, Evans and Company, LLP for the year ended September 30, 2005, and have issued our report thereon dated January 13, 2006. ' That report should be read in conjunction with the comment in this letter, which was considered in determining our opinion. The matter described below was not considered to be of sufficient ; significance to affect the opinion expressed in that report. Comment-The firm has established policies for audit documentation, but has not developed specific guidance to ensure that certain procedures are documented in full as required by ' professional standards. As a result, we noted that the firm's documentation was incomplete with respect to the general audit program on one audit and the program for benefit payments/participant accounts on the audit of an Employee Benefit Plan. The workpapers did � � contain sufficient documentation to support the audit opinion. , � Recommendation -The firm should revise its policies and procedures relating to performing � audits to include specific guidance for the documentation required by professional standards. Jl.e+.denir,ei.cti. �' , � Heidenreich & Heidenreich ' Certified Public Accountants , , � �� i� � u� 1 1 I I i � � � f 1 PROPO5ER GUARANTEES, � PROPOSER WARRANTIES AND � PROPOSER BID DOCUMENTS � �...� � ! �.� �� I � i � � 1 � . , �� -� �:� � a i � , i 1 i 1 j PROPOSER GUARAN'I'EES The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Serviees Required. � -�` P ��,.�Z_ Signature of Official: �� Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans& Company, LLP Date: February 22, 2008 i ' PROPOSER WARRAN'TIES , A. Proposer wamants that it is willing and able to comply with State of California laws with respect to foreign (non- state of California)corporations. B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. �� C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior "'t written pemiission of the City. D. Propose warrants that all information provided by it in connection with this proposal is true and accurate. �j : ! � Signature ofOfficial: �,�--a � rq_.(�—� � Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans& Company, LLP Date: February 22, 2008 I PROPOSER BID DOCUMENTS i The undersigned has carefully examined the BID DOCLJMENTS and the general provisions, specifications and ; � information pertinent to this proposal and hereby offers and submits the above price in consideration of the Proposal �;.`� Requirements contained in Section VI of the RFP, attached hereto and a part of this offer and proposal. y.� Firm: Diehl, Evans&Company, LLP �� Authorized Signature: �� '� �' 1 � 1 Name: Nitin P. Patel, CPA � Title: Engagement Partner Address: 2121 Alton Parkway, Suite 100 City: Irvine State,Zip: California, 92606 �� Telephone: 949-399-0600 Date: February 22, 2008 l i � , {� I