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HomeMy WebLinkAboutC27544 Audit Services for FYE June 2012, 2013, 2014CITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT Request: Exercise the option to continue the contract with White Nelson Diehl Evans, LLP to perform auditing services for the City of Palm Desert and its entities for the fiscal years ending June 30, 2012, 2013 and 2014 Submitted by: Paul S. Gibson, Finance Director Date: April 12, 2012 Contents: Contract No. C27540 Recommendation By Minute Motion, that the City Council exercise the option to continue Contract No. C27540 with White Nelson Diehl Evans, LLP to perform auditing services for the City of Palm Desert and its entities for the fiscal years ended June 30, 2012, 2013, and 2014. Committee Recommendation The Audit, Finance and Investment Committee was informed of the option to continue the contract at its March 27, 2012 meeting, and recommends that City Council exercise the option to continue the contract. Background On March 27, 2008, the City Council approved the selection of White Nelson Diehl Evans, LLP as independent auditors for the fiscal years ended June 30, 2008 through June 30, 2014. This is the fifth year of the existing seven-year contract. Their services include auditing the City, the Housing Authority's apartment complexes, Desert Willow and the City's office complex. In addition, they perform reviews on Waste Management, Time Warner Cable, and various hotels on behalf of the City. Staff finds that White Nelson Diehl Evans, LLP has a professional staff that is knowledgeable in the accounting arena and feels comfortable in calling them when an accounting question arises. Staff requests that the City Council exercise its option to continue the contract with White Nelson Diehl Evans, LLP to perform auditing services for the City of Palm Desert and its entities for the fiscal years ending June 30, 2012, 2013, and 2014. Staff Report Continuation of Contract No. C27540 —White Nelson Diehl Evans, LLP April 12, 2012 Page 2 of 2 Fiscal Impact Auditing services are contracted per the attached seven-year schedule. Funds are budgeted in the appropriate fiscal year budgets. Submitted By: aA!:� Paul S. Gibson, Director of Finance Approved by: n M. Wohlmuth, City Manager CITY COUNCIL ACTION APPROVED ✓ DENIFD RECEIVED ( TI11:R lUEE.TING DATE AYES: i r/ . lie r C r wK,, 2);L-4 e L_ NOES: I—rL ABSENT: ABSTAIN: 'v' 1 VERIFIED IM rct Original on File with City Clerk's Offiece G:IFinanceftamh OrtegalStaff ReportslAuditorsOuditing Services Extension 041212.docx CITY OF PALM DESERT TECHNICAL AUDIT PROPOSAL FOR THE YEAR ENDING L ; JUNE 30, 2008 (WITH AN OPTION FOR EACH OF r THE SIX YEARS ENDING JUNE 30, 2014) K Eil RFP Subject: Name of Proposer: Local Address: i ' Telephone: Fax: Website: iEmail: 1 Contact Persons: I Date: U L1 1 TITLE PAGE 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) Diehl, Evans & Company, LLP Certified Public Accountants and Consultants 2121 Alton Parkway, Suite 100 Irvine, CA 92606-4906 (949) 399-0600 (949) 399-06I0 www.diehlevans.com nitinp@diehlevans.com Nitin P. Patel, CPA Engagement Partner Robert J. Callanan, CPA Concurring Review Partner February 22, 2008 CITY OF PALM DESERT TABLE OF CONTENTS February 22, 2009 Page Number Letter of Transmittal 1-2 Section I - Independence: Independence 3 Section II - License to Practice in the State of California: 1 License to Practice in the State of California � 3 Section III - Firm Qualifications and Experience: Size and Location of Firm 3 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 Reviews of City Treasurer Operations 7-8 Cable Television and Broadband Consulting Services g Reviews of Solid Waste Haulers and iJ Assistance With Trash Rate Negotiations 9 - 10 Litigation Support and Dispute Resolution Services 10 - 11 Fraud Investigations 11 - 12 -� Hotel/Motel Transient Occupancy Tax Reviews 12 Business License Operation Reviews 12 ISection IV - Partner, Supervisory and Staff Qualifications and Experience: Audit Team 13 ICommitment Related to Personnel 13 Nondiscrimination Policy 13 IAudit Team Resumes 14 - 15 Section V - Similar Engagements with Other Government Entities: GFOA and CSMFO Award Programs 16 Similar Engagements with Other Municipal Entities 16 City Client References 16 City Client List 17 11 q. L_i 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 Enterprise Fund Experience 18 Water Districts and Special Districts 18 Nonprofit Corporations and Joint Power Authorities 19 19 Section VI - Identification of Anticipated Audit Problems 19 Section VII - Specific Audit Approach: Entities to be Included in Audit Reports to be Issued and Due Dates 20 Commitment to Deliver Reports on a Timely Basis 20 Audits to be in Accordance with GARS and Other Requirements 20 Audit Approach 20 Single Audit Approach 21 Approach in Determining Laws and Regulations Subject to Audit 21 - 22 Method of Sampling 22 Management Letters 23 Other Professional Services 23 Retention Of and Access To Audit Workpapers 23 Audit Timing 23 Work Required by City Staff 23 Segmentation of the Audit Hours by Partner and Staff Level 24 25 Attachment I - Results of Outside Quality Review Proposer Guarantees, Proposer Warranties and Proposer Bid Documents DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOLINTANT5 6T CONSULTANTS A PARTNERSHIP (NCLUDINO ACCOUPTANCY COR►OKATIONS MICHAEL R. LUDIN. CPA CRAIO W ;PP AKER -PA NITIN P. PATEL CPA 2121 ALTON PARKWAY. SURE 100 ROBERTJ. CALLANAN. CPA •PHILIP H. HOLTKAM►. CPA 1R VINE. CALIFORNIA 926064956 ITHOMAS M. PERLOwsKI. CPA (949) 399-0600 • FAX (949) 399-0610 •HARVEY J. SCHROEDER, CPA www.dichlevans.com KDO&TH R AMES. CPA •WILLIAM C. PENTZ. CPA February 22, 2008 •A ►ROMSS10NAL CORPORATION Mr. Paul Gibson Director of Finance City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 r; Dear Mr. Gibson: F1 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. M Why We Are The Best Qualifi ed Firm We consider ourselves to be the best qualified firm to perform auditing and accounting services for the City of Palm Desert. Please consider these qualifications: I• 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 t) 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 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 i 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. 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 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 staff. OTHER OFFICES AT :%S ROOSEVELT STREET 613 W. VALLEY PARKWAY. SUITE 330 CARLSBAD. CALIFORNIA 920011-2389 ESCONDIDO. CALIFORNIA 92025-2599 (7601 729-2343 • FAX (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 of Article 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. Throug,hout 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 todiscuss our qualifications. j We thank the City for the opportunity to present our proposal. Please feel free to contact me, or Li Mr. Robert J. Callanan, at (949) 399-0600 if you have an and irrevocable offer for fiscal Y Y Questions. This proposal constitutes a firm 2012-2013 and 20I3-2014. Mr. Callanan and I are 8authorized o, represent lour firm, and lbind the firm .11 to a contract. Very truly yours, DIEHL, EVANS & COMPANY, LLP Nitin P. Patel, CPA Engagement Partner -2. SECTION I - INDEPENDENCE Diehl, Evans and Company, 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 "Governmental Auditing Standards" (2007 Edition), as published by the U.S. General Accounting Office. We will provide 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 California. SECCTION III - FIRM QUALIFICATIONS AND EXPERIENCE SIZE AND LOCATION OF THE FIRM Diehl, Evans & Company, LLP is a Southern California accounting firm with offices in Irvine, Carlsbad and Escondido. We are one of the oldest CPA firms in Southern California, with over 75 years of public practice i experience. t. D 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: Certified Audits Tax Planning Compilations and Reviews Income Tax Preparation Agreed -Upon Procedure Reviews Consulting Services Financial Services Our specific services available to governmental agencies are more fully set forth in this proposal. PARTICIPATION IN "QUALITY REVIEW" PROGRAMS In 1986, our firm began an annual internal quality review program, whereby all three offices are reviewed for compliance with all current accounting and auditing requirements. Formal reports of these reviews are 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 governmental agencies. We received a final report dated January 13,, 2006 with an unqualified opinion on our systems and procedures. A copy of the independent CPA firm's report is included herein at Attachment A. Accordingly, we are confident that our current auditing standards and techniques meet all existing requirements. 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. -3- (410- (#_ EDUCATION PROGRAMS Diehl, Evans & Company, LLP has a formal continuing education program. All firm auditors are required to obtain 80 hours of continuing education every two years in the accounting and auditing area as required by Goverment Auditing Standards, and at least 24 hours of government related continuing education courses. Our staff is continually expanding their knowledge of the governmental industry through our in-house training Programs, programs offered by the AICPA, the California Society of Certified Public Accountants and other professional organizations, and through on-the-job training. We also publish an Auditing Manual For Governmental Entities for internal 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 Local Governments 0 Understanding, and Auditing, Deposits and Investments of California Governmental Units • Reviews of Internal Controls in Accordance With Statements on Auditing Standards 55 and 78 0 Assessing Audit Risk and Materiality in Conducting An Audit • Understanding Statement on Auditing Standards No. 99 - Consideration of Fraud in a Financial Statement r j Audit t I • Redevelopment Agency Compliance Audits - Interpreting the Health and Safety Code • Computer Auditing in the Governmental Environment i - • The Single Audit - New Provisions under OMB Circular A-133 j • Laws and Regulations in the Government Sector ' • Understanding the Risk Assessment Standards NPARTICIPATION IN PROFESSIONAL ORGANIZATIONS Our partners d staff are actively involved in professional counting field. Noted below isna summary of our participation in various national aorganizations California governmental ttal organizations. AICPA 4 Our firm is a member of the AICPA Governmental Audit Quality Center. The Center is a firm -based voluntary membership Center whose primary purpose is to promote the importance of quality governmental 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 jj audits. i__! GFOA, GASB and FASB Our firm is an associate member of the Government Finance Officers Association of the United States and Canada (GFOA). 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. CSMFO and CRA 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 meetings. -4- PARTICIPATION IN PROFESSIONAL ORGANIZATIONS (CONTINUED) CSMFO and CRA (Continued) Our firm is also an active member in the California Redevelopment Association (CRA). We receive monthly newsletters from CRA to keep us up to date on legal developments affecting redevelopment agencies. Mr. Morgan periodically serves as a public speaker for seminars and workshops sponsored by CRA. CSCPA 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 governmental accounting matters. Mr. Patel is a member of the State Governmental Accounting and Auditing Committee. COMPUTER AUDITING CAPABILITIES Each of our audit staff members is equipped with laptop computers with engagement software that arc used for r. , workpaper preparation and preparation of financial statements. Utilizing Microsoft Excel or .other spreadsheet i�i 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 reviews of accounts and preparation of financial statements. This process will reduce the time included in preparation of lead schedules and the financial statements. 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 t • Cafeteria Plans • 457 Deferred Compensation Plans • Group Term Life Insurance Plans Tax Reporting and Compliance • Employee vs. Independent Contractor Issues • Form W-2 and Form 1099 Reporting • Payroll Tax Reporting • Workers' Compensation Tax Issues Other Areas of Emphasis • Formation of Government -Related Nonprofit Corporations • Selection of Retirement Plans • Social Security and Medicare Issues -5- Fl- L PERFORMANCE AND OPERATIONAL STUDIES Noted below are examples of performance and operational studies conducted by our firm. County 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. i Coachella Valley Association of Governments (CVAG) • Performance and operational review of regional street sweeping operation for all desert cities in the Coachella Valley • Analysis of capital equipment and personnel requirements for street sweeping operations • Computation of cost per curb mile t ' • Mailing of surveys to other municipal agencies that operate street sweeping o • Benchmark comparison of street sweeping o �r 8 operations F j• eep g operations with other Western U.S. cities I Recommended changes in operating procedures Note: Arroyo Associates, Inc. acted as a subcontractor of DE&Co on this engagement. City of Carson i • rPe rfo li an n P d ogopperational review of City's "Neighborhood Pride Program" (affordable housing • Review or systems and procedures for monitoring compliance program California regulations P ce wguidelines and Federal and • Review of competitive bidding procedures for residential rehabilitation projects • Preparation and mailing of surveys to housing rehabilitation program participants, to assess citizen satisfaction with program • Recommendations for changes in program operations and procedures REDEVELOPMENT CONSULTING SERVICES Overview 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 redevelopment issues. Noted below are examples of services provided in the redevelopment development directors, project managers, housing administrators and redevelopment attorneys - on various field. Redevelopment Handbook 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 of the State of California. This Handbook is widely distributed to redevelopment officials throughout California. REDEVELOPMENT CONSULTING SERVICES (CONTWUEDI Management Studies for Redevelopment Agencies In prior years, we have performed management studies for three California 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 0 Review for compliance with provisions of the Health & Safety Code 0 Updating of chart of accounts to comply with state law • Mailing of surveys to other redevelopment agencies, to establish benchmark comparisons for staffing and expenditure levels • Analysis of Disposition and Development Agreements (RDAs) _Redevelopment -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 California redevelopment agencies and their developers. In one situation, a Southern 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 I Agreement (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 shopping center. However, the shopping center never produced net distributable income, in part, because of excessive charges against the project by the developer. Our firm was retained by the redevelopment agency to ` analyze the propriety of costs and expenses charged to the project, and to assist the agency in negotiating.a settlement in its dispute with the developer. In another instance, a Southern California 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 attorney retained our firm to analyze the cost overruns and assist the agency in 1 settlement negotiations with the developer. Finally, a Southern California redevelopment agency entered into an agreement with a developer to reimburse the developer for certain project costs based on the agency reaching certain levels of tax increment revenue. The 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 CITY TREASURER OPERATIONS Examples of reviews of City Treasurer Operations are included below. City of Huntington Beach Review of cash management procedures and internal controls in City Treasurer's office and offsite 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 Government Code Recommendations for improvements in cash management system -7- REVIEWS OF CITY TREASURER OPERATIONS (CONTINUED) City of Mission Vieio • 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 internal controls over City Treasurer's operation • Review of Yd 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 internal controls at outside firm used to process City's parking tickets CABLE TELEVISION AND BROADBAND CONSULTING' 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: • Cable TV Franchise Fee Compliance Reviews - We have reviewed the cable franchise agreements of 1' 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 veri in the ro "gross revenues" (including advertising revenues) and the proper and timely fY g P 1� repo of • Franchise Compliance Reviews - We have worked closely with certain payment seon of transcfranchise er 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, • 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 California cities and counties, including: City of Alhambra L J City of Berkeley City o Glendale City of Glendora City of Ontario City of Burbank City of Camarillo City of Grand Terrace City of Orange City of Pasadena j City of Carlsbad City of Hawthorne City of Hemet City of Perris City of Chico City of Chino City of Hermosa Beach City of Rancho Cucamonga City of Rancho Santa Margarita City of Chino Hills City of Huntington Beach City of Irvine City of Richmond City of Concord City of Costa Mesa City of Laguna Beach City of San Bernardino City of San Clemente City of Cypress City of Laguna Niguel City of Lake Forest City and County of San Francisco City of Dana Point City of Del Mar City of Lakewood City of San Juan Capistrano City of San Marcos City of Desert Hot Springs City of La Palma City of Lawndale City of Solana Beach I City of Duarte City of El Cerrito City of Lomita Cit of Y Stanton City Of Temecula City of Encinitas City of Long Beach Cityof Los An Angeles City of Vista City of Escondido City of Fontana City of Manhattan Beach City of Walnut City of West Covina f City of Fountain Valley City of Milpitas City of Montclair City of Westminster City of Fremont City of Fullerton City of Moorpark Butte County Contra Costa County City of Garden Grove City of Moreno Valley City of Oceanside Marin Coun ty 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. City of Irvine Our firm 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 • Review of the waste hauler's accounting systems and procedures • Physical inventories of commercial 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 Citv of Garden Grove Our firm was retained by the City of Garden Grove to perform an agreed -upon procedures review of the propriety of franchise fee payments made by its solid waste hauler, Taormina Industries, for a two and one-half j 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. City of Signal Hill 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 I 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, 1 including the allocation methodology for driver labor costs 1 • Review of EDCO Disposal's rate setting methodology Regional Waste Management Authority The Regional Waste Management Authority (the "RWMA" or the "Authority") consists of the following INorthern California governmental agencies: City of Yuba City City of Gridley City of Marysville Sutter County City of Live Oak Yuba County City of Wheatland -9- E It REVIEWS OF SOLID WASTE HAULERS AND ASSISTANCE WITH TRASH RATE NEGOTIATIONS CONTINUED Regional Waste Manaizement Authority Continued The RWMA retained our firm to assist the Authority in verifying 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 Cities of Dana Point_ San Clemente and San Juan Castrano and the County o` f 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 was retained to determine the actual cost of the pilot recyclingprogram rand to over a six month period. Our firm ount of recycling revenue generated from the sale of recycled materials. Because off the conditionofthe waste the enhauler's accounting records at that time, it was necessary for us to reconstruct all cost data for the pilot P program. �1 City of Lakewood 1 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 • 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 LMGATION SUPPORTAND DISPUTE RESOLUTION SERVICES Examples of litigation support services provided by our firm are presented below. County of Santa Cruz vs. Charter Communications Inc. and Mr.. PaulAllen Dcoosition and Expert Witness Testimony 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 ni the cable franchise. In April 1999 Charter and Mr. Allen filed a Complaint for Declaratory Relief in Uted States District Court, Northern District of California, seeking to overturn the County's actions. Mr. William Morgan was retained by the County to prepare a Declaration In Support of Summary Judgment and other litigation support services. Mr. Morgan provided a deposition in this case in November 2000 and expert witness testimony in Federal Court in February 2001. In March 2001, the District Court rendered a decision expert favor ss Charter. In September 2002, the Ninth Circuit reversed the decision and ruled in favor a the County. During 2003 Charter of 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 AND DISPUTE RESOLUTION SERVICES (CONTINUED) City and County of San Francisco vs. Viacom Cable Expert Witness Testimony 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 financial 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 hi June 2000, the parties 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 exhibits 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. 4-' City of Garden Grove vs. Adult Bookstores Expert Witness Testimony 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 California, 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 Ipending a decision by the Ninth Circuit Court of Appeals in a related matter. FRAUD INVESTIGATIONS �I Our firm has conducted numerous fraud investigations for California governmental agencies. Examples of such investigations are noted below. 1 Cily of National CitX 41 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 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 narrative 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. FRAUD INVESTIGATIONS (CONTINUED) City of Burbank Police Department and L.A. District Attorney's Office Diehl, Evans & Company, LLP was retained by the Burbank Police Department, Division, to conduct a fraud investigation of a public accountant o Criminal Investigations was coordinated with, and submitted to, the Los Angeles District Attorney's Office. The servic 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 Attorney's Office. The suspect was subsequently convicted and incarcerated. HOTEL/MOTEL TRANSIENT OCCUPANCY TAX REVIEWS 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 internal controls over the accounting for, and reporting of, room rents. r, • Verification of "exemptions" taken by the hotel for government employees and "non -transient" guests. • 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 5 Coronado Irvine 13 1 Manhattan Beach g Mission Viejo 2 Palm Desert g M Ic BUSINESS LICENSE OPERATION REVIEWS Our fum has conducted an extensive review of the business license operation of the City of El Segundo. This review included the following procedures: • Review of business license tax ordinances, with recommended revisions • Preparation of business license internal program, for use by City staff • Preparation of standard audit program for use in review of individual businesses • 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 license tax ordinance - 12- SECTION IV - PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS .AND EXPERIENCE 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 transactions or audit issues. �I 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 performing 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 We make a commitment to retain the same personnel on the City from year to year, except where such personnel leave the firm, or where the change is approved by the City. If a staff member is replaced, we make a commitment to replace that person with staff of at least equal experience. U NONDISCRIMINATION POLICY Our firm has a policy to provide equal employment opportunities to all qualified persons without regard to race, color, age, sex, religion, national origin or handicap. L1 -13- AUDIT TEAM RESUMES NITIN P. PATEL, CPA Position Engagement Partner Education University of California at Irvine - Bachelor of Arts in Economics California State University at Long Beach - Masters of Accounting Program Licensing Certified Public Accountant in California since 1988 Professional Organizations American Institute of Certified Public Accountants California Society of Certified Public Accountants California Society of Municipal Finance Officers (CSMFO) - Associate Member CSMFO Professional and Technical Standards Review Committee - Report Reviewer for Award Program Governmental Accounting and Auditing Committee of Orange County - Committee Chairman (2001-2002) California Accounting and Auditing Committee Member Range of Experience fy • Has been with Diehl, Evans & Company, LLP since 1986 with emphasis in gove financial reporting. rnmental accounting and • Responsible for firm's in-house governmental accounting and auditing training prog rams. p • 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 internal control reviews, cost allocation plans, cable television rate reviews, reviews of City Treasurer operations and transient occupancy tax reviews of city hotels/motels. 1 ROBERT J. CAI LANAN, CPA i Position Concurring Review Partner Education Aquinas College, Grand Rapids, Michigan - Bachelor of Arts, Business Administration, 1988 and Bachelor of Science, Accounting, 1988 Li Lic_ endng Certified Public Accountant in California since 1993 Professional Organizations American Institute of Certified Public Accountants - Member 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 _Range 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- r1 N Li AUDIT TEAM RESUMES (CONTINUED) DAPHNIE FUERTEZ. CPA Position Audit Manager Education De La Salle University, Philippines - Bachelor of Science in Accounting, 1995 Licensine Certified Public Accountant in California since 2001 Range of Experience Has been with Diehl, Evans & Company, LLP since September 1998. 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 Diamond Bar El Toro Water 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: 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 Experience 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. Continuing Professional Education For the period of January 1, 2005 through December 31, 2007 - Total Government Hours 89.00 FRANCES J. LEE, CPA Position Audit Senior Education University of California, Riverside - Bachelor of Science, Business Administration, 2004 and Bachelor of Art, Economics, 2004 Licensin¢ Certified Public Accountant in California since 2007 Rance 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 Continuine Professional Education For the period of January 1, 2005 through December 31, 2007 - Total Government Hours 97.00 -15- SECTION V - SIMILAR ENGAGEMEMENTS WITH OTHER GOVERNMENT ENTITIES GFOA AND CSMFO AWARD 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 review process, we have been able to assist various cities in obtaining the GFOA "Certificate of Achievement for Excellence in Financial Reporting" and the "Outstanding Award" for financial reporting 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 Wells Pico Rivera Tustin Diamond Bar Irvine San Juan Capistrano Westminster S1MELAR ENGAGEMENTS WITH OTHER MUNICIPAL ENTITIES Your request for proposal called for a maximum of five similar engagements, ranked by total staff hours. These are set forth below: t Engagement Total Staff City Partner Hours Alhambra Patel f00 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. " City of Alhambra City of Healdsburg Mr. Dean Johnson Mrs. Tamers Haas Financial Services Finance Director Manager I 626-570-5017 707431-3311 CitY-of Indian Wells Mr. Kevin McCarty Director of Finance Services 760-346-2489 - 16- City of Thousand Oaks Ms. Candis Hong Director of Administrative Svcs. 805-449-2200 City of Westminster Ms. Sherry Johnson Accounting Manager 714-898-3311 �1 M E� 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 City 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 Diamond Bar 59,975 2005 Present Downey 109,720 1987 Present 1960 1984 Encinitas 59,525 2006 Present Fullerton 132,790 2004 Present 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 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 Oceanside 176,644 2007 Present Pico Rivera 64,680 2004 Present San Fernando 24,119 2007 Present San Juan Capistrano 34,675 2005 Present 1993 1998 Santa Clarita 168,255 2002 Present 1991 1996 Signal Hill 10,850 1962 Present Simi Valley 118,690 1997 2003 Temecula 65,800 2002 2007 Thousand Oaks 124,360 2003 Present 1993 1997 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. -17- N REDEVELOPMENT AGENCY EXPERIENCE Over the past year we audited twenty-eight redevelopment agencies. Alhambra Redevelopment Agency Avalon Redevelopment Agency Buena Park Redevelopment Agency Cerritos Redevelopment Agency Chino Redevelopment Agency Coronado Redevelopment Agency Downey Redevelopment Agency Fullerton Redevelopment Agency Healdsburg Redevelopment Agency Hesperia Redevelopment Agency Huntington Beach Redevelopment Agency Indian Wells Redevelopment Agency Irvine Redevelopment Agency Lake Elsinore Redevelopment Agency Lakewood Redevelopment Agency Marin County Redevelopment Agency Mission Viejo Redevelopment Agency Montebello Redevelopment Agency Norwalk Redevelopment Agency Oceanside Community Development Commission Pico Rivera Redevelopment Agency San Fernando Redevelopment Agency San Juan Capistrano Redevelopment Agency Santa Clarita Redevelopment Agency Signal Hill Redevelopment Agency Temecula Redevelopment Agency Thousand Oaks Redevelopment Agency Westminster Redevelopment Agency ENTERPRISE FUND EXPERIENCE 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 firm over the past five years: City Alhambra Enterprise 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 Norwalk Transit Oceanside Harbor Pico Rivera Water San Fernando 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 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. Borrego Water District Jurupa Community Services District La Habra Heights County Water District Laguna Beach County Water District Las Virgenes Municipal Water District Municipal Water District of Orange County Orange County Water District Water Districts Pomona -Walnut -Rowland Joint Water Line Commission Puente Basin Water Agency Rowland Water District San Dieguito Water District Walnut Valley 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 Victor Valley Reclamation Authority f 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 J 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. A Buena Park Foundation Cal State L.A. Metrolink Authority Conejo Open Space Conservation Agency Coronado Financing Authority Coronado Improvement Corporation Cove Community Public Safety Commission Del Mar Public Facilities Corporation Downey Civic Center Corporation Downey Recreational Area Authority Downey Water Facilities Corporation Encinitas Ranch Golf Authority Healdsburg Public Improvement Corporation Lake Elsinore Financing Authority Lake Elsinore Recreation Authority Las Virgenes Municipal Water District and Trinofo Sanitation Norwalk Financing Authority Oceanside Public Financing Authority Pico Rivera Water Authority Public Cable Television Authority Redwood Empire Financing Authority San Juan Capistrano Housing Corporation Santa Clarita Watershed Recreation and Conservation Authority South County Senior Services Southeast Area Animal Control Authority Walnut Valley Building Corporation SECTION VI - IDENTIFICATION OF ANTICIPATED AUDIT PROBLEMS We do not anticipate any unusual audit problems. -19- HP it SECTION VII - SPECIFIC AUDIT APPROACH ENTITIES TO BE INCLUDED IN AUDIT City of Palm Desert 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 1 City of Palm Desert - Comprehensive Annual Financial Report October 17 Octobertes 31 Palm Desert 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 confirmations Not Applicable October 17 t ' Single Audit Reports: November 30 December 31 • Independent Auditors' Report on Compliance and on Internal Controls Over Financial Reporting Based i on Audit of Financial Statements Performed in Accordance With Government Auditing Standards 0 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 DELIVER REPORTS ON A TIMELY BASIS If all books and records, schedules and documents are made available to us by September 8s', 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 REQUIREMENTS We will audit the financial 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 d accordance with GASB Statement 14. Our audit will be in accordance with auditing standards generally accepted in the United States ofAmerica 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 j principally of inquiries of management regarding methods of measurement and presentation of required supplementary information. However, we do not audit such information and do not express an opinion on it. Any supplemental financial statements will be subjected to auditing procedures as we consider necessary in f relation to the financial statements taken as a whole. The scope of our audit will not include any statistical information, and we will not express an opinion concerning it. Our audits will conform with the guidelines set forth in the AICPA's Industry Audit Guide, Audits of State and Local Governmental Units. Also, each examination will comply with the standards for financial and compliance audits contained in the Government Auditing Standards (2007 Edition), issued by the U.S. General Accounting I Office, and the requirements of OMB Circular A-133. I Our audit of the Redevelopment Agency will include an audit on compliance in accordance with Heal th and Safety Code Section 33080.1 and Sections I through V of the "Guidelines for Compliance Audits of California Redevelopment Agencies" issued by the State Controller's Office. Also, we will perform a limited procedures review of the City's Gann Spending Limitation Computation as required by Section 1.5 of Article XIIIB of the California Constitution. Our review will be performed in conformance with the provision of the "League of California Cities Uniform Guidelines". -20- L, I AUDIT APPROACH Our firm uses a governmental audit program which 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. • 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 final 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 } the City's financial statements. Our work may include: • Confirmation of cash and investments balances and testing of bank reconciliations. 1 • Confirm significant receivable balances or review subsequent cash receipts to verify receivable balance. • Search for unrecorded liabilities. 1 • Test capital asset additions and depreciation expense. tt ; • 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 findings. 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 Auditing Standards issued by the GOA (the "Yellow Book") and AICPA Statement on Auditing Standards No. 68, "Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance". -21 - SINGLE AUDIT APPROACH (CONTINUED) 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 material 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 on each of the City's major programs. The purpose of those procedures will be to express an opinion on the I 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 exceptions in the function of key controls are noted, we will conclude that a low level of control risk was achieved. If weaknesses in the internal controls are noted, we will modify our audit program as needed. j As part of our single audit, we will request that the City assist in completing the Data Collection Form. The form 3 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 Government Code) and local laws (such as restrictions on special revenues levied by the City). After our selection as auditors, we will consult with City officials regarding these matters, to determine what laws and regulations need to be evaluated in connection with our audit. If a City is not able to identify specific laws and regulations that effect it, we have references (California 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. -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, payroll 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 being 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 the financial reporting process and recommend steps towards eliminating the weaknesses. OTHER PROFESSIONAL SERVICES We will be available for any other professional assistance you require to research and answer accounting and l 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, `I 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 t! U 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 workpapers will be made available as necessary to your cognizant audit agency (or its designee), to GAO representatives, or to any other federal or state agency needing access to the workpapers. Also, our firm will respond to any reasonable inquiries of successor auditors and we will allow any successor auditors to review our workpapers. AUDIT TIMING Assuming that the City's books are closed and ready for examination and that all necessary schedules and documents are available for our use by September 1 each year, the time schedule for the various phases of the audit would be approximately as follows: Entrance Conference with Finance Director Inventory Observations/Confirmation Mailings Audit Plan and List of Schedules to be Prepared By the City Interim Work Progress Conference with Finance Director Year-end Field Work Exit Conference with Finance Director Deliver Reports Completed By Week of June 1, 2008 June 30, 2008 June 30, 2008 Week of July 11, 2008 Week of July 11, 2008 September 8 to 26, 2008 September 26, 2008 See Due Dates on Page 20 - 23 - WORK REQUIRED BY CITY STAFF Our fixed annual fees contemplate that conditions satisfactory to the normal progress and completion of the examination will be encountered and that City accounting personnel will furnish the agreed -upon assistance in connection with the audit. However, if unusual circumstances are encountered which make it necessary for us to do additional work, we shall report such conditions to the responsible City officials and provide the City with an estimate of the additional accounting fees involved. Noted below is a listing of work required by City staff to assist in the audit. 1. Technical assistance in familiarizing our staff with: • The flow of information through the various departments and accounting systems. • Reports generated by your accounting system. • The system of internal controls. • Controls established to monitor compliance with federal grants. 2. Preparation of trial balances for all funds, after posting of all year end journal entries. 3. Preparation of schedules supporting all major balance sheet accounts, and selected revenue and expenditure accounts. 4. Typing of all confirmation requests. ` 1 5. Pulling and refiling of all supporting documents required for audit verification. a.l 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: 1. charges for services, 2. operating grants and contributions, and 3. capital grants and contributions. c. Determining components of net assets into capital assets net of related debt, restricted and unrestricted 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 Net Assets. e. Consolidation of internal service fund activity into governmental activities or business -type activities in the government -wide financial statements. 7. Preparation of the management's discussion and analysis, transmittal letter and all statistical tables for the CAFR. -24- SEGMENTATION OF THE AUDIT HOURS, BY PARTNER AND STAFF LEVEL Staff Supervisory 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: r i 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 Gann Limit Verification - - 3 - 3 Investment Policy Compliance Verification 8 - 32 4 44 r' I Subtotal Other 30 24 167 124 345 !z. i i TOTAL HOURS 50 63 287 274 674 -25- 13 ATTACHMENT I RESULTS OF OUTSIDE QUALITY REVIEW N H!"OENREICH & HEIDENR ICH CERTIFIED PUBLIC ACCOUNTANTS 12020 S. Warner-Elllot Loop 0121 15543 Bear Valley Rd. ><a Phoenix, AZ $5044-2700 15US e r V alley R (480)704.8301 tax 785J619 (7s0) Hesperia, C 99 fax 948-7712 sheiden►eich®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. f i Our review was conducted In accordance with standards established by the Peer Review Board 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 emphasis 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 LJ control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Our review was I based on selected tests therefore it would not necessarily detect all weaknesses in the system of t y quality control or all instances of noncompliance with ft. There are inherent limitations in the effectiveness of any system of quality control and therefore noncompliance with the system of 1 quality control may occur and not be detected. Projection of any evaluation of a system of quality j control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. lIn 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 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 i comments that were not considered to be of sufficient significance to affect the opinion expressed in this report. ✓l "4 c.� & Jt.az& c�i. Heidenreich & Heidenreich Certified Public Accountants HE, ENREICH & 14EIDENRP-CH CERTIFIED PUBLIC ACCOUNTANTS 1I020 S. Warner -Elliot Loop #121 15545 Bear Valley Rd. pa Phoenix, AZ 85044-2700 Hesperia, r V alley R (480)704-6301 fax 785.4619 Hesperia, ria-2899 34 948.T712 aheidsnreichQstLnet 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. Commen - 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 paymentsiparticipant 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. Xaa& CfL & MaMM C L Heidenreich & Heidenreich Certified Public Accountants Li a PROPOSER GUARANTEES, PROPOSER WARRANTIES AND PROPOSER BID DOCUMENTS I N PROPOSER GUARANTEES The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section Nature of Services Required. Il, Signature of Official: Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans & Company, LLP Date: February 22, 2008 PROPOSER WARRANTIES j A- Proposer warrants that it is willing and able to comply with State of California laws with respect state of California) corporations. pest to foreign B. Proposer w � (non - warrants that it is willing and able to obtain an errors and omissions insurance Policy amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. C. Pro P y Providing a prudent t.. Poser warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City. i� D. Propose warrants that all information provided by it in connection with this proposal is true and accurate. �i ►a Signature of Official: Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans & Company, LLP Date: February 22, 2008 PROPOSER BID DOCUMENTS The undersigned has carefully examined the BID DOCUMENTS and the general provisions, specifica information pertinent to this proosal tions and p Requirements contained in and hereby offers and submits the above price in considSection VI of the RFP, attached hereto and a part of this offer and proposal, eration of the Proposal Fes: Diehl, Evans & Company, LLP Authorized Signature: �--�C� P, to, M. � 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 CITY OF PALM DESERT MAXIMUM PRICE SUMMARY Option Period rtscat i cat cuu-s 2008 20119 2010 2011 2012 2013 2014 Cit%- 38.209 Audit $ 32,000 $ 32,959 ' S 33,948 $ 34,966 $ 36,015 $ 37,096 $ Financial Statements 4,800 4,944 5.092 5,245 5,402 5.565 5.731 t Redevelopment Agency: Audit' 19,000 19,570 2 0,157 20,762 21.385 22,026 22.687 Financial Statements 1,900 1,957 2,016 2,076 2,138 2,203 2,269 Recreation Facilities Corp.: Audit 6,500 6.696 6,896 7,103 7,316 7,535 7,761 Financial Statements 2,100 2,163 2.228 2,295 2.364 2,434 2,508 Single Audit 4,400 4.532 4,668 4,808 4.952 5,101 5,254 Gann Limit Verification 300 309 318 328 338 348 358 Investment Policy Compliance Verification - _ 5727 - - 6.241 - "total all-inclusive maximum price for all schedules $ 71.000 $ 73,130 $ 81.050 $ 77,583 $ 79,910 $ 88,549 $ 84,7�7 Includes audit of financial records maintained in Lodi, California and compliance testing related 1 IN to 101) tenant tiles.