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Home My WebLink About06C C27540A - Special Audit of RDA and HACITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT REQUEST: APPROVE CONTRACT NO. C27540 WITH WHITE NELSON DIEHL EVANS LLP TO PERFORM A SPECIAL AUDIT FOR PALM DESERT REDEVELOPMENT AGENCY AND PALM DESERT HOUSING AUTHORITY FOR THE PERIOD ENDED JANUARY 31, 2012 Submitted by: Paul S. Gibson, Finance Director Date: March 22, 2012 Contents: Engagement Letter Recommendation By Minute Motion, that the City Council approve the contract with White Nelson Diehl Evans LLP to perform a special audit for the Palm Desert Redevelopment Agency and Palm Desert Housing Authority for the period ended January 31, 2012. Backqround 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, Successor Agency to the Palm Desert Redevelopment Agency, 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. Due to the dissolution of redevelopment agencies on January 31, 3012, the State of California and the County of Riverside have imposed a requirement that audit work for the period of July 1, 2011 through January 31, 2012 be completed by July 1, 2012. This is considered a special audit in addition to the typical audit functions conducted on an annual basis. Staff requests that the City Council approve the contract with White Nelson Diehl Evans LLP to perform auditing services for the Palm Desert Redevelopment Agency and Housing Authority for the period ended January 31, 2012. Staff Report Approval of Contract No March 22, 2012 Page 2 of 2 Fiscal Impact C27540 — White Nelson Diehl Evans LLP Auditing services are contracted at a maximum of $16,300 for the Palm Desert Redevelopment Agency and $3,300 for the Palm Desert Housing Authority for a total of $19.600. Staff requests that the Successor Agency be responsible for payment of this audit. Submitted By: .� �� Paul S. ibson, Director of Finance � �� BY HQU�G AUTH Q�.!_� , �-�� - _� C, /.� �r�,-�:�i�� :.�� r� ��-x.� � ?r��:�� ;;��:-� ;;f;, f,-� r.° �°�?r';`S �,�iC2 by: n M. Wohlmuth, City Manager b y _�,t,tCCE'r»C�� e�c f ��,.�? 4� �C� f� �C�A �?a� �... ��—,�� —<�C'i� a t 4— r _'.`, .7 � .-_. �� :-:; ..� �- � .�.1�______. lJri(; iei �Ji i S:�i�. b✓I!i'! f'.. t� � a�' .r �._, �_, � � �_.'t : t � (, 4� G�IFinancelNiamh OrtegalSta//ReportslAuditorslAuditing Services 031312.docx March 13, 2012 Mr. Paul Gibson Director of Finance Palrn Desert Redevelopment Agency 73-510 Fred Warning Drive Palm Desert, CA 92260 Dear Mr. Gibson: We are pleased to confirm oux understanding of the services we are to provide the Palm Desert Redevelopment Agency (the Agency) for the period from July 1, 2011 to January 31, 2012. We will audit the financial statements oi the governmental activities, each major fund, and the aggregate remaining fund information, which collectively comprise the basic financial statements, of the Agency as of and for the period ended January 31, 2012. Accounting standards generally accepted in the United States of America provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD&A), to supplement the Agency's basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. As part of our engagement, we will apply certain limited procedures to the Agency's RSI in accordance with auditing standards generally accepted in the United States of' Ainerica. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the infornzation for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion ar provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1) Management's Discussion and Analysis 2) Budgetary Comparison Schedules - Major Special Revenue Funds 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 � Uffices located in Orange and San Diego Counties Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 2 We have also been engaged to report on supplementary information other than RSI that accompanies the Agency's financial statements. We will subject the following supplementary information to the auditing procedures applied in our audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America and will provide an opinion on it in relation to the financial statements as a whole: 1) Combining and individual other governmental fund financial statements. Audit Objectives: The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America and to report on the fairness of the supplementary int'ornlation referred to in the second paragraph when considered in relation to the financial statements taken as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditin� Standards, issued by the Comptroller General of the United States, and will include tests of the accounting records of the Agency and other procedures we consider necessary to enable us to express such opinions. If our opinions on the financial statements are other than unqualified, we will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form ar have not formed opinions, we may decline to express opiniqns or to issue a report as a result of this engagement. We will also provide a report (that does not include an opinion) on internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. The report on internal control and compliance will include a statement that the report is intended solely for the information and use of management, the body of individual charged with governance, others within the Agency, and specific legislative or regulatory bodies and is not intended to be and should not be used by anyone other than these specified parties. If during our audit we become aware that the Agency is subject to an audit requirement that is not encompassed in the terms of this engagement, we will communicate to management and those charged with governance that an audit in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditin� Standards may not satisfy the relevant legal, regulatory, or contractual requirements. Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 3 Management Responsibilities: Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. As part of the audit, we will assist with preparation of your financial statements and related notes. You are responsible for making all management decisions and performing all management functions relating to the financial statements and related notes and for accepting full responsibility for such decisions. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and that you have reviewed and approved the financial statements and related ndtes prior to their issuance and have accepted responsibility for them. Further, you are required to designate an individual with suitable skill, knowledge, or experience to oversee any nonaudit services we provide and for evaluating the adequacy and results of those services and accepting responsibility for them. Management is responsible for establishing and maintaining effective internal controls, including evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met, for the selection and application of accounting principles, and for the fair presentation in the financial statements of the respective financial position of the governmental activities, each majar fund, and the aggregate reinaining fund information of the Agency and the respective changes in financial position and, where applicable, cash flows in conformity with accounting principles generally accepted in the United States of America. Management is also responsible for making all financial records and related information available to us and for ensuring that management and financial information is reliable and properly recorded. Your responsibilities include adjusting the financial statements to correct material misstatements and for confirming to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. You are responsible for �he design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in communications from employees, former employees, grantors, regulators, or others. In addition, you are responsible for identifying and ensuring that the Agency complies with applicable laws, regulations, contracts, agreements, and grants for taking timely and appropriate steps to remedy any fraud, illegal acts, violations of contracts or grant agreements, or abuse that we may report. You are responsible for the preparation of the supplementary information in conformity with accounting principles generally accepted in the United States of America. You agree to include our report on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 4 Management Responsibilities (Continued): Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying for us previous financial audits, attestation engagements, performance audits, or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or studies. You are also responsible for providing management's views on our current findings, conclusions, and recommendations, as well as your planned corrective aetions, for the report, and for the timing and format for providing that information. Audit Procedures - General: An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve jud�nent about the number of transactions to be examined and the areas to be tested. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the Agency or to acts by management or employees acting on behalf of the Agency. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. 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 may exist and not be detected by us. 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. However, we will inform you of any material errors and any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform you of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to any later periods for which we are not engaged as auditors. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with seleeted individuals, funding sources, creditors, and financial institutions. We wil] request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of �our audit, we will require certain written representations from you about the financial statements and related matters. Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 5 Audit Procedures - Internal Controls: Our audit will include obtaining an understanding of the Agency and its environment, including internal control, sufficient to assess the risks of material misstatement of tbe financial statements and to design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the financial statements. Our tests, if performed, will be less in scope than would be necessary to render an opinion on internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards. An audit is not designed to provide assurance on internal control or to identify significant deficiencies. However, during the audit, we will communicate to management and those charged with governance internal control related matters that are required to be conlmunicated under AICPA professional standards and Government Auditin� Standards. Audit Procedures - Compliance: As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the Agency's compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditin� Standards. Audit Administration, Fees and Other: Noted below is a lis�ing of work required by Agency 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 oitrial 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. Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 6 Audit Administration, Fees and Other (Continued): Work Required by Agency StafF (Continued): 5. Pulling and refiling of all supporting documents required for audit verification. 6. Preparation of the basic financial statements and notes. 7. Preparation of the management's discussion and analysis. Our maximum annual fee for the audit of the Agency's financial statements for the period ended January 31, 2012 will be $19,000. The maximum annual fee sfipulated herein contemplates that conditions satisfactory to the normal progress and completion of the examination will be encountered and the Agency 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 Agency officials and provide the Agency with an estimate of the additional accounting fees involved. You may terminate our services or we may withdraw from this engagement at any time. Any disputes arising under this agreement shall be mediated under the rules of the American Arbitration Association. The workpapers for this engagement are the property of White Nelson Diehl Evans LLP and constitute confidential information. However, we may be requested to make certain workpapers available to grantor agencies pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of our personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to the grantor agencies. The grantor agencies may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. In accordance with our firm's current record retention policy, all of your original records will be returned to you at the conclusion of this engagement. Our accounting workpaper files will be kept for a period of seven years after the issuance of the audit report. All other files will be kept for as long as you retain us as your accountants. However, upon termination of our service, all records will be destroyed after a period of seven years. Physical deterioration or catastrophic events may further shorten the life of these records. The working papers and files of our firm are not a substitute for your original records. Government Auditing Standards require that we provide you with a copy of our most recent external peer review report and any letter of comment, and any subsequent peer review reports and letters of comment received during the period of the contract. Our 2009 peer reviews accompany this letter. Mr. Paul Gibson Director of Finance Palm Desert Redevelopment Agency March 13, 2012 Page 7 We appreciate the opportunity to be of service to the Palm Desert Redevelopment Agency and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, WHITE NELSON DIEHL EVANS LLP By: � P��._ Nitin P. Patel, CPA Engagement Partner RESPONSE: This letter correctly sets forth the understanding of the Palm Desert Redevelopment Agency By — Title Date HEIDENREICH & HEIDENREICH, CPAs, PLLC 10201 S. 51 �` Street #170 Phoenix, AZ 85044 (480)704-6301 fax 785-4619 System Review Report January 28, 2009 To the Owners of Diehl, Evans & Company, LLP and the Peer Review Committee of the CA Society of CPAs We have reviewed the system of quality controi for the accounting and auditing practice of Diehl, Evans & Company, LLP (the firm) in effect for the year ended September 30, 2008. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable 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 therewith based on our review. The nature, objectives, scope, limitations of, and the procedures performed in a System Review are described in the standards at www.aicpa.org/prsummary. As required by the standards, engagements selected for review included engagements performed under the Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of Diehl, Evans & Company, LLP in effect for the year ended September 30, 2008, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiency(ies) or fail. Diehl, Evans & Company, LLP has received a peer review rating of pass. �1l.P.i�detvrei�c.F� � �ll.¢.i.da.��ek�Jf1. Heidenreich & Heidenreich, CPAs, PLLC � Clif�on Gundersora LLp Certified Pub[ic Accountants & Consultants System Review Report To the Partners White Nelson & Ca., LLP and the Peer Review Committee of the California Society of Certified Public Accountants We have reviewed the system of quality control for the accaunting and auditing practice of White Nelsan & Co., LLP (the firm) in effect for the year ended March 31, 2009. Our peer review was conducted in accordance with fhe Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of �he American Institute of Certified Public Accountants. The firm is responsibfe for designing a systern of quality contro! and complying with it to provide the firm with reasonable assurance of perFarming and reporting in canformity with applicable professional standards in all material respects. Our responsibility is to express an opinion on ihe design of the system of quality control and #he firm's campliance therewith based on our review. The nature, objectives, scope, limitations of, and the procedures performed in a System Review are described in the standards af www.aicpa.org/prsummary. As required by the standards, engagement selected for review included engagements performed under the Government Auditing Standards and audits of employee benefit plans. ln our opinion, the system of quality control for the accounting and auditing practice of White Nelson & Co., LLP in efFect for the year ended March 31, 2049, has been suitably designed and complied with to provide the firm with reasonable assurance of pertorming and reporting in conformity with applicable professional siandards in all material respec�s. Firms can receive a rating of pass, pass with deficrency(iesJ ar faN. White Nelson & Co., L�.P has received a peer review rating of pass. � [�C�1 �� Phoenix, Arizona September 30, 2009 Officcs in 17 statcs and Washing[on, DC � Internationel � Palm Desert RDA Budget for 1/31/2012 Audit Description Audit planning/general audit programs Compliance audit Internal controls Cash and Investments Receivables Payables Long term debt Revenues Expenditures Supervision and Review (Partner) Subtotal Travel Total Estimated Hours without Housing Authority Fee Determination RDA Audit without Housing Authority Staff Senior Partner Prepared By: Nitin Patel Date:3/11/12 Hours 16 12 12 12 8 8 12 6 12 16 114 10 124 Hourly Hours Rate 54 $ 96 $ 54 113 16 197 124 Out-of pocket Lodging (140 *8) Meals (40*8) Mileage Total out-of-pocket Total for Audit without Housing Authority Housing Authority (lodi) Staff accountant (travel) Staff accountant (fieldwork) Supervision Subtotal Airfare Hotel (2 nights) Meals Total for Housing Authority Totals for 1/31/2012 audit Total Cost 5,184 6,102 3,152 14,438 1,120 320 422 1,862 $ 16,300 Hourly Hours Rate 8 $ 96 $ 768 16 96 1,536 2 197 394 2,698 300 250 52 $ 3,300 $ 19,600