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HomeMy WebLinkAbout07-01-2014 C10 Auditing Services Contract AmendmentCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number FROM: Wayne Padilla, Finance & Information Technology Director Prepared By: Vilma Warner, Finance Operations Manager SUBJECT: AUDITING SERVICES CONTRACT AMENDMENT RECOMMENDATION 1. Accept the fee proposal in the amount of $12,000 from Glenn Burdette Certified Public Accountants to compile the financial statements to be presented within the Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 2014. Auditors will begin work June 23, 2014. 2. Agree to the extension of the existing agreement between the auditor and the City for an additional two years, as provided for in the current agreement. 3. Approve the First Amendment to the Auditor Agreement. DISCUSSION In April 2011 the Council approved a contract for auditing services with Glenn Burdette, Certified Public Accounts (GB), for a three year term with the option to extend for an additional two years by mutual consent. Staff has been pleased with the performance of GB and their staff and had sought approval from the City Manager to exercise the right to extend the agreement. Upon review of the current contract language, which indicated that the City Manager could approve any amendment, modification or variation to the terms of the agreement, the City Attorney has indicated that the request to extend the agreement must be approved by the City Council. The initial three year term expired when the 2013 CAFR was completed and staff overlooked this fact initially because the audit firm’s proposal indicated that a 5 year term was in place. The fact that the agreement provided for a shorter term was overlooked. In addition to seeking an extension to the current agreement for auditing services, staff has been attempting to address the issues that have arisen during the last two fiscal years with the preparation of the financial statements and related notes for the 2012 and 2013 CAFRs. In each of these years the Finance Department has struggled to organize and assemble the information that is compiled into the CAFR, due to severe technical flaws in the file structure of the underlying support schedules. Even after attempts by Software Solutions were made to correct the deficiencies before the 2013 CAFR was created, many deficiencies that had not surfaced previously were discovered, causing a two week delay in the completion of the CAFR. In order to fix the problem, an entirely new set of worksheets and supporting documents would need to be created from scratch and then tested to ensure that they are error free. This process would take several hundred hours of dedicated staff time that is already needed to work on the closure of the 2013-14 fiscal year financial records. 7-1-14 C10 C10 - 1 Auditing Services Agreement Amendment Page 2 After discussions with GB about this problem and the best way of resolving it, GB has agreed to amend the audit services agreement to reflect a fee and scope of work that will have them maintaining the CAFR document and related spreadsheets while the City provides the data that will populate them. The quality control checks for proper formatting and assembly of the material will be the responsibility of the audit firm. The City still retains responsibility for overseeing the preparation of the financial statements to ensure that they present the City’s financial position fairly and will continue to review and approve them before they are published. GB’s fee proposal is $12,000 for this additional work and staff feels that this is a fair estimate for the total cost. FISCAL IMPACT The cost of the additional services will be covered by the current appropriation for audit services contained in the proposed 2014-15 budget and would be built into the 2015-16 budget with no actual increase in the estimated total appropriations. While the quote provided indicates a range of fees from $12,000 to $15,000 the auditor’s most recent engagement letter sets the cost at $12,000 for the 2013-14 audit. ALTERNATIVES 1. Do not contract for financial statement preparation. This is not recommended as the files the city uses to prepare the financial statements are very difficult to work due to their age and the number of previous changes that have been made. Versions of these spreadsheets appear to date back to Lotus 1,2,3 which creates compatibility issues with the current version of Excel. 2. Contract with another firm to provide the update. This is not recommended. Glenn Burdette is our current audit firm and is familiar with the City’s financials. Using a different firm would likely result in significantly higher costs. 3. Require the release of a new RFP to solicit bids from audit firms. This is also not recommended since GB is doing an acceptable job as the City’s auditor and the delay in securing a new audit firm could cause the timing of the delivery of the CAFR to occur after the 12/31 deadline set in the City Ordinance. ATTACHMENTS 1. First Amendment to Auditor Agreement 2. Original Audit Agreement T:\Council Agenda Reports\2014\2014-07-01\Auditing Services Agreement\CAR-Auditing Services Agreement.docx C10 - 2 First Amendment to Auditor Agreement This first amendment is made to the existing Auditor Agreement which was entered into on June 7, 2011 between Glenn, Burdette, Phillips & Bryson (Auditor) and the City of San Luis Obispo (City). This amendment provides for a change in the scope of work performed by Auditor to reflect the additional services to be provided in the form of financial statement compilation. This additional service shall provide City with financial statements in the form and format similar to that produced by City and used for the purpose of preparing the Comprehensive Annual Financial Report. Auditor has proposed a fee for this service in the amount of $12,000 for the 2013-14 financial statements and City accepts this proposed fee, which is shown in Exhibit A to this amendment (please see page 10). This fee may be amended for compilation services provided in future years as mutually agreed upon by both parties. The related scope of work involved with the compilation of the financial statements is shown in Exhibit B to this amendment, which is incorporated by reference herein. The term of the original agreement is hereby extended for an additional two (2) years to complete the scope of work described in the City’s Specification #91067 and the Auditor’s proposal dated April 27, 2011. Both City and Auditor do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute agreements for such party. In witness whereof, the parties hereto have caused this instrument to be executed on the day and year shown below. ATTEST: _________________________________ ______________ Anthony Mejia, City Clerk Date City of San Luis Obispo _________________________________ ______________ City Manager Date Auditor _________________________________ _______________ Date APPROVED AS TO FORM _________________________________ _______________ City Attorney Date Attachment 1 C10 - 3 Exhibit A Attachment 1 C10 - 4 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 2 We have also been engaged to report on supplementary information other than RSI that accompanies City of San Luis Obispo’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 in a report combined with our auditor’s report on the financial statements: 1.Schedule of Expenditures of Federal Awards 2.Measure Y Funding Summary Schedule 3.Combining and individual non-major fund financial statements and schedules The following other information accompanying the financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements, and our auditor’s report will not provide an opinion or any assurance on that other information. 1.Introductory section 2.Statistical section From the accounting and supporting documentation provided by the City, we will assist you in compiling the City’s CAFR in accordance with generally accepted accounting principles and the GFOA’s Certificate of Achievement for Excellence in Financial Reporting Program for the year ended June 30, 2014. Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the supplementary information referred to in the second paragraph when considered in relation to the financial statements taken as a whole. The objective also includes reporting on - •Internal control related to the financial statements and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. Attachment 1 C10 - 5 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 3 •Internal control related to major programs and an opinion (or disclaimer of opinion) on compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The Governmental Auditing Standards report on internal control and compliance and other matters will include a paragraph that states (1) that the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance, and (2) that the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance . The OMB Circular A-133 report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Both reports will state that the report is not suitable for any other purpose. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America; the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of OMB Circular A-133, and the applicable laws, rules and regulations of the Transportation Development Act (TDA) and will include tests of accounting records, a determination of major program(s) in accordance with OMB Circular A-133, and other procedures we consider necessary to enable us to express such opinions. We will issue written reports upon completion of our Single Audit. Our reports will be addressed to the Honorable City Council of the City of San Luis Obispo. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on the financial statements or the Single Audit compliance opinions are other than unmodified, we will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed opinions, we may decline to express opinions or issue reports, or may withdraw from this engagement. Management Responsibilities Management is responsible for the financial statements, schedule of expenditures of federal awards, and all accompanying information as well as all representations contained therein. Management is also responsible for identifying all federal awards received and understanding and complying with the compliance requirements, and for preparation of the schedule of expenditures of federal awards (including notes and noncash assistance received) in accordance with the requirements of OMB Circular A-133. You Attachment 1 C10 - 6 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 4 agree to oversee the nonaudit services by designating an individual, preferably from senior management, who possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. Management is responsible for (a) establishing and maintaining effective internal controls, including internal controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met; (b) following laws and regulations; (c) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and (d) ensuring that management is reliable and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information for which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities also include identifying significant vendor relationships in which the vendor has responsibility for program compliance and for the accuracy and completeness of that information. Your responsibilities include adjusting the financial statements to correct material misstatements and confirming to us in the management 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 the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in communications from employees, former employees, grantors, regulators, or others. In addition, you are Attachment 1 C10 - 7 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 5 responsible for identifying and ensuring that the entity complies with applicable laws, regulations, contracts, agreements, and grants. Management is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that we report. Additionally, as required by OMB Circular A-133, it is management’s responsibility to follow up and take corrective action on reported audit findings and to prepare a summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior audit findings should be available for our review during audit field work. You are responsible for the preparation of the schedule of expenditures of federal awards (including notes and noncash assistance received) in conformity with OMB Circular A-133. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date of the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities included acknowledging to us in the written representation letter that (1) you are responsible for the presentation of the schedule of expenditures of federal awards in accordance with OMB Circular A-133; (2) you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with OMB Circular A-133; (3) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. You also agree to make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities included acknowledging to us in the written representation letter that (1) you are responsible for the presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. Attachment 1 C10 - 8 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 6 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 actions, for the report, and for the timing and format for providing that information. With regard to electronic dissemination of audited financial statements, including financial statements electronically on your website, you understand that electronic sites are means to distribute information and, therefore, we are not required to read the information contained on these sites or consider the consistency of other information in the electronic site with the original document. You agree to indemnify Glenn Burdette from any and all claims that may arise from any differences between the electronic version of the financial statements and audit report presented on your web site, now and in the future, and the signed version of the financial statements and audit report provided to management by Glenn Burdette. Audit Procedures - General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the government or to acts by management or employees acting on behalf of the government. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us, even though the audit is properly planned and performed in accordance with U.S. generally accepted accounting standards and Government Auditing Standards. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or Attachment 1 C10 - 9 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 7 governmental regulations that do not have a direct and material effect on the financial statements or major programs. However, we will inform the appropriate level of management of any material errors, any fraudulent financial reporting, or misappropriation of assets that come to our attention. We will also inform the appropriate level of management of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential, and of any material abuses that comes to our attention. We will include such matters in the reports required for a Single Audit. Our responsibility as auditors is limited to the period covered by our audit and does not extend to later periods for which we are not engaged as auditors. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, funding sources, creditors, and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will also require certain written representations from you about your responsibilities for the financial statements; schedule of expenditures of federal awards; federal award programs; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing standards. Audit Procedures - Internal Controls Our audit will include obtaining an understanding of the government and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the 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. As required by OMB Circular A-133, we will perform test of controls over compliance 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. Attachment 1 C10 - 10 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 8 An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. However, during the audit, we will communicate to management and those charged with governance internal control related matters that are required to be communicated under AICPA professional standards, Government Auditing Standards, and OMB Circular A-133. Audit Procedures - Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of City of San Luis Obispo’s compliance with the provisions of applicable laws, regulations, contracts and agreements, including grant agreements. However, the objective of those procedures will not be to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. OMB Circular A-133 requires that we also 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 test of transactions and other 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 City of San Luis Obispo’s major programs. The purpose of those procedures will be to express an opinion on City of San Luis Obispo’s compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A-133. Timing of Engagement We will work with management to determine mutually agreed upon fieldwork dates. The timing of our work is dependent on the timely receipt of the information we request from you. We ask that you inform us as soon as possible if you will not be ready on the date(s) agreed upon. If you request that we reschedule our fieldwork, we will do our best to accommodate the changes. However, we cannot guarantee timely completion due to other previously scheduled engagements. Audit Administration, Fees, and Other We understand that your employees will prepare all cash, accounts receivable or other confirmations we request and will locate any documents selected by us for testing. Attachment 1 C10 - 11 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 9 At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. It is management’s responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal awards, summary schedule of prior audit findings, auditors’ reports, and corrective action plan) along with the Data Collection Form to the federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit to pass-through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 30 days after receipt of the auditor’s reports or nine months after the end of the audit period, unless a longer period is agreed to in advance by the cognizant or oversight agency for audits. We will provide copies of our reports to you; however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Glenn Burdette and constitutes confidential information. However, subject to applicable laws and regulations, audit documentation and appropriate individuals will be made available upon request and in a timely manner to City of San Luis Obispo’s cognizant agency or its designee, a federal agency providing direct or indirect funding, or the U.S. Government Accountability Office for purposes of a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of Glenn Burdette personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governmental agencies. It is our policy to keep records related to this engagement for seven (7) years after the report release or for any additional period requested by City of San Luis Obispo’s cognizant agency, oversight agency for audit, or pass-through entity. If we are aware that a federal awarding agency, pass-through entity, or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. However, we do not keep any original client records, so we will return those to you at the completion of the services rendered under this engagement. When records are returned to you, it is your responsibility to retain and protect your records for possible future use, including potential examination by any government or regulatory agencies. By your signature below, you acknowledge and agree that upon the expiration of the seven (7) year period, Glenn Burdette shall be free to destroy our records related to this engagement. Attachment 1 C10 - 12 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 10 Allen E. Eschenbach is the engagement partner and is responsible for supervising the engagement and signing or authorizing another qualified firm representative to sign the report. Our fee for the audit and other services will be $39,500 for the basic financial statements and GANN Appropriations Limit (which is covered under a separate agreed-upon-procedures engagement letter); $12,000 for the compilation of the CAFR; $5,100 for TDA financial audit and compliance report; $7,200 for Single audit act report; and $4,450 for Whale Rock Commission audit report, totaling $68,250. This estimate is based upon our initial analysis of the complexity of the work to be performed and the experience level of the staff to be assigned. The estimate is based on maximum audit efficiencies providing for participation and anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered. It includes only our work associated with the audit of the financial statements of City of San Luis Obispo. Additional fees will be added if we have to perform additional services due to the incomplete or untimely receipt by us of the information on the schedule requests list, accounts not being fully adjusted the day we commence fieldwork, or timing related inefficiencies. In the event of a change in the scope of our audit resulting from any changes in facts and circumstances, we will discuss any additional fees with you as soon as is reasonably possible after we become aware of the change. If appropriate, a change order will be issued. The estimate does not include significant assistance in applying any new accounting standards that impact the reports. Such additional services would be billed separately as accounting or consulting services. You understand that services may be provided by a non-licensee owner of the firm. Payment for service is due when rendered and interim billings may be submitted as work progresses and expenses are incurred. We reserve the right to stop work on any account that is 60 days past due, in accordance with our firm's stated collection policy. You acknowledge and agree that we are not required to continue work in the event of failure to pay on a timely basis for services rendered as required by this engagement letter. We shall not be liable to you for any damages that occur as a result of our ceasing to render services. Any past due fee under this agreement shall bear late charges at the rate of 1.5 percent per month (18.00 annual percentage rate) on any unpaid balance. Attachment 1 C10 - 13 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 11 Any work performed during the audit will be billed at our standard hourly rates. These are currently as follows: Principals $ 325/hour Entry Level Professionals- 1st Yr $ 115/hour Senior Managers 275/hour Administrative Associates 90/hour Managers 250/hour Support Associates 80/hour Supervisors 190/hour Human Resources Consulting 250/hour Senior Professional Associates 165/hour Credit & Collection Services 250/hour Professional Associates 130/hour Litigation Testimony/Support 425/375/hour If any dispute arises among the parties, they agree to try first in good faith to settle the dispute by mediation administered by the American Arbitration Association (AAA) under its Rules for Professional Accounting and Related Services Disputes, before resorting to litigation or arbitration. The mediation shall take place in San Luis Obispo, California at a date and time mutually convenient to the parties. The cost of any mediation proceeding shall be shared equally by all parties. Evidence of anything said, any admission made, or any documents prepared in the course of the mediation shall not be admissible in evidence, or subject to discovery in any arbitration or court proceeding pursuant to California Evidence Code Section 1152.5. All unresolved disputes shall then be decided by final and binding arbitration in accordance with the Rules for Professional Accounting and Related Services Disputes of the AAA. The arbitration shall be held in San Luis Obispo, California unless otherwise agreed in writing between the parties. Fees charged by arbitrators or the AAA shall be shared equally by all parties. In agreeing to arbitration, we both acknowledge that in the event of a dispute over fees charged by the accountant, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury and instead we are accepting the use of arbitration for resolution. As your auditors, we are required to keep all information about our engagement confidential; so, we will not disclose any information about you unless we have your approval or are required/permitted by law. This applies even if you are no longer a client. As your auditors, we are committed to the safekeeping of your confidential information and we maintain physical, electronic, and procedural safeguards to protect your information. 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 2011 peer review report accompanies this letter. Attachment 1 C10 - 14 The Honorable City Council City of San Luis Obispo May 28, 2014 Page 12 Electronic Communication In the interest of facilitating our services to your company, we may communicate by facsimile transmission or send electronic mail over the Internet. Such communications may include information that is confidential to your company. Our firm employs measures in the use of facsimile machines and computer technology designed to maintain data security. While we will use reasonable efforts to keep such communications secure in accordance with our obligations under applicable laws and professional standards, you recognize and accept that we have no control over the unauthorized interception of these communications once they have been sent, and consent to our use of these electronic devices during this engagement. * * * * * * We appreciate the opportunity to be of service to City of San Luis Obispo 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 and return the original letter to us. A copy is enclosed for your files. Allen E. Eschenbach, CPA Principal for Glenn Burdette Attest Corporation RESPONSE: This letter correctly sets forth the understanding of City of San Luis Obispo. Officer signature: Title: Date: 6170.01 Attachment 1 C10 - 15 SYSTEM PEER REVIEW To the principals of Glenn, Burdette, Phillips & Bryson and the National Peer Review Committee We have reviewed the system of quality control for the accounting and auditing practice of Glenn, Burdette, Phillips & Bryson, (the firm) in effect for the year ended May 31, 2011. 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 Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of Glenn, Burdette, Phillips & Bryson, in effect for the year ended May 31, 2011, 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. Glenn, Burdette, Phillips & Bryson, has received a peer review rating of pass. LarsonAllen LLP September 30, 2011 Bellevue, Washington Attachment 1 C10 - 16 Exhibit B Attachment 1 C10 - 17 Attachment 2 C10 - 18 Attachment 2 C10 - 19 Page intentionally left blank. C10 - 20