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HomeMy WebLinkAbout08/19/2003, C10 - AUDIT SERVICES CONTRACT councit M=h° D' 8-19-03 j agen6a Report 1�N� t p CITY O F SAN LUIS O B I S P O FROM: Bill Statler, Director of Finance & Information Technology Carolyn Dominguez, Finance Manager SUBJECT: AUDIT SERVICES CONTRACT CAO RECOMMENDATION Renew the audit services contract with Glenn, Burdette, Phillips and Bryson (GBPB) for an additional two years and authorize the Mayor to execute the contract. DISCUSSION In April 2000, the Council extended the audit services contract with GBPB (a local CPA firm) for an additional three years. We recommend retaining GBPB for an additional two-year period for the following reasons: GASB Statement No.34 As the Council is aware, the Government Accounting Standards Board (GASB), which sets generally accepted accounting principles for state and local governments, issued Statement No. 34 which requires sweeping changes in financial reporting. As we prepare to implement these changes, it will be to our advantage to have an auditing firm already familiar with our policies, procedures and practices assist us with financial statement conversion under the new requirements. We are currently working with GBPB on converting the City's June 30, 2002 Comprehensive Annual Financial Report into a "GASB 34" format as a preliminary implementation procedure. In addition, Harris & Associates, the consultants retained by the City to assess our infrastructure inventory for GASB 34 reporting, has partnered with GBPB in producing the final infrastructure valuation report. We do not recommend changing auditors in the middle of these two key GASB 34 projects. Outstanding Professional Service We have been extremely pleased with the high quality of professional services provided by GBPB over the life of our previous contract. For this reason, we asked them to provide a fee proposal for an additional two years. CID -1 J � Audit Services Contract Page 2 FISCAL IMPACT The following summarizes the proposed fees for the 2002-03 and 2003-04 fiscal year audits: Actual Proposed Proposed 2001-02 2002-03 2003-04 City Financial Statements and Reports General Purpose Financial Statements $27,870 $28,000 $28,560 Gann Limitation Procedures Report 855 815 835 Investments Quarterly Compliance Testing and Committee 1,280 1,220 1,250 Meeting Presentations Single Audit Act Financial and Compliance Report 1 16,190 15,400 15,790 City Subtotal 469195 459435 469435 General Fund Annual Percentage Increase Decrease 1.6)% 2.2% Special Purpose Financial Statements and Reports Whale Rock Commission Annual Financial Statements 31755 3,800 3,875 Central Coast Cities Self Insurance Fund(CCCSIF) Annual 14,475 12,250 10,455 Financial Statements Transportation Development Act (TDA) Financial and 4,500 4,575 4,670 Compliance Report Examination Report for Federal Transit Administration 1,050 n/a n/a (FTA)Forms* Total Contract $699975 $65 25 $669835 *No longer required Because of audit efficiencies, GBPB has been able to reduce their fees for the first year in the General Fund and significantly reduce total fees for both years. The fee includes any additional time that may be required to include new GASB 34 auditing procedures. The quote for CCCSIF audit services does not reflect the impact of moving to CJPIA for liability insurance in 2003-04. Once the program is finalized and we have a better understanding of residual CCCSIF activities, we anticipate lower audit costs for that program. We believe the proposed fee increases are very reasonable. Adequate funds are available in the 2003-05 Financial Plan to support these costs. ALTERNATIVES Request for Proposals (RFP). We do not recommend initiating a formal RFP process at this time. As discussed above, we believe continuity is important for the next two years due to implementing the financial reporting required changes by GASB Statement No. 34, and the status of related projects in progress. Further, we are satisfied with the quality and timeliness of the professional services provided by GBPB, and they have proposed very competitive fees. We anticipate preparing an RFP for audit services for the 2004-05 fiscal year audit. ATTACHMENT Audit Services Agreement G:Audit Folders/Audit 2002-03/Award Audit Contract Agenda Report AGREEMENT THIS AGREEMENT is made and entered into in the City of San Luis Obispo on August 19, 2003, by and between the CITY OF SAN LUIS OBISPO, a municipal corporation, hereinafter referred to as City, and GLENN, BURDETTE,PHILLIPS & BRYSON, hereinafter referred to as Contractor. WITNESSETH: WHEREAS, the City wants to continue using the Contractor as its auditor for another two years based on the quality of their work and need for continuity due to changes in financial reporting standards; and WHEREAS, Contractor is qualified to perform this type of service and has submitted a proposal to do so which has been accepted by the City. NOW THEREFORE, in consideration of their mutual promises, obligations and covenants hereinafter contained, the parties hereto agree as follows: 1. TERM. The term of this Agreement shall be from the date this Agreement is made and entered, as first written above, until acceptance or completion of said services. 2. CITY'S OBLIGATIONS. For providing services as specified in this Agreement, City Will pay and Contractor shall receive therefore amounts provided in Exhibit A attached hereto and incorporated into this Agreement. 3. CONTRACTOR'S OBLIGATIONS. For and in consideration of the payments and agreements hereinbefore mentioned to be made and performed by City, Contractor agrees with City to provide services as described in Exhibit A. Contractor further agrees to the contract performance terms as set forth in Exhibit B attached hereto and incorporated into this Agreement.. 4. AMENDMENTS. Any amendment, modification or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by the City Administrative Officer of the City. 5. COMPLETE AGREEMENT. This written Agreement, including all writings specifically incorporated herein by reference, shall constitute the complete agreement between the parties 0-to -3 hereto. No oral agreement, understanding, or representation not reduced to writing and specifically incorporated herein shall be of any force or effect, nor shall any such oral agreement, understanding; or representation be binding upon the parties hereto. 6. NOTICE. All written notices to the parties hereto shall be sent by United States mail, postage prepaid by registered or certified mail addressed as follows: City City Clerk City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Contractor Glenn, Burdette, Phillips & Bryson 1150 Palm Street San Luis Obispo,CA 93401 7. AUTHORITY TO EXECUTE AGREEMENT. Both City and Contractor 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 the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO By: - City Clerk Mayor APPROVED AS TO FORM: CONTRACTOR By: CA AttaKey C�o � � Directors: Directors Emeritus: David A.Bryson,CPA Fred L.Glenn Gary A.Wintenneyer,CPA _ W&Bryson --' Stephen A.Burdette Bradford M.Hair,CPA David W Phillips,CPA Jeanne A.Potter,CPA Daniel J.O'Hare,CPA Glenn, Kathi Niffenegger,CPA Phillips Fred W.Bogart,CPA • A A Allen E.Eschenbach,CPA Exhibit Michael T.Glaudel,CPA CERTIFIED PUBLIC ACCOUNTANTS TAX AND BUSINESS ADVISORS June 30,2003 City of San Luis Obispo Attn: Bill Statler 990 Palm Street San Luis Obispo,California 93401=3249 Dear Bill: Thank you for the opportunity to submit a proposal to extend our audit contract for two additional years. We will strive to continue to provide quality services to the City of San Luis Obispo at a fair price. Our approach to auditing is management-oriented. We will concentrate on maintaining a close and constructive relationship with the City and on being continuously responsive to your needs while maintaining our independence. We are proud of the technical knowledge and attention to detail that have helped Glenn, Burdette, Phillips&Bryson to become the largest CPA firm on the Central Coast. Although you are familiar with our fine,we have included an updated profile later in this proposal. Our proposal to perform auditing and related services for the City of San Luis Obispo is.as follows: Audit Services We will audit the basic financial statements of the City of San Luis Obispo as of and for the years ended.June 30,2003 and 2004. We understand that the financial statements will be presented in accordance with the financial reporting model described in GASB Statement No. 34. We will be responsible for performing certain limited procedures, principally inquiries of management regarding the methods of measurement and presentation,involving the following required supplementary information(RSI)in the City's Comprehensive Annual Financial Report(CAFR)as required by the Governmental Accounting Standards Board(GASB)and mandated by generally accepted auditing standards: • Management's discussion and analysis. • Budgetary comparison schedules. The CAFR will also include the following additional information that will be subjected to the auditing procedures applied in our audit of the financial statements(in relation to report): • Schedule of expenditures of federal awards. C(0-S 530 10"Street 8375 Morro Road 1150 Palm Street 2222 S.Broadway,Suite B Paso Robles,CA 93446 Atascadem,.CA 93422 San Luis Obispo,CA 93401 Santa Maria,CA 93455 PH 805/237-3995•FAX 805/239-9332 PH 805/466-3008•FAX 805/466-2549 PH 805/544.1441 •FAX 805/544.4351 PH 805/349-0585•FAX 805/349-9795 City of San Luis Obispo June 30,2003 Page 2 The CAFR will also include the following information that will not be subjected to the auditing procedures applied in our audit of the financial statements,and for which our auditors' report will disclaim an opinion: • Statistical information. The CAFR will also include other supplementary information,such as the City's letter of transmittal,which will be subject to certain limited procedures as mandated by generally accepted auditing standards. We will audit the City's Transit Fund and Transportation Development Act Fund as of and for the years ended June 30, 2003 and 2004 and provide a report on the fair presentation of each fund's financial statements in conformity with generally accepted accounting principles. Additionally,we will provide a report on each of the fund's compliance with the applicable laws, rules and regulations of the Transportation Development Act and the allocation instructions of the San Luis Obispo Council of Governments. We will audit the Central Coast Cities Self-Insurance Fund, a joint venture,as of and for the years ended June 30,2003 and 2004 and provide a report on the fair presentation of the fund's combined financial statements in conformity with generally accepted accounting principles. The combining financial statements will be subjected to the auditing procedures applied in our audit of the combined financial statements. We will audit the Whale Rock Commission,a joint venture,as of and for the years ended June 30, 2003 and 2004 and provide a report on the fair presentation of the Commission's financial statements in conformity with generally accepted accounting principles. We will perform agreed-upon-procedures for the Gann limitation verification as of and for the years ended June 30, 2003 and 2004. The procedures are those specified by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines, performed solely to assist you in meeting the requirements of Section 1.5 of Article XM of the California Constitution. We will review the City's compliance with its investment polices and procedures on a quarterly basis and attend a quarterly meeting of the investment oversight committee in order to report the results and make recommendations related to the City's compliance and controls over investments. GASB Statement No. 34 Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments; Statement No.37,Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus; and Interpretation No. 6,Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements will be effective for the City for the year ended June 30, 2003. These statements require fundamental changes in the accounting and financial reporting for cities. We have not included any services related to transition and implementation in this proposal. alo-6 City of San Luis Obispo June 30,2003 Page 3 Audit Objectives The objective of our audit is the expression of an opinion 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 additional information referred to in the first section when considered in relation to the basic financial statements taken as a whole. The objective also includes reporting 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 in accordance with Government Auditing Standards. • 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 reports on internal control and compliance will each include a statement that the report is intended for the information and use of the management and City Council of the City of San Luis Obispo, specific legislative or regulatory bodies,federal awarding agencies,and if applicable,pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Our audits will be conducted in accordance with U.S. generally accepted auditing standards;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;the provisions of OMB Circular A-133 and the applicable laws;rules and regulations of the Transportation Development Act,and will include tests of accounting records,a determination of major program(s) in accordance with Circular A-133,and other procedures we consider necessary to enable us to express such an opinion and to render the required reports. If our opinion on the basic financial statements or the Single Audit compliance opinion is other than unqualified;we will fully discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form an opinion,we may decline to express an opinion or to issue a report as a result of this engagement. Our application of agreed-upon procedures to the Gann limitation will be performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified user(s)of the report. Consequently,we make no representation regarding the sufficiency of the procedures described above either for the purpose for which this report has been requested or for any other purpose. If,for any.reason,we are unable to complete the agreed-upon procedures,we will not issue a report as a result of this engagement. City of San Luis Obispo June 30, 2003 Page 4 Management Responsibilities Management is responsible for establishing and maintaining internal control and for compliance with the provisions of contracts,agreements,and grants. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of the controls. The objectives of internal control are to provide management with reasonable, but not absolute,assurance that assets are safeguarded against loss from unauthorized use or disposition,that transactions are executed in accordance with management's authorizations and recorded properly to permit the preparation of basic financial statements in accordance with generally accepted accounting principles,and that federal award programs are managed in compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is responsible for making all financial records and related information available to us. We understand that you will provide us with such information required for our audit and that you are responsible for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation of your financial statements, including the schedule of expenditures of federal awards, but the responsibility for the financial statements remains with you. That responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting and compliance, the selection and application of accounting principles, and the safeguarding of assets. Management is responsible for 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 engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate,to the financial statements taken as a whole. With regard to using the auditors' report,you understand that you must obtain our prior written consent to reproduce or use our report in bond offering official statements or other documents. With regard to the electronic dissemination of audited financial statements, including financial statements published electronically on your Internet web site,you understand that electronic sites are a means to distribute information and,therefore,we are not required to read the information contained in these sites or to consider the consistency of other information in the electronic site with the original document. Additionally,as required by OMB Circular A433, 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 at the beginning of interim fieldwork each year. Audit Procedures-General An audit includes examining, on a test basis evidence supporting the amount and disclosures in the financial statements;therefore, our audits will involve judgment about the number of transactions to be examined and the areas to be tested. We will plan and perform the audits to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement,whether from errors,fraudulent financial reporting, misappropriation of assets,or violations of laws or governmental regulations that are attributable to the City or to acts by management or employees acting on behalf of the City. As required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, our audits will include test 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 a material misstatements or noncompliance may exist and not be bo-4 City of San Luis Obispo June 30,2003 Page 5 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 basic financial statements or to major programs. However,we will inform the City Administrative Officer,the Director of Finance and the City Attorney in writing 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. Our responsibility as auditors is limited to the period covered by our audits and does not extend to matters that might arise during 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 includes tests of the physical existence of inventories,and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, creditors, and financial institutions. We will request written representations from your attomeys as part of the engagements,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 the financial statements and related matters. Audit Procedures-Internal Controls In planning and performing our audits,we will consider the internal control sufficient to plan the audits in order to determine the nature,timing,and extent of our auditing procedures for the purpose of expressing our opinions on the City's basic financial statements and on its compliance with requirements applicable to major programs. We will obtain an understanding the design of the relevant controls and whether they have been placed in operation, and we will assess control risk. 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 basic financial statements. Tests of controls relative to the financial statements are required only if control risk is assessed below the maximum level. Our tests, if performed,will be less in scope that 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 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 that 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. An audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the City Council of any matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment;could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. alp- � City of San Luis Obispo June 30, 2003 Page 6 We will also inform you of any nonreportable conditions or other matters involving internal control, if any, as required by OMB Circular A-133. Audit Procedures-Compliance Our audits will be conducted in accordance with the standards referred to in the section titled Audit Objectives. As part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we will perform tests of the City's compliance with applicable laws and regulations and the provisions of 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 applicablelaws 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 City's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. Reporting At the conclusion of our audits and other services,we will provide the following reports to the City of San Luis Obispo: One copy of each report identified above relating to the City's CAFR and Single Audit. We understand that the preparation and printing of the CAFR, including the Single Audit section,will be the responsibility of the City. We will be responsible for reviewing,as well as editing and proofing the final draft. We propose to provide these reports by November 15,each year in order to allow the City to submit for the GFOA and CSMFO award programs. We acknowledge that the City intends to publish the CAFR including our reports on the City's web site. Once the CAFR has been proofed and issued,we will provide our reports in electronic format suitable for display on the City's web site. One copy of the audit opinion for the Whale Rock Commission. We understand that the preparation and printing of the financial statements will be the responsibility of the City. We will be responsible for reviewing, as well as editing and proofing the final draft. We propose to provide these reports by November 30, each year. Fifteen copies of the audit opinion,financial statements and compliance reports of the Transportation Development Act Funds. We understand that we will be responsible for the preparation and printing of the financial statements. We propose to provide these reports by November 30, each year. 0117 . 10 l City of San Luis Obispo June 30, 2003 Page 7 Twenty-five copies of the audit opinion,financial statements and supplemental schedules of the Central Coast Cities Self-Insurance Fund. We understand that we will be responsible for the preparation and printing of the financial statements. We propose to provide these reports by November 30,each year. Five copies of the agreed-upon procedures report for the Gann appropriations limit calculation. We propose to provide these reports by November 30,each year. One copy of the letter to management on the adequacy of internal controls and recommendations for improvement. We propose to provide this letter by November 30,each year. Audit Administration and Other We understand that your employees will prepare all cash, accounts receivable, or other confirmations we request and will locate any invoices selected by us for testing. At the conclusion of the engagement,we will complete the appropriate sections of and sign the Data Collection Form that summarizes our audit findings. We will provide copies of our reports to the City as described above;however, 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 a corrective action plan) along with the Data Collection Form to the designated federal clearinghouse and, if appropriate,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 auditors'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. At the conclusion of the engagements,we will provide information to management as to where the reporting packages should be submitted and the number to submit. The workpapers for this engagement are the property of Glenn, Burdette,Phillips&Bryson,CPAs and constitute confidential information. However,we may be required to make certain workpapers available to the City's Cognizant or Oversight Agency pursuant to authority given to it by law or regulation. If requested,access to such workpapers will be provided under the supervision of Glenn, Burdette,Phillips&Bryson's personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to the Cognizant or Oversight Agency. The Cognizant or Oversight Agency may intend, or decide to distribute the photocopies of information contained therein to others, including other governmental agencies. The workpapers for this engagement will be retained fora minimum of three years after the date the auditors' report is issued or for any additional period requested by the Cognizant or Oversight Agency for Audit. If we are aware that a federal awarding agency, pass-through entity,orauditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying workpapers. Government Auditing Standards require that we provide you with a copy of our most recent quality control review report. Our 2002 peer review report accompanies this letter. CSD-i ( City of San Luis Obispo June 30, 2003 Page 8 Profile of Glenn,Burdette,Phillips& Bryson Glenn, Burdette, Phillips&Bryson, Certified Public Accountants, is a professional corporation located in San Luis Obispo,Paso Robles,Atascadero and Santa Maria. We have 26 CPAs and 28 other employees making us the largest firm in San Luis Obispo County. Fred L. Glenn established the firm in 1965. We have tailored our firm to meet the needs of local businesses,nonprofit organizations and governmental agencies that make up the economic climate of San Luis Obispo and northern Santa Barbara Counties. We feel our approach has been successful as evidenced by our continued growth. We have three audit shareholders, an audit manager,and two audit seniors who are Certified Public Accountants and who primarily perform audit services. We also have 20 other CPAs and 7 CPA candidates who perform audit:as well as tax.services during the year. Biographies of any associates expected to perform significant services to the City will be provided in the year he or she is first assigned to the City's engagement. All the work will be performed from our San Luis Obispo office. The firm has the largest tax department in San Luis Obispo County. We are heavily involved in all phases of tax planning,preparation and consulting. We can assist you with any tax related questions including payroll taxes and employee benefit plans. We also provide management advisory services related to information systems and maintain a client accounting services department. We are available to present educational seminars and employee training programs throughout the year. We have consistently received the highest achievable designation on the quality of our audits. Every federal and state desk review of our audits has indicated that the reports meet the requirements of OMB Circular A-133 and/or the reporting standards contained in the State Controller's audit guide,as applicable. Additionally,we were randomly selected during 1990 by the State Controller Division of Audits to have a thorough study of our audit procedures and work practices for audits conducted in accordance with the Single Audit Act. Based on their quality control review, the Division concluded that our firm had no areas that were deficient. We were one of the few firms in the state found to fully comply with these standards based on the quality reviews performed that year. The firm and any of its employees have never had a record of sub-standard work,or unsatisfactory performance pending with the State Board of Accountancy. There have been no disciplinary actions taken or pending against the firm with state regulatory bodies or professional organizations. City of San Luis Obispo June 30, 2003 Page 9 To assure the quality of all associates over the term of the contract,all our CPAs and professional associates conducting governmental audits are required to take at least 80 hours of continuing professional education(CPE) classes each two years with at least 24 of those hours in CPE directly related to the government environment and government auditing as required by Government Auditing Standards. We are members of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants,the Government Finance Officers Association,the California Society of Municipal Finance Officers,and the California Association of School Business Officials. We subscribe to all current pronouncements of the Financial Accounting Standards Board and the Governmental Accounting Standards Board. As such,we have access to the AICPA technical hotline, and GASB and FASB technical staff when questions arise related to accounting or disclosure during the course of an audit. Fees We have attached a schedule of fees for the services described above which are based on our standard hourly rates. As our commitment to providing competitive pricing to the City, we have discounted the fees by approximately 12%. Any work performed during the year in addition to the services described above will be billed at our standard hourly rates. These are currently as follows: Directors $190-300/hour Hardware Consulting $105/hour Senior Managers 165 - 190/hour Human Resource Consulting 105/hour Managers 145/hour Professional Associates 75 to 95/hour Supervising Seniors 130/hour Paraprofessional Associates 65/hour Senior Professional Associates 115/hour Administrative Associates 60/hour Network/Computer/SystemsConsulting 105/hour Support Associates 45/hour The highest rates for directors and managers are for specialized services such as litigation support, expert witness testimony, estates and trusts, or mergers and acquisitions and would not necessarily relate to services provided to you. Our invoices for these fees will be rendered each month as work progresses and are payable upon presentation. Any past due fee under this agreement shall bear interest at the rate of 1.5 percent per month(18.00 annual percentage rate) on any unpaid balance. In accordance with firm policies,work may be suspended if your account becomes 90 days_ or more overdue and will not be resumed until your account is paid in full. In the event of a dispute over fees for our engagement, we mutually agree to try in good faith to resolve the dispute through mediation by selecting a third party to help us reach an agreement. If we are unable to resolve the fee dispute through mediation,client and accountant agree to submit to a resolution by arbitration in accordance with the rules of the American Arbitration Association. Such arbitration shall be binding and final. In agreeing to arbitration,we both acknowledge that in the event of a dispute over fees,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. City of San Luis Obispo June 30,2003 Page 10 Summary We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the significant terms of our proposed engagement. If you have any questions,please let us know. If you agree with the terms of our proposal as described in this letter, please sign the original proposal in the space provided and return to us in the enclosed envelope. A copy is enclosed for your file. We will execute a written contract in the form adopted by the City,once the proposal has been signed. As a local CPA firm,we sincerely appreciate the opportunity to submit this proposal. There are no out-of-town living expenses in the fees and since San Luis Obispo County residents perform the audits,the audit fees result in dollars staying in our community. Sincerely, Kathi Niffenegger,CPA for Glenn,Burdette,Phillips&Bryson Certified Public Accountants A Professional Corporation Attachments RESPONSE: Signature and Title Date l j CITY OF SAN LUIS OBISPO PROPOSAL FOR AUDIT SERVICES Year ended Year ended June 30,2003 June 30, 2004 Financial Statements Basic financial statements and CAFR $ 28,000 , $ 28,560 Central Coast Cities Insurance JPA 10,250 10,455 Whale Rock Commission 3,800 3,875 Financial and Compliance Reports Transportation Development Act 4,575 4,670 Single Audit Act 16,425, 16,750 Other Reports and Services Agreed Upon Procedures Report Gann Limitation 875 890 Quarterly compliance testing and meeting with Investment.Committee 1,600, 1,635 Total $ 65,525 $ 66,835 Increase from prior year fees 1:5% 2.0% Except for CCCSIF decrease from Prior year contract amount -29% I SPOKANE QUINCY COLFAX TRI-CITIES GRANDVIEW YAKI\IA MOSES LAKE WALLA WALLA O.IAK WENATCHEE OTHELLO LE MASTER& DANIELS PLLc ACCOUNTING To the Shareholders AND Glenn,Burdette,Phillips&Bryson and the SEC Practice Section Peer Review Committee CONSUMING We have reviewed the system of quality control for the accounting and auditing practice of SERVICES Glenn,Burdette,Phillips&Bryson(the Finn) in effect for the year ended May 31,2002. A system of quality control encompasses the Firm's organizational structure and the policies adopted and procedures established to provide it with reasonable assurance of complying with professional standards. The elements of quality control are described in the Statements on MEMBER OF Quality Control Standards issued by the American Institute of Certified Public Accountants(the AICPA). The design of the system,and compliance with it,are the responsibilities of the Firm. MCGREY In addition,the Firm has agreed to comply with the membership requirements of the SEC �D Practice Section of the AICPA Division for CPA Firms(the Section). Our responsibility is to express an opinion on the design of the system,and the Firm's compliance with that system and NETWORK the Section's membership requirements based on our review. Our review was conducted in accordance with standards established by the Peer Review Committee of the Section and included procedures to plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessarily disclose all weaknesses.in the system of quality control or all instances of lack of compliance with it or with the membership requirements of the Section since it was based on selective tests. Because there are inherent limitations in the effectiveness of any system of quality control,departures from the system may occur and not be detected. Also,projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate. 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 31,2002;has been designed to meet 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 complying with professional standards. Also, in our opinion,the Firm complied during that year with the membership requirements of the Section in all material respects. As is customary in a peer review,we have issued a letter under this date that sets forth comments relating to certain policies and procedures or compliance with them. The matters described in the letter were not considered to be of sufficient significance to affect the opinion expressed in this report. Yakima,Washington November 8,2002 NAMED 2001 FIRM OF THE YEAR BY THE WASHINGTON SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS Contract Performance Terms Exhibit B 1. Business Tax. Contractor must have a valid City of San Luis Obispo business tax certificate prior to execution of the contract. Additional information regarding the City's business tax program may be obtained by calling (805) 781-7134. 2. Ability to Perform. Contractor warrants that it possesses, or has arranged through subcontracts, all capital and other equipment, labor, materials, and licenses necessary to carry out and complete the work hereunder in compliance with any and all federal, state, county, city, and special district laws, ordinances, and regulations. 3. Laws to be Observed. Contractor shall keep itself fully informed of and shall observe and comply with all applicable state and federal laws and county and City of San Luis Obispo ordinances, regulations and adopted codes during its performance of the work. 4. Payment of Taxes. The contract prices shall include full compensation for all taxes that Contractor is required to pay. 5. Permits and Licenses. Contractor shall procure all permits and licenses, pay all charges and fees, and give all notices necessary. 6. Safety Provisions. Contractor shall conform to the rules and regulations pertaining to safety established by OSHA and the California Division of Industrial Safety. 7. Public and Employee Safety. Whenever Contractor's operations create a condition hazardous to the public or City employees, it shall, at its expense and without cost to the City, furnish, erect and maintain such fences, temporary railings, barricades, lights, signs and other devices and take such other protective measures as are necessary to prevent accidents or damage or injury to the public and employees. 8. Preservation of City .:Property. Contractor shall provide and install suitable safeguards, approved by the City, to protect City property from injury or damage. If City property is injured or damaged as a result of Contractors operations, it shall be replaced or restored at Contractor's expense. The facilities shall be replaced or restored to a condition as good as when the Contractor began work. 9. Immigration Act of 1986. Contractor warrants on behalf of itself and all sub-contractors engaged for the performance of this work that only persons authorized to work in the United States pursuant to the Immigration Reform and Control Act of 1986 and other applicable laws shall be employed in the performance of the work hereunder. 10. Contractor Non-Discrimination. In the performance of this work, Contractor agrees that it will not engage in, nor permit such sub-contractors as it may employ, to engage in discrimination in employment of persons because of age, race, color, sex, national origin or ancestry, sexual orientation,or religion of such persons. 11. Work Delays. Should Contractor be obstructed or delayed in the work required to be done hereunder by changes in the work or by any default, act, or omission of the City, or by strikes, fire, earthquake, or any other Act of God, or by the inability to obtain materials, equipment, or labor due to federal government restrictions arising out of defense or war programs, then the time of completion may, at the City's sole option, be extended for such periods as may be agreed upon by the City and the Contractor. B-1 Contract Performance Terms Exhibit B 12. Payment Terms. The City's payment terms are 30 days from the receipt of an original invoice and acceptance by the City of the services provided by Contractor(Net 30). 13. Inspection. Contractor shall furnish City with every reasonable opportunity for City to ascertain that the services of Contractor are being performed in accordance with the requirements and intentions of this contract. All work done and all materials furnished, if any, shall be subject to the City's inspection and approval. The inspection of such work shall not relieve Contractor of any of its obligations to fulfill its contract requirements. 14. Audit. The City shall have the option of inspecting and/or auditing all records and other written materials used by Contractor in preparing its invoices to City as a condition precedent to any payment to Contractor. 15. Interests of Contractor. Contractor covenants that it presently has no interest, and shall not acquire any interest direct or indirect or otherwise, which would conflict in any manner or degree with the performance of the work hereunder. Contractor further covenants that, in the performance of this work, no sub-contractor or person having such an interest shall be employed. Contractor certifies that no one who has or will have any financial interest in performing this work is an officer or employee of the City. It is hereby expressly agreed that, in the performance of the work hereunder, Contractor shall at all times be deemed an independent contractor and not an agent or employee of the City. 16. Hold Harmless and Indemnification. Contractor agrees to defend, indemnify, protect and hold the City and its agents, officers and employees harmless from and against any and all claims asserted or liability established for damages or injuries to any person or property; including injury to Contractor's employees, agents or officers which arise from or are connected with or are caused or claimed to be caused by the acts or omissions of Contractor, and its agents, officers or employees, in performing the work or services herein, and all expenses of investigating and defending against same, provided, however, that Contractor's duty to indemnify and hold harmless shall not include any claims or liability arising from the established sole negligence or willful misconduct of the City, its agents, officers or employees. 17. Year 2000 Compliance. The Contractor warrants that the goods or services provided to the City, including those provided through subcontractors, are "Year 2000 compliant." For the purpose of this contract, "Year 2000 compliant" means that goods or services provided to the City will continue to fully function, fault-free, before, at and after the Year 2000, without interruption or human intervention; and if applicable, any data outside of the date range 1990-1999, including leap years, will be correctly processed in any level of computer hardware or software, including, but not limited to, microcode, firmware, application programs, files and data bases. This warranty supersedes all warranty disclaimers or limitations, and all limitations on liability, otherwise provided by the Contractor. Upon request by the City, the Contractor will provide the City with a description of its Year 2000 compliance strategy, or statement of why this is not relevant to contract performance. 18. Contract Assignment. Contractor shall not assign, transfer, convey or otherwise dispose of the contract, or its right, title or interest, or its power to execute such a contract to any individual or business entity of any kind without the previous written consent of the City. B-2 Contract Performance Terms Exhibit B 19. Termination. If, during the term of the contract, the City determines that Contractor is not faithfully abiding by any term or condition contained herein, the City may notify Contractor in writing of such defect or failure to perforin; which notice must give Contractor a 10 (ten) calendar day notice of time thereafter in which to perform said work or cure the deficiency. If Contractor has not performed the work or cured the deficiency within the ten days specified in the notice, such shall constitute a breach of the contract and the City may terminate the contract immediately by written notice to Contractor to said effect. Thereafter, neither party shall have any further duties,obligations,responsibilities or rights under the contract. In said event, Contractor shall be entitled to the reasonable value of its.services performed from the beginning date in which the breach occurs up to the day it received the City's Notice of Termination, minus any offset from such payment representing the City's damages from such breach. "Reasonable value" includes fees or charges for goods or services as of the last milestone or task satisfactorily delivered or completed by Contractor as may be set forth in the Agreement payment schedule; compensation for any other work, services or goods performed or provided by Contractor shall be based solely on the City's assessment of the value of the work-in-progress in completing the overall workscope. The City reserves the right to delay any such payment until completion or confirmed abandonment of the project, as may be determined in the City's sole discretion, so as to permit a full and complete accounting of costs. In no event, however, shall Contractor be entitled to receive in excess of the compensation quoted in its proposal. 20. Ownership of Materials. All original drawings, plan documents and other materials prepared by or in possession of Contractor as part of the work or services under these specifications shall become the permanent property of the City, and shall be delivered to the City upon demand. 21. Release of Reports.and Information. Any reports, information, data, or other material given to, prepared by or assembled by Contractor as part of the work or services under these specifications shall be the property of City, and shall. not be made available to any individual or organization by Contractor without the prior written approval of the City. 22. Copies of Reports and Information. If the City requests additional copies of reports, drawings, specifications, or any other material in addition to what Contractor is required to furnish in limited quantities as part of the work or services under these specifications, Contractor shall provide such additional copies as are requested, and City shall compensate Contractor for the costs of duplicating of such copies at the Contractor's direct expense. 23. Required Deliverable Products. Contractor will provide: a. When requested, up to twenty-five copies of the final report that addresses all elements of the workscope. Any documents or materials provided by Contractor will be reviewed by City staff and, where necessary, Contractor will respond to staff comments and make such changes as deemed appropriate. b. One camera-ready original, unbound, each page printed on only one side, including any original graphics in place and scaled to size, ready for reproduction. B-3 Contract Performance Terms Exhibit B C. When computers have been used to produce materials submitted to the City as a part of the workscope, Contractor must provide the corresponding computer files to the City, compatible with the following programs whenever possible: • Word Processing Word • Spreadsheets Excel • Desktop Publishing Coreldraw, Pagemaker • Computer Aided Drafting (CAD) AutoCad Files should generally be provided electronically via email; or provided on CD or 31/2", high-density, write-protected diskettes, formatted for use on IBM-compatible systems. Each diskette must be clearly labeled and have a printed copy of the directory. 24. Attendance at Meetings and Hearings. As part of the workscope and included in the contract price is attendance by the Contractor at up to three public meetings to present and discuss its findings and recommendations. Contractor shall attend as many "working" meetings with staff as necessary in performing workscope tasks. 25. Insurance. Contractor shall procure and maintain for the duration of the contract insurance against claims for injuries to persons or damages to property that may arise from or in connection with the performance of the work hereunder by Contractor, its agents, representatives, employees or sub-contractors. a. Minimum scope of insurance. Coverage shall be at least as broad as: • Insurance Services Office Commercial General Liability coverage (occurrence form CG 0001). • Insurance Services Office form number CA 0001 (Ed. 1/87) covering Automobile Liability, code 1 (any auto). • Workers' Compensation insurance as required by the State of California and Employer's Liability Insurance. • Errors and Omissions Liability insurance as appropriate to Contractor's profession. b. Minimum limits of insurance. Contractor shall maintain limits no less than: • General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. • Automobile Liability: $1,000,000 per accident for bodily injury and property damage. •. Employer's Liability: $1,000,000 per accident for bodily injury or disease. • Errors and Omissions Liability: $1,000,000 per occurrence. C. Deductibles and self-insured retentions. Any deductibles or self-insured retentions must be declared to and approved by the City. At the option of the City, either: the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, B-4 CId,� Contract Performance Terms Exhibit B its officers, officials, employees and volunteers; or Contractor shall procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses. d. Other insurance provisions. The general liability and automobile liability policies are to contain,or be endorsed to contain, the following provisions: • The City, its officers, officials, employees, agents and volunteers are to be covered as insureds as respects: liability arising out of activities performed by or on behalf of Contractor; products and completed operations of Contractor; premises owned, occupied or used by Contractor; or automobiles owned, leased, hired or borrowed by Contractor. The coverage shall contain no special limitations on the scope of protection afforded to the City, its officers, official, employees, agents or volunteers. • For any claims related to this project, Contractor's insurance coverage shall be primary insurance as respects the City, its officers, officials, employees, agents and volunteers. Any insurance or self-insurance maintained by the City, its officers, officials, employees, agents or volunteers shall be excess of Contractor's insurance and shall not contribute with it. • Any failure to comply with reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the City, its officers, officials, employees, agents or volunteers. • Contractor's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. • Each insurance policy required by this clause shall be endorsed to state that coverage shall not be suspended, voided, canceled by either party, reduced in coverage or in limits except after thirty (30) days'prior written notice by certified mail,return receipt requested, has been given to the City. e. Acceptability of insurers. Insurance is to be placed with insurers with a current A.M. Best's rating of no less than ANTI. f. Verification of coverage. Contractor shall furnish the City with a certificate of insurance showing maintenance of the required insurance coverage. Original endorsements effecting general liability and automobile liability coverage required by this clause must also be provided. The endorsements are to be signed by a person authorized by that insurer to bind coverage on its behalf. All endorsements are to be received and approved by the City before work commences. B-5 CI0 .