HomeMy WebLinkAbout25I - COMPREHENSIVE FINANCIAL AUDIT SERVICES REQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE: CLERK OF COUNCIL USE ONLY:
MARCH 1, 2010
TITLE: APPROVED
? As Recommended
AMEND AGREEMENT WITH MACIAS GINI & ? As Amended
O'CONNELL LLT FOR COMPREHENSIVE ? Ordinance on 1~dReading
? Ordinance on 2 Reading
FINANCIAL AUDIT SERVICES ? Implementing Resolution
? Set Public Hearing For
~ CONTINUED TO
~ ~-t.~--~- FILE NUMBER _
CITY MANAGER
RECOMMENDED ACTION
Authorize the City Manager and Clerk of the Council to execute the attached agreement with
Macias Gini & O'Connell, LLP, subject to non-substantive changes approved by the City Manager
and City Attorney, to provide for comprehensive financial audit services, in an amount not to
exceed $355,800.
DISCUSSION
On May 1, 2006 the City Council awarded a contract to Macias Gini & O'Connell, LLP for
comprehensive financial audit services for afour-year period covering fiscal years 2005-06 thru
2008-09 inclusive. The contract was amended on June 2, 2008 for additional services to
implement the new auditing standards (Statement of Auditing Standards Nos. 104-111, 114) and
to assist City staff in the completion of the annual financial statements during the implementation
of the financial system.
In order to provide continuity in the area of comprehensive financial audit services and given the
fact that the Macias Gini & O'Connell audit staff has established a track record of working
professionally and successfully with the City's finance staff on financial matters, current GASB
statements and other internal control and compliance related matters, staff is recommending
extending their audit services for atwo-year period covering fiscal years 2009-10 thru 2010-11
inclusive. Upon conclusion of the extension, a new bid for audit services will be conducted.
Macias Gini & O'Connell, LLP continues to provide staff with extensive experience in
governmental auditing, accounting, and financial reporting. No problems or irregularities have
developed during their engagement with the City, and their work has always been professionally
competent.
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Amend Agreement with Macias Gini &
O'Connell LLP For Comprehensive
Financial Audit Services
March 1, 2010
Page 2
FISCAL IMPACT
Funds for these services will be included in the proposed fiscal year 2010-11 budget within the
Accounting Division Contract Services-Professional account (account no. 01110110-62300) to
cover the audit cost related to the City's General Fund, with additional funds in the
Redevelopment Agency, CDBG, Housing Authority and the Workforce Investment programs for
their respective costs. Additional funds will be budgeted to cover the audit fee in the subsequent
fiscal year.
Francisco Gutierrez ~
Executive Director
Finance and Management Services Agency
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THIRD AMENDMENT TO
AUDITING SERVICES AGREEMENT
THIS THIRD AMENDMENT TO AUDITING SERVICES AGREEMENT is
entered into on March 1, 2010, by and between MACIAS GINI & O'CONNELL, LLP, a
California limited liability partnership ("Consultant") and the CITY OF SANTA ANA, a
charter city and municipal corporation of the State of California ("City").
RECITALS:
A. The City and Moreland and Associates entered into Consultant Agreement A-2006-
108, dated May 5, 2006, (hereinafter "said Agreement") by which Consultant has
provided comprehensive financial audit services.
B. By written Assignment N-2008-052, dated April 11, 2008, Moreland and Associates
assigned its rights and obligations in said Agreement A-2006-108 to Macias Gini &
O'Connell, LLP.
C. In accordance with the terms and conditions of said Agreement, the parties wish to
amend the Scope of Services, extend the term and increase the compensation to pay
for the additional services during the extended term of said Agreement.
WHEREFORE, in consideration of the covenants contained in said Agreement, and
subject to all the terms and conditions of said Agreement, except those amended in this
Third Amendment to Auditing Services Agreement, the parties agree as follows:
1. Section 1, SCOPE OF SERVICES, shall be amended to provide that Consultant shall
for the fiscal year ended June 30 2010, and for the fiscal year ended June 30, 2011,
audit and issue an opinion of the financial statements of all fund types and account
groups of the City of Santa Ana and the Community Redevelopment Agency of the City
of Santa Ana, as set forth in Consultant's Proposal dated January 26, 2010, attached as
Exhibit A-2 to this Third Amendment to Agreement and incorporated by reference.
2. Section 2.a. COMPENSATION, shall be amended to provide that in addition to the
payments already authorized, Consultant will accept as total payment for its annual
auditing services, the following annual fees:
• Fiscal year ending June 30, 2010 $175,400
• Fiscal year ending June 30, 2011 $180,400
3. Section 3, TERM, shall be amended to extend the term for two consecutive one-year
terms, commencing with the fiscal year ending June 30, 2010. The City shall retain
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an option to extend the term for an additional one-year period at the discretion of the
Executive Director of Finance and Management Services.
4. Except as amended hereinabove, all terms and conditions of said Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to
Auditing Services Agreement on the date and year first written above.
CITY OF SANTA ANA
ATTEST:
MARIA D. HUIZAR DAVID N. REAM
Clerk of the Council City Manager
APPROVED AS TO FORM:
JOSEPH W.FLETCHER
City Attorney
By:
Laura Sheedy
Assistant City Attorney MACIAS GINI & O'CONNELL, LLP
KEVIN J. O'CONNELL
Managing Partner
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EXHIBIT A-2
CONSULTANT PROPOSAL
January 26, 2010
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NEWPORT BEACH
•
1201 Dove Street, Suite 680
• Newport Beach, CA 92660
949.221.0025
MAC IAS G I N I bt OICON N ELL LLP SACRAMENTO
Certified Public Accountants & Management Consultants OAKLAND
WALNUT CREEK
LOS ANGELES
SAN MARCOS
SAN DIEGO
January 26, 2010
Mr. Francisco Gutierrez
Executive Director of Finance and Management
20 Civic Center Plaza
Santa Ana, CA 92701
We are pleased to confirm our understanding of the services we are to provide City of Santa Ana for the
three years ended June 30, 2012. We will audit the financial statements of the governmental activities, the
business-type activities, each major fund, and the aggregate remaining fund information, which collectively
comprise the basic financial statements, of the City of Santa Ana (City) and the Community Redevelopment
Agency of City of Santa Ana (Agency) as of and for the three years ended June 30, 2012. Accounting
standards generally accepted in the United States provide for certain Required Supplementary Information
(RSI), such as Management's Discussion and Analysis (MD&A), to accompany the basic financial
statements. As part of our engagement, we will apply certain limited procedures to RSI. These limited
procedures will consist principally of inquiries of management regarding the methods of measurement and
presentation, which management is responsible for affirming to us in its representation letter. Unless we
encounter problems with the presentation of the RSI or with procedures relating to it, we will disclaim an
opinion on it. The following RSI is required by generally accepted accounting principles and will be
subjected to certain limited procedures, but will not be audited:
1) Management's Discussion and Analysis
2) Budgetary comparison schedule for the general fund and major special revenue funds
3) GASB-required supplementary pension and OPEB information
Supplementary information other than RSI also accompanies the basic financial statements. We will subject
the following supplementary information to the auditing procedures applied in our audits of the basic
financial statements and will provide an opinion on it in relation to the basic financial statements:
1) Individual and combining fund financial statements and schedules
2) Schedule of expenditures of federal awards (normally in a separate report)
In addition to our audits of the basic financial statements of the City, we will also perform the following:
1) Financial and compliance audits of the Redevelopment Agency of the City of Santa Ana
2) Financial and compliance audits of the Air Quality Management District Special Revenue Fund
3) Annual on-line attestation of the Financial Data Schedule for the Santa Ana Housing Authority
4) Financial and compliance audits in Accordance with OMB A-133 (Single Audit)
5) An annual agreed upon procedures review of City's Investment Policy and provide a report on
compliance with State and Federal laws
1
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- ~ Mr. Francisco Gutierrez
Executive Director of Finance and Management
City of Santa Ana
January 26, 2010
Page 2
6) Preparation of State Controller's reports for the City and Redevelopment Agency
7) Agreed upon procedures to review compliance with appropriations limit requirements of Section 1.5
Article XIIIB of the California Constitution
Audit Objectives
The objective of our audits 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 additional information referred to in the first paragraph 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 solely
for the information and use of management, the body or individuals charged with governance, others within
the entity 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 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 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 and to render the required reports. If our opinions on the financial statements or the Single
Audit compliance opinions are other than unqualified, we will fully discuss the reasons with you in advance.
If, for any reason, we are unable to complete the audits or are unable to form or have not formed opinions,
we may decline to express opinions or to issue a report as a result of this engagement.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information as well as all
representations contained therein. Management is also responsible for preparation of the schedule of
expenditures of federal awards in accordance with the requirements of OMB Circular A-133. You are
responsible for making all management decisions and performing all management functions relating to the
financial statements, schedule of expenditures of federal awards, and related notes and for accepting full
responsibility for such decisions. Further, you are required to designate an individual with suitable skill,
knowledge, or experience to oversee any non-audit services we provide and for evaluating the adequacy and
results of those services and accepting responsibility for them.
251-7
Mr. Francisco Gutierrez
Executive Director of Finance and Management
City of Santa Ana
January 26, 2010
Page 3
Management is responsible for establishing and maintaining effective internal controls, including internal
controls over compliance, and for monitoring ongoing activities, to help ensure that appropriate goals and
objectives are met. You are also responsible for the selection and application of accounting principles; for the
fair presentation in the financial statements of the respective financial position of the governmental activities,
the business-type activities, each major fund, and the aggregate remaining fund information of the City and
Agency and the respective changes in financial position and, where applicable, cash flows 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 and
for ensuring that management and financial information is reliable and properly recorded. 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 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 or illegal acts affecting the government involving (1)
management, (2) employees who have significant roles in internal control, and (3) others where the fraud or
illegal acts could have a material effect on the financial statements. Your responsibilities include informing
us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in
communications from employees, former employees, grantors, regulators, or others. In addition, you are
responsible for identifying and ensuring that the entity complies with applicable laws, regulations, contracts,
agreements, and grants. Additionally, as required by OMB Circular A-133, it is management's responsibility
to follow up and take corrective action on reported audit findings. 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.
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. 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 entity or to acts by management or employees acting on
behalf of the entity. Because the determination of abuse is subjective, GovernmentAuditing Standards do not
expect auditors to provide reasonable assurance of detecting abuse.
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Mr. Francisco Gutierrez
` Executive Director of Finance and Management
City of Santa Ana
- January 26, 2010
Page 4
Because an audit is designed to provide reasonable, but not absolute assurance and because we will not
perform a detailed examination of all transactions, there is a risk that material misstatements or
noncompliance may exist and not be detected by us. In addition, an audit is not designed to detect immaterial
misstatements or violations of laws or governmental regulations that do not have a direct and material effect
on the financial statements or major programs. However, we will inform you of any material errors and any
fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform
you of any violations of laws or governmental regulations that come to our attention, unless clearly
inconsequential. We will include such matters in the reports required for a Single Audit. Our responsibility as
auditors are limited to the period covered by our audit and does not extend to any later periods for which we
are not engaged as auditors.
Our procedures will include tests of documentary evidence supporting the transactions recorded in the
accounts, and may include tests of the physical existence of inventories, and direct confirmation of
receivables and certain other assets and liabilities by correspondence with 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 audits,
we will require certain written representations from you about the financial statements and related matters.
Audit Procedures-Internal Controls
Our audits will include obtaining an understanding of the entity 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 tests 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.
An audit is not designed to provide assurance on internal control or to identify significant deficiencies.
However, during the audit, we will communicate to management and those charged with governance internal
control related matters that are required to be communicated under AICPA professional standards,
Government Auditing Standards, and OMB Circular A-133.
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• Mr. Francisco Gutierrez
Executive Director of Finance and Management
City of Santa Ana
January 26, 2010
Page 5
Audit Procedures-Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will perform tests of the 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 applicable laws and regulations and the provisions of contracts and
grant agreements applicable to major programs. Our procedures will consist of tests 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 the City's major programs.
The purpose of these procedures will be to express an opinion on City's compliance with requirements
applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A-133.
Engagement Administration, Fees, and Other
We may from time to time, and depending on the circumstances, use third-party service providers in serving
your account. We may share confidential information about you with these service providers, but remain
committed to maintaining the confidentiality and security of your information. Accordingly, we maintain
internal policies, procedures, and safeguards to protect the confidentiality of your personal information. 1n
addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality
of your information and we will take reasonable precautions to determine that they have appropriate
procedures in place to prevent the unauthorized release of your confidential information to others. In the
event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide
your consent prior to the sharing of your confidential information with the third-party service provider.
Furthermore, we will remain responsible for the work provided by any such third-party service providers.
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.
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 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.
The audit documentation for this engagement is the property of Macias Gini & O'Connell LLP and
constitutes confidential information. However, pursuant to authority given by law or regulation, we may be
requested to make certain audit documentation available to Federal Oversight 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
251-10
• Mr. Francisco Gutierrez
Executive Director of Finance and Management
City of Santa Ana
January 26, 2010
Page 6
under the supervision of Macias Gini & O'Connell LLP 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.
The audit documentation for this engagement will be retained for a minimum of seven years after the report
release or for any additional period requested by the granting agency or required by law or regulation. 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.
We expect to issue our reports no later than December 31 following the fiscal year end. We will discuss and
agree to the timeline for deliverables with management on an annual basis. The City and Agency State
Controller's Reports will be prepared by us and provided to the City prior to their applicable due dates.
We agree that our fees for these services including expenses will not exceed the amounts specified in the
table below. These fees do not include preparation of the City's financial statements. These fees reflect
increased audit fees due to the Risk Assessment Suite of Standards (Statement on Auditing Standards Nos.
104-111) and the audit requirements for the funds received under the Recovery and Reinvestment Act and a
3% CPI increase for each year.
For the Fiscal Year Ended June 30,
2010 2011 2012
City $ 92,000 $ 94,600 $ 97,200
Redevleopment Agency 54,800 56,400 58,000
Single Audit (includes 5 major programs) 14,000 14,400 14,800
Treasury Compliance Review 3,400 3,500 3,600
Air Quality Management District 3,100 3,200 3,300
State Controller Reports -City and RDA 8,100 8,300 8,500
Maximum Fee $ 175,400 $ 180,400 $ 185,400
Our invoices for these fees will be rendered each month as work progresses in accordance with the hourly
rates specified below and are payable on presentation. In accordance with our firm policies, work may be
suspended if your account becomes 45 days or more overdue and may not be resumed until your account is
paid in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have
been completed upon written notification of termination, even if we have not completed our report(s). You
will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket costs
through the date of termination. The above fee is based on anticipated cooperation from your personnel and
the assumption that unexpected circumstances will not be encountered during the audit. The issuance of new
accounting and audit standards during our period of service may also require additional audit time. If
significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before
we incur the additional costs.
251-11
' ~ Mr. Francisco Gutierrez
Executive Director of Finance and Management
City of Santa Ana
January 26, 2010
Page 7
Hourly Rates
Level of Work Performed June 30, 2010 June 30, 2011 June 30, 2012
Director 175 182 189
Manager 129 134 139
Senior Accountant 93 97 101
Associate 82 85 88
Clerical 40 41 42
We appreciate the opportunity to be of service to the City of Santa Ana and believe this letter accurately
summarizes the significant terms of our engagement. If you have any questions, please let us know. If you
agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it
to us.
Very truly yours,
~~~Q
Kathryn Beseau, Audit Director
MACIAS GINI & O'CONNELL LLP
Accepted by City of Santa Ana
Signature: ~
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251-12