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HomeMy WebLinkAbout17 - Fiscal Audit & Single Audit ServicesJune 13, 2000 Agenda Item No. 17 CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES DEPARTMENT Resource Management - Fiscal Services - M.I.S. - Revenue - Accounting DATE: June 13, 2000 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dennis C. Danner, Administrative Services Director 4 -At/ . RE: FINANCIAL AUDIT AND SINGLE AUDIT SERVICES FOR FISCAL YEARS 2000, 2001 AND 2002 RECOMMENDATION That the City Council approve the selection of the auditing firm of Conrad AND Associates, L.L.P. and enter into a contract with said firm to audit the City's financial statements and perform a Single Audit of the City's Federal assistance for the fiscal years ending June 30, 2000, 2001, and 2002. The total all- inclusive maximum fees for each year, including any out -of- pocket expenses and a three percent fee adjustment for each of the two succeeding years are $38,465, $39,620 and $40,810 respectively. Upon satisfactory completion of the work performed during each of the first three years, the City Council may extend the auditing services agreement up to an additional three years without obtaining written proposals. SELECTION PROCESS 1. Council Policy A -14 requires the City to obtain bids for audit services every three years. However, upon satisfactory completion of the work performed during each of the first three years, the City Council may extend the auditing services agreement up to an additional three years without obtaining written proposals. Since the City was in transition between City Managers during the last fiscal year, the City Council extended the contract with KPMG for one additional year beyond what this policy requirement allows. 2. KPMG has been the City's auditors for the past seven years, and their most recent fees for this service were $47,000. 3. Staff solicited proposals for the audit of the City for fiscal years ending June 30, 2000, 2001, and 2002. Twelve firms that had expressed an interest in providing auditing services over the last seven years were invited to bid. Proposals were submitted in two parts, including a written technical proposal worth seventy -five points and a separate sealed dollar cost bid worth twenty -five points. After a pre - proposal conference held on March 23rd, where the scope of required services were discussed at length, eight firms responded with proposals. 4. With general coordination by the Accounting Manager, proposals were reviewed and scored by a three - person selection committee comprised of the Deputy City Manager, Administrative Services Director and the Deputy Administrative Services Director. The Financial Audit and Single Audit Services Page 2 written technical proposals were reviewed and scored by the selection committee before the sealed dollar cost bids were opened and scored. 5. The three -year average bid of proposing firms were as follows: Firm 3 -Year Average 3 -Year Average Hours Propose Annual Fee Caporricci, Cropper & Larson 609 $ 36,080 Thomas, Bigbie & Smith 488 $ 37,883 McGladrey & Pullen 510 $ 39,048 Conrad AND Associates, L.L.P. 590 $ 39,632 Lance, Soll & Lunghard 682 $ 41,080 Diehl Evans & Co. L.L.P. 465 $ 42,475 Vavrinek, Trine & Day, L.L.P. 546 $ 43,201 KPMG L.L.P. 475 $ 51,900 6. Because point totals were so closely grouped, only three firms, KPMG, Vavrinek, Trine & Day, and Thomas, Bigbie & Smith were eliminated from further consideration. The remaining firms were invited to meet with the selection committee. After these one -hour interviews, the firms were further evaluated based on audit approach, situational questions, and current technical topics. 7. The selection committee then called client references, including cities not listed in their proposal. 8. Although the selection committee was split between second and third choices, the committee unanimously selected Conrad AND Associates, L.L.P. as the top firm. DISCUSSION The criteria staff used in evaluating each firm's audit proposals and interviews included the following: minimum technical qualifications, depth and commitment to government services, proposed staff expertise, availability to City staff for technical consultation, comparable or prestigious municipal engagements, adequacy of audit process, and proposed staffing plan. Although pricing should not play a large role in awarding auditing services, a few points were awarded (deducted) as each firm's three -year average bid deviated from the median bid of $40,356. All of the eight respondents exceeded the minimum requirements to provide audit services, however we believe Conrad AND Associates, L.L.P. is best suited to the City's needs at this time. General Firm Qualifications - Conrad AND Associates, L.L.P. has a staff of sixty -five individuals, including sixty -one professionals through its Business Services Firm, Conrad Business Services, Inc. The firm has one office located in Irvine. Four of the firm's eight partners devote more than seventy -five percent of their time in managing governmental audit and general consulting engagements related to governmental clients. Three of the firm's partners have extensive "Big 5" public accounting experience in addition to extensive local firm experience. One of the tax partners has an advanced degree in taxation as well as being a C.P.A. This tax expertise adds an additional Financial Audit and Single Audit Services Page 3 dimension for the City in areas of taxation affecting local governments. Since 1971, Conrad AND Associates, L.L.P. has specialized in governmental and nonprofit accounting and auditing. For the past 28 years, the firm has been performing accounting and audit services to the private and public sector and not - for - profit organizations. Specific Government Engagement Experience - Conrad AND Associates' services to governmental organizations represents one of the largest segments of the firm's business. With a strong presence in Orange County, they audit the cities of Santa Ana, Costa Mesa, Orange, Brea, Mission Viejo, Laguna Beach, Laguna Hills, San Clemente, Buena Park, and many others. Specific Staff Government Engagement Experience Mr. Ken Al -Imam, C.P.A., Engagement Partner, who has 18 years of local government auditing experience, will be responsible for the audit engagement and the proper conduct of all professional services rendered to the City. Mr. Al -Imam, as the Engagement Partner, will participate in the planning and coordination of the audit examination of the City. He will be in the field to personally direct the audit engagement, and to provide consultation to Administrative Services senior staff members with respect to significant accounting matters pertaining to the City. Mr. Al -Imam has been a speaker at a number of CSMFO local chapters on matters pertaining to technical issues and new Governmental Accounting Standards Board (GASB) pronouncements. Mr. Al -Imam is co -chair of the California Committee on Municipal Accounting (CCMA) and he is the current chairperson of the statewide Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. He has made presentations in public hearings before GASB. Mr. Al -Imam is also responsible for the firm -wide training of audit personnel at Conrad AND Associates, L.L.P. in the area of local governmental accounting and auditing. Mr. Michael A. Harrison, C.P.A., serves as a partner in the firm's local government auditing practice. He has over 27 years of auditing experience including 23 years of providing services to special districts and cities. Mr. Harrison will serve as Technical Review Partner. In this capacity, Mr. Harrison will act as a technical and consulting partner to Mr. Al -Imam and be an additional resource to Administrative Services senior staff members. As a second partner reviewer, he will perform quality control reviews of the audit reports issued for the City of Newport Beach. Mr. Harrison is a member of the Governmental Accounting and Auditing Committee for the Long Beach - Orange County Chapter of the California Society of CPA's. Mr. Harrison also serves as a reviewer for the CSMFO award program for CAFR's and has been a speaker on technical topics for both the California Society of CPA's and the California Society of Municipal Finance Officers Mr. Steven Dobrenen, C.P.A., Senior Manager, will serve as the Engagement Manager on this audit. Mr. Dobrenen will conduct in -field reviews of all work papers prepared by the In- Charge Auditor and the staff auditors assigned to this engagement. He will discuss with Administrative Services staff and or Audit Committee, the audit and accounting issues that arise during the course of the audit. Mr. Dobrenen has extensive audit experience spanning over ten years. Mr. Ron Lopez will serve as In- charge Auditor on the audit of the City of Newport Beach. He will work closely with Administrative Services accounting staff. He will plan and conduct the audit work and supervise the Staff Auditors who will work with him. Mr. Lopez has extensive local government auditing experience. Financial Audit and Single Audit Services Page 4 Audit Approach - Conrad AND Associates' audit approach was described in great detail in their proposal. The steps as described appear to be of appropriate detail to provide the citizens of Newport Beach an audit of sufficient quality and value commensurate with the high standards of our community. We believe their procedures provide adequate and appropriate: planning and communication with staff; use of analytical procedures; assessment of the control environment; sampling techniques; testing of system transactions; review of potential internal control weaknesses; determination of appropriate materiality levels; review of important contracts and agreements; various types of compliance testing; independent confirmations of account balances; testing of various accounting reconciliation and allocation processes; etc. Additional detail can be obtained in Section F of their audit proposal available upon request from the Administrative Services Department. Location - Conrad AND Associates, L.L.P. is located at 1100 Main Street in Irvine. Their close proximity will help facilitate immediate, personal attention if any problems arise. Estimated Pricing and Time Requirement - Although pricing is not the most important issue in selecting an auditing firm, the fee proposed ($38,465) is reasonable and below the budgeted amount. In addition, the 590 hours estimated for performing the audit is realistic for auditing an entity the size and complexity of the City of Newport Beach. The current proposal is for a fixed fee contract and no additional work will be performed or authorized without a written agreement on behalf of both the audit firm and the City. PROFESSIONAL SERVICES AGREEMENT THIS AGREEMENT, entered into this 13th day of June, 2000, by and between CITY OF NEWPORT BEACH , a Municipal Corporation (hereinafter referred to as "City "), and CONRAD AND ASSOCIATES, L.L.P whose address is 1100 Main Street, Suite C, Irvine, California, 92614, (hereinafter referred to as "AUDITOR "), is made with reference to the following: RECITALS A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of City. B. City is required to secure an audit of its Financial Statements and Federal . financial assistance (Single Audit) each year. C. City desires to retain AUDITOR to perform an Audit Examination ( "Audit") of its financial statements and a Single Audit for the fiscal year ending June 30, 2000, with an option to audit each of the two subsequent fiscal years upon the terms and conditions contained in this Agreement. D. The principal members of AUDITOR, are for purpose of this Agreement, Ken AI -Imam, CPA, Michael A. Harrison, CPA, Steven Dobrenen, CPA, and Ron K. Lopez. E. City has solicited and received a proposal from AUDITOR, has reviewed the previous experience and evaluated the expertise of AUDITOR, and desires to contract with AUDITOR under the terms of conditions provided in this Agreement. NOW, THEREFORE, it is mutually agreed by and between the undersigned Parties as follows: 1. TERM The term of this Agreement shall commence on the 13th day of June, 2000, and shall terminate upon completion of the 2001 /02 fiscal Audit, unless terminated earlier as set forthin Section 26. 2. SERVICES TO BE PERFORMED AUDITOR shall diligently perform all the duties set forth in the scope of services, attached hereto as Exhibit "A" and incorporated herein by reference. 3. COMPENSATION TO AUDITOR City shall pay AUDITOR for the services in accordance with the provisions of this Section and the scheduled billing rates, attached hereto as Exhibit "B" and incorporated herein by reference. No rate changes shall be made during the term of this Agreement without prior written approval of City. AUDITOR's compensation for all work performed in accordance with this Agreement shall not exceed the total contract price of $38,465.00 for fiscal year 1999 -00, $39,620.00 for fiscal year 2000 -01 and $40,810.00 for fiscal year 2001 -02. 3.1 AUDITOR shall maintain accounting records of its billings which includes the name of the employee, type of work performed, times and dates of all work which is billed on an hourly basis and all approved incidental expenses including reproductions, computer printing, postage and mileage. 3.2 AUDITOR shall submit monthly invoices to City payable by City within thirty (30) days of receipt of invoice subject to the approval of City and based upon the following: progress payments will be made on the basis of hours of work completed during the course of the engagement in accordance with the AUDITOR's fixed all - inclusive contract price. Interim billing shall not cover a period of not less than a calendar month. 3.3 AUDITOR shall not receive any compensation for extra work without prior written authorization of City. Any authorized compensation shall be paid in accordance with Exhibit "B ". 3.4 City shall reimburse AUDITOR only for those costs or expenses which have been specifically approved in this Agreement, or specifically approved in advance by City. 3.5 Notwithstanding any other paragraph or provision of this Agreement, beginning on the effective date of this Agreement, City may withhold payment of ten percent (10 %) of each approved payment as approved retention pending delivery of the AUDITOR'S final report. 4. STANDARD OF CARE 4.1 All of the services shall be performed by AUDITOR or under AUDITOR's supervision. AUDITOR represents that it possesses the professional and technical personnel required to perform the services required by this Agreement, and that it will perform all services in a manner commensurate with the community professional standards. All services shall be performed by qualified and experienced personnel who are not employed by City nor have any contractual relationship with City. AUDITOR represents and warrants to City that it has or shall obtain all licenses, permits, qualifications and approvals required of its profession. AUDITOR further represents 2 and warrants that it shall keep in effect all such licenses, permits and other approvals during the term of this Agreement. 4.2 AUDITOR shall not be responsible for delay, nor shall AUDITOR be responsible for damages or be in default or deemed to be in default by reason of strikes, lockouts, accidents, or acts of God, or the failure of City to furnish timely information or to approve or disapprove AUDITOR's work promptly, or delay or faulty performance by City, contractors, or governmental agencies, or any other delays beyond AUDITOR's control or without AUDITOR's fault. 5. INDEPENDENT PARTIES City retains AUDITOR on an independent contractor basis and AUDITOR is not an employee of City. The manner and means of conducting the work are under the control of AUDITOR, except to the extent they are limited by statute, rule or regulation and the expressed terms of this Agreement. Nothing in this Agreement shall be deemed to constitute AUDITOR or any of AUDITOR's employees or agents, to be the agents or employees of City. AUDITOR shall have the responsibility for and control over the details in means of performing the work provided that AUDITOR is in compliance with the terms of this Agreement. Anything in this Agreement which may appear to give City the right to direct AUDITOR as to the details of the performance of the services or to exercise a measure of control over AUDITOR shall mean that AUDITOR shall follow the desires of City only with respect to the results of the services. 6. COOPERATION AUDITOR agrees to work closely and cooperate fully with City's designated Engagement Administrator, and any other agencies that may have jurisdiction or interest in the work to be performed. City agrees to cooperate with the AUDITOR on this Audit. 7. ENGAGEMENT MANAGER AUDITOR shall assign the Audit to an Audit Manager, who shall coordinate all phases of the Audit. This Audit Manager shall be available to City at all reasonable times during the Engagement term. AUDITOR has designated Ken AI -Imam, CPA to be its Audit Manager. AUDITOR shall not bill any personnel to the Audit other than those personnel identified in Exhibit "B ", whether or not considered to be key personnel, without City's prior written approval by name and specific hourly billing rate. AUDITOR shall not remove or reassign any personnel designated in this Section or assign any new or replacement person to the Audit without the prior written consent of City. City's approval shall not be unreasonably withheld with respect to removal or assignment of non -key personnel. AUDITOR, at the sole discretion of City, shall remove from the Audit any of its personnel assigned to the performance of services upon written request of City. 3 AUDITOR warrants that it will continuously furnish the necessary personnel to complete the Audit on a timely basis as contemplated by this Agreement. 8. TIME OF PERFORMANCE Time is of the essence in the performance of the services under this Agreement and the services shall be performed by AUDITOR in accordance with the schedule specified in Exhibit "C ". The failure by AUDITOR to strictly adhere to the schedule, may result in termination of this Agreement by City, and the assessment of damages against AUDITOR for delay. Notwithstanding the foregoing, AUDITOR shall not be responsible for delays which are due to causes beyond AUDITOR's reasonable control. However, in the case of any such delay in the services to be provided for the Audit, each party hereby agrees to provide notice to the other party so that all delays can be addressed. 8.1 AUDITOR shall submit all requests for extensions of time for performance in writing to the Engagement Administrator not later than ten (10) calendar days after the start of the condition which purportedly causes a delay, and not later than the date upon which performance is due. The Engagement Administrator shall review all such requests and may grant reasonable time extensions for unforeseeable delays, which are beyond AUDITOR's control. 8.2 For all time periods not specifically set forth herein, AUDITOR shall respond in the most expedient and appropriate manner under the circumstances, by either telephone, fax, hand delivery or mail. 9. CITY POLICY AUDITOR will discuss and review all matters relating to policy and Audit direction with the Audit Administrator in advance of all critical decision points in order to ensure that the Audit proceeds in a manner consistent with City goals and policies. 10. CONFORMANCE TO APPLICABLE REQUIREMENT All work prepared by AUDITOR shall conform to applicable city, county, state and federal law, policies, rules, regulations and permit requirements and be subject to approval of the Audit Administrator and City. 11. PROGRESS AUDITOR is responsible to keep the Audit Administrator and /or his /her duly authorized designee informed on a regular basis regarding the status and progress of the Audit work, activities performed and planned, and any meetings that have been scheduled or are desired. 4 12. HOLD HARMLESS AUDITOR shall indemnify, defend, save and hold harmless City, its City Council, boards and commissions, officers and employees from and against any and all loss, damages, liability, claims, allegations of liability, suits, costs and expenses for damages of any nature whatsoever, including, but not limited to, bodily injury, death, personal injury, property damages, or any other claims arising from any and all negligence acts or omissions of AUDITOR, its employees, agents or subcontractors in the performance of services or work conducted or performed pursuant to this Agreement, excepting only the sole negligence or willful misconduct of City, its officers or employees, and shall include attorneys' fees and all other costs incurred in defending any such claim. 13. INSURANCE Without limiting AUDITOR's indemnification of City, and prior to commencement of work, AUDITOR shall obtain and provide and maintain at its own expense during the term of this Agreement policy or policies of liability insurance of the type and amounts described below and satisfactory to City. Certification of all required policies shall be signed by a person authorized by that insurer to bind coverage on its behalf and must be filed with City prior to exercising any right or performing any work pursuant to this Agreement. Except workers compensation and errors and omissions, all insurance policies shall add City, its elected officials, officers, agents, representatives and employees as additional insured for all liability arising from AUDITOR's services as described herein. All insurance policies shall be issued by an insurance company currently authorized by the Insurance Commissioner to transact business of insurance in the State of California, with an assigned policyholders' Rating of A (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Bests Key Rating Guide: unless otherwise approved by the City Risk Manager. A. Worker's compensation insurance covering all employees and principals of AUDITOR, per the laws of the State of California. B. Commercial general liability insurance covering third party liability risks, including without limitation, contractual liability, in a minimum amount of $1 million combined single limit per occurrence for bodily injury, personal injury and property damage. If commercial general liability insurance or other form with a general aggregate is used, either the general aggregate shall apply separately to this Engagement, or the general aggregate limit shall be twice the occurrence limit. C. Commercial auto liability and property insurance covering any owned and rented vehicles of AUDITOR in a minimum amount of $1 million combined single limit per accident for bodily injury and property damage. 5 D. Professional errors and omissions insurance which covers the services to be performed in connection with this Agreement in the minimum amount of One Million Dollars ($1,000,000.00). Said policy or policies shall be endorsed to state that coverage shall not be canceled by either party, except after thirty (30) days' prior notice has been given in writing to City. AUDITOR shall give City prompt and timely notice of claim made or suit instituted arising out of AUDITOR's operation hereunder. AUDITOR shall also procure and maintain, at its own cost and expense, any additional kinds of insurance, which in its own judgment may be necessary for its proper protection and prosecution of the work. AUDITOR agrees that, in the event of loss due to any of the perils for which it has agreed to provide comprehensive general and automotive liability insurance, AUDITOR shall look solely to its insurance for recovery. AUDITOR hereby grants to City, on behalf of any insurer providing comprehensive general and automotive liability insurance to either AUDITOR or City with respect to the services of AUDITOR herein, a waiver of any right of subrogation which any such insurer of said AUDITOR may acquire against City by virtue of the payment of any loss under such insurance. 14. PROHIBITION AGAINST TRANSFERS AUDITOR shall not assign, sublease, hypothecate or transfer this Agreement or any for the services to be performed under this Agreement, directly or indirectly, by operation of law or otherwise without prior written consent of City. Any attempt to do so without consent of City shall be null and void. The sale, assignment, transfer or other disposition of any of the issued and outstanding capital stock of AUDITOR, or of the interest of any general partner or joint venturer or syndicate member or cotenant if AUDITOR is a partnership or joint- venture or syndicate or cotenancy, which shall result in changing the control of AUDITOR, shall be construed as an assignment of this Agreement. Control means fifty percent (50 %) or more of the voting power, or twenty -five percent (25 %) or more of the assets of the corporation, partnership or joint-venture. 15. OWNERSHIP OF DOCUMENTS All working papers and reports must be retained, at the auditor's expense, for a minimum of three (3) years, unless the firm is notified in writing by the City of the need to extend the retention period. Working papers will remain the property of AUDITOR to support the work performed by the AUDITOR. The AUDITOR will be required to make working papers available, upon request, to the following parties or their designees: City of Newport Beach Department of Housing and Urban Development 21 Department of Justice Department of Transportation U.S. General Accounting Office (GAO) Parties designated by the federal or state governments or by the City as part of an audit quality review process Auditors of entities of which the City is a subrecipient of grant funds In addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting and auditing significance. Documents, including drawings and specifications, prepared by AUDITOR pursuant to this Agreement are not intended or represented to be suitable for reuse by City or others on any other Audit. Any use of completed documents for other Audits and any use of incomplete documents without specific written authorization from AUDITOR will be at City's sole risk and without liability to AUDITOR. Further, any and all liability arising out of changes made to AUDITOR's deliverables under this Agreement by City or persons other than AUDITOR is waived against AUDITOR and City assumes full responsibility for such changes unless City has given AUDITOR prior notice and has received from AUDITOR written consent for such changes. AUDITOR shall, at such time and in such form as City may require, furnish reports concerning the status of services required under this Agreement. 16. CONFIDENTIALITY The information, which results from the services in this Agreement, is to be kept confidential unless the release of information is authorized by City. 17. CITY'S RESPONSIBILITIES In order to assist AUDITOR in the execution of his responsibilities under this Agreement, City agrees to provide the following: A. Access to, and upon request of AUDITOR, one copy of all existing record information on file at City. City will provide all such materials in a timely manner so as not to cause delays in AUDITOR's work schedule. B. City will prepare the financial statements complete with year -end adjustments. C. City will make available to the AUDITOR, general ledger and subsidiary ledger balances, supporting schedules, necessary reconciliations in agreement with general ledger balances and customary supporting 7 analyses and schedules maintained by the Administrative Services Department. D. City will prepare all written independent confirmations for AUDITOR mailing. E. City Staff will retrieve and re -file all records requested by the AUDITOR. F. City will provide the AUDITORS access to workspace, desk and chairs to perform the engagement. G. City will provide the AUDITORS access to telephones, photocopying equipment and fax machines necessary to perform the engagement as well as de minimus use of said equipment to maintain contact with other clients during the term of this engagement. 18. ADMINISTRATION This Agreement will be administered by the Adminstrative Services Department. Dan Matusiewicz, Accounting Manager shall be considered the Engagement Administrator and shall have the authority act for City under this Agreement. The Engagement Administrator and /or his/her authorized designee shall represent City in all matters pertaining to the services to be rendered pursuant to this Agreement. 19. RECORDS AUDITOR shall keep records and invoices in connection with the work to be performed under this Agreement. AUDITOR shall maintain complete and accurate records with respect to the costs incurred under this Agreement. All such records shall be clearly identifiable. AUDITOR shall allow a representative of City to examine, audit and make transcripts or copies of such records during normal business hours. AUDITOR shall allow inspection of all work, data, documents, proceedings and activities related to the Agreement for a period of three (3) years from the date of final payment under this Agreement. 20. WITHHOLDINGS City may withhold payment of any disputed sums until satisfaction of the dispute with respect to such payment. Such withholding shall not be deemed to constitute a failure to pay according to the terms of this Agreement. AUDITOR shall not discontinue work as a result of such withholding. AUDITOR shall have an immediate right to appeal to the City Manager or his designee with respect to such disputed sums. AUDITOR shall be entitled to receive interest on any withheld sums at the rate of seven percent (7 %) per annum from the date of withholding of any amounts found to have been improperly withheld. 21. ERRORS AND OMISSIONS In the event of errors or omissions that are due to the negligence or professional inexperience of AUDITOR which result in expense to City greater than would have resulted if there were not errors or omissions in the work accomplished by AUDITOR, the additional expense shall be borne by AUDITOR. Nothing in this paragraph is intended to limit City's rights under any other sections of this Agreement. 22. CITY'S RIGHT TO EMPLOY OTHER AUDITOR(S) City reserves the right to employ other AUDITOR(S) or accountants in connection with thisAudit. 23. CONFLICTS OF INTEREST A. The AUDITOR or its employees may be subject to the provisions of the California Political Reform Act of 1974 (the "Act "), which (1) requires such persons to disclose financial interest that may foreseeably be materially affected by the work performed under this Agreement, and (2) prohibits such persons from making, or participating in making decisions that will foreseeably financially affect such interest. B. If subject to the Act, AUDITOR shall conform to all requirements of the Act. Failure to do so constitutes a material breach and is grounds for termination of this Agreement by City. AUDITOR shall indemnify and hold harmless City for any and all claims for damages resulting from AUDITOR's violation of this Section. 24. SUBAUDITOR AND ASSIGNMENT A. Except as specifically authorized under this Agreement, the services included in this Agreement shall not be assigned, transferred, contracted or subcontracted without prior written approval of City. 25. NOTICES All notices, demands, requests or approvals to be given under this Agreement shall be given in writing and conclusively shall be deemed served when delivered personally or on the third business day after the deposit thereof in the United States mail, postage prepaid, first class mail, addressed as hereinafter provided. ej All notices, demands, requests or approvals from AUDITOR to City shall be addressed to City at: Administrative Services Department City of Newport Beach 3300 Newport Boulevard P. O. Box 1768 Newport Beach, CA, 92658 -8915 (949) 644 -3126 Fax 644 -3339 All notices, demands, requests or approvals from City to AUDITOR shall be addressed to AUDITOR at: CONRAD AND ASSOCIATES, L.L.P. 1100 Main Street, Suite C Irvine, California 92614 (949) 474 - 2020,x217 Fax 263 -5520 Attn: Ken AI -Imam, Partner 26. TERMINATION In the event either part hereto fails or refuses to perform any of the provisions hereof at the time and in the manner required hereunder, that party shall be deemed in default in the performance of this Agreement. If such default is not cured within a period of two (2) days, or if more than two (2) days are reasonably required to cure the default and the defaulting party fails to give adequate assurance of due performance within two (2) days after receipt of written notice of default, specifying the nature of such default and the steps necessary to cure such default, the nondefaulting party may terminate the Agreement forthwith by giving to the defaulting party written notice thereof. 26.1 Notwithstanding the above, City shall have the option, at its sole discretion and without cause, of terminating this Agreement at any time by giving seven (7) days' prior written notice to AUDITOR as provided herein. Upon termination of this Agreement, City shall pay to the AUDITOR that portion of compensation specified in this Agreement that is earned and unpaid prior to the effective date of termination. 27. COMPLIANCE'S AUDITOR shall comply with all laws, state or federal and all ordinances, rules and regulations enacted or issued by City. 28. WAIVER A waiver by either party of any breach, of any term, covenant or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, whether of the same or a different character. 29. INTEGRATED CONTRACT This Agreement represents the full and complete understanding of every kind or nature whatsoever between the Parties hereto, and all preliminary negotiations and agreements of whatsoever kind or nature are merged herein. No verbal agreement or implied covenant shall be held to vary the provisions herein. Any modification of this Agreement will be effective only by written execution signed by both City and AUDITOR. APPROVED AS TO FORM AND CONTENT: By: Robin Clauson, Assistant City Attorney for the City of Newport Beach ATTEST: By: LaVonne Harkless City Clerk f:\users\cat\shared\ag\conrad.doc CITY OF NEWPORT BEACH A Municipal Corporation John Noyes, Mayor for the City of Newport Beach AUDITOR By: Ken AI -Iman, CPA Partner 11 SECTION G OUR FIRM'S UNDERSTANDING OF THE OBJECTIVES AND SCOPE OF THE ENGAGEMENT Our understanding of the objectives and scope of the work to be performed based upon your request for proposal is as follows: 1. We will perform an audit examination of all fund types and account groups of the City of Newport Beach for the year ending June 30, 2000 with an option to audit each of the two subsequent fiscal years. Our examination will be conducted in accordance with generally accepted government auditing standards. The City will draft and word process the comprehensive annual financial report (CAFR). 2. For fiscal years where federal grant expenditures exceed $300,000, we will perform a "single audit" of the City of Newport Beach in accordance with the Single Audit Act Amendments of 1996 (Public Law 104 -156) and OMB Circular A -133 entitled Audits of States, Local Governments, and Non - Profits Organizations. Our single audit will cover all federal grants received by the City of Newport Beach and its component units either as a primary or secondary recipient. The City will provide to the auditors a schedule identifying the expenditure of federal funds, including expenditures to be funded with federal funds to be received indirectly through state, local, or other entities. We will render our reports on the single audit (as well as the required data collection form) in accordance with the single audit requirements as described in Section F of this proposal. 3. We will test the City's appropriation limit and provide a letter of agreed Upon Procedures for the year ending June 30, 2000 with an option for each of the two subsequent fiscal years. 4. We will provide an immediate written report of all irregularities and illegal acts or indications of illegal acts of which we become aware during the course of our audit to the City Manager, City Attorney, and the Administrative Services Director. 5. We will prepare a management letter that will provide recommendations to the City ensuing from our review of the City's internal control procedures. This letter will include nonreportable conditions (those constructive comments not required to be included in the single audit report). We will discuss those comments with the Finance Director prior to its finalization. 6. We will report to the Audit Committee the following matters: • The auditor's responsibility under generally accepted auditing standards • Significant accounting policies • Management judgments and accounting estimates • Significant audit adjustments • Other information in documents containing audited financial statements • Disagreement with management • Management consultation with other accountants • Major issues discussed with management prior to retention • Difficulties encountered in performing the audit EXHIBIT A MUD ASSOCIATES, L.L.P. Mr. Dennis C. Danner Administrative Services Director City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Dear Mr. Danner: CERTIFIED PUBLIC ACCOUNTANTS April 21, 2000 1100 MAIN STREET, SUITE C IRVINE, CALIFORNIA 92614 (949) 474 -2020 Fax (949) 263 -5520 Enclosed please find Section H of our proposal which sets forth our cost proposal which we have separated from our technical proposal for audit services to be performed by Conrad and Associates, L.L.P. I certify that I am entitled to represent the firm, empowered to submit the bid and authorized to sign a contract with the .Authority. The total all- inclusive maximum price for each year is as shown below, including any out -of- pocket expenses. For each of the two succeeding option years, we would agree to a nominal 3% fee increase. For each year, our fee would be as follows Fiscal Total Year Fee 1999 -00 $38,465 2000 -01 39,620 2001 -02 40,810 Our three -year average for the all- inclusive maximum fee is only $39,632. Sincerely, CONRAD AND ASSOCIATES, L.L.P Ken Al -Imam, C.P.A. Partner EXHIBIT B Al IF(IRNIA C(V 1 ()F CPPTIRFII M IFI If A(YYN CITY OF NEWPORT BEACH Schedule of Professional Fees and Expenses for the Audit of the 1999 -00 Financial Statements The above rates cover all of our out of pocket expenses. Any special projects, extra work, accounting assistance or additional assignments will be performed at the hourly rates indicated below: 22092 -01 2001-02 Partner Percentage 180 Standard Discounted Total 125 of 133 Hourly Hourly Fixed Classification Hours Hours Rates Rates Price Partners 6% 35 $175.00 S 115.00 $ 4,025 Managers 14% 85 100.00 90.00 7,650 Supervisory Staff 40% 235 75.00 64.00 15,040 Staff 40% 235 60.00 50.00 11,750 Other (specify) N/A - - - - Total all- inclusive price 100% 590 $.38,465 The above rates cover all of our out of pocket expenses. Any special projects, extra work, accounting assistance or additional assignments will be performed at the hourly rates indicated below: 22092 -01 2001-02 Partner $175 180 186 Senior Manager 125 129 133 Manager 100 103 106 Supervisor 90 93 95 Senior Accountant 75 77 80 Staff Accountant 60 62 64 CITY OF NEWPORT BEACH Schedule of Professional Fees and Expenses for the Audit of the 2000 -01 Financial Statements Percentage Staff 40% 235 Other (specify) NLA Total all- inclusive price 100% 590 The above rates cover all of our out of pocket expenses. 61.80 51.50 12,103 $39,620 of Classification Hours Partners 6% Managers 14% Supervisory Staff 40% Staff 40% 235 Other (specify) NLA Total all- inclusive price 100% 590 The above rates cover all of our out of pocket expenses. 61.80 51.50 12,103 $39,620 Standard Discounted Total Hourly Hourly Fixed Hours Rates Rates Price 35 $ 180.25 S 118.45 $ 4,146 85 103.00 92.70 7,880 235 77.25 65.92 15,491 Staff 40% 235 Other (specify) NLA Total all- inclusive price 100% 590 The above rates cover all of our out of pocket expenses. 61.80 51.50 12,103 $39,620 CITY OF NEWPORT BEACH Schedule of Professional Fees and Expenses for the Audit of the 2001 -02 Financial Statements Partners Managers Supervisory Staff Staff Other (specify) Total all- inclusive price Percentage Standard Discounted Total of Hourly Hourly Fixed Hours Hours Rates Rates Pdo 6% 35 $ 185.66 $ 122.00 $ 4,270 14% 85 106.09 95.48 8,116 40% 235 79.57 67.90 15,957 40% 235 63.65 53.05 12,467 '/A 100% 590 $40,810 The above rates cover all of our out of pocket expenses. Three -year average all- inclusive maximum price for aforementioned audits $39,632 SECTION H, (Continued) We will progress bill the City for the above services as the engagement hours are expended. Final billing will be made upon delivery of the final audit reports. Our fees contemplate conditions satisfactory for the performance of the audit, including the City providing at the start of the audit, trial balances reflecting year end adjustments, necessary subsidiary schedules supporting asset and liability balances, all necessary reconciliations in agreement with general ledger balances, and customary supporting analyses and schedules normally maintained by the Finance Department. The City will type confirmation requests and pull supporting documentation. If there are changes in the scope of the audit (additional federal grant programs, substantial additional debt issues, added project areas, added enterprise activity, additional component units, etc.), we would discuss these changes with the Finance Director and the effect of these changes on the professional audit hours and costs of the engagement. CONRAD and ASSOCIATES, L.L.P. desires to keep its local government clients abreast of new developments affecting local government finance. In July 1999, we held a client training seminar for firm clients that focused on the then just recently released GASB Statement No. 34 (issued earlier that month). We were probably the first firm in southern California to thoroughly research this important new pronouncement line by line and to immediately provide training to our clients within 30 days of its issuance. We will also advise City staff of new accounting developments during the interim/planning stage of each year's audit. We plan on providing additional client training to our clients in our July 2000 client training conference with respect to GASB No. 34. 8. Finally, we perceive the scope of our work as being advisors to the City of Newport Beach regarding generally accepted accounting principles. We will provide unlimited telephone consultations regarding accounting and other technical matters. Throughout the year, Mr. Dennis C. Danner, Administrative Services Director and Mr. Dan Matusiewicz, Accounting Manager will have access to the Engagement Partner, Ken Al -Imam, Technical Review Partner, Michael A. Harrison, Engagement Manager, Steven Dobrenen and Engagement In- charge, Ron Lopez, to seek advice in the application of generally accepted accounting principles, the establishment and segregation of funds, advise regarding debt issuance, financial statement preparation and content and other matters relating to the City, including matters of taxation and policy relating to City fringe benefits. We will also provide advice and consultation to the City regarding GASB Statement No. 34. With respect to the City of Newport Beach and the City's component units, Conrad and Associates, L.L.P. meets the independence requirements of generally accepted accounting standards and the Government Auditing Standards (1994 revision) published by the U.S. General Accounting Office. Our firm has never had a record of substandard audit work. Conrad and Associates, L.L.P. does not intend to use subcontractors for this engagement. We are independent with respect to the City of Newport Beach. No conflicts of interest exists relative to our firm performing the audit. Our firm has the insurance limits indicated in the City's request for proposal. 30 Exhibit C Schedule for the 2000 Fiscal Year Audit (A similar time schedule will be developed for audits of future fiscal years if the City of Newport Beach exercises its option for additional audits.) Each of the following should be completed by the auditor no later than the dates indicated. Interim Work The auditor shall complete interim work by July 14, 2000. 2. Detailed Audit Plan The auditor shall provide the City of Newport Beach by July 21, 2000, both a detailed audit plan and a list of all schedules to be prepared by the City of Newport Beach. 3. Fieldwork The auditor shall complete all fieldwork by October 27, 2000. 4. Reports The auditor shall have the final opinion letter by November 10, 2000 The auditor shall have the draft Management letter due by December 15, 2000. Single audit and remaining final audit reports and recommendations to management available for review by the Audit Committee by January 31, 2001. EXHIBIT C