HomeMy WebLinkAbout24 - Airport Grants Financial ReviewCITY OF NEWPORT BEACH
AGENDA ITEM NO. 24
TO: HONORABLE MAYOR AND MEMF THE CITY COUNCIL
FROM: Homer L. Bludau, City Mana r
Dennis Danner, AdministrativeServices Director ev
DATE: September 24, 2002
SUBJECT: AIRPORT GRANTS FINANCIAL REVIEW
RECOMMENDATION
Receive, discuss and file the Airport Grants Financial Review Report for the
Airport Working Group (AWG) and Citizens for Jobs and the Economy (CJE)
dated September 16, 2002. Provide staff with any further direction regarding this
matter.
DISCUSSION
At the July 9, 2002 Council Meeting staff was given direction to prepare for a
review of the public information grants awarded to AWG and CJE on May 22,
2001 and October 23, 2001 respectively. Accordingly, on July 16, 2002 letters
(attached Exhibits 1 and 2) were sent to both groups requesting certain financial
information be returned to the City by August 1, 2002. Both organizations
complied with this request for financial information by the specified date.
After this information was received, the City contacted the independent certified
public accounting firm of Vavrinek, Trine, Day & Co., LLP (Vavrinek) to perform
an agreed upon procedures review of this information. The City's initial letter to
Vavrinek, dated August 9, 2002, is attached as Exhibit 3. The final agreed upon
procedures letter between the City and the accounting firm, received from
Vavrinek, dated August 20, 2002, is also attached to this report as Exhibit 4.
After the procedures for the review were agreed upon, staff from Vavrinek
performed field work over an approximate three week period and provided a draft
report to the City on September 12, 2002 that was reviewed with staff on
City Hall 9 3300 Newport Boulevard . Post Office Box 1768 • Newport Beach, California 92659 -1768
Airport Grants Expenditure Review
Page 2
September 13, 2002. The report was finalized on September 16, 2002 and
scheduled for discussion at the Council Meeting of September 24, 2002
The Principal from Vavrinek in charge of this engagement, Joe Aguilar, as well as
the Supervisor, Roger Alfaro (CPA), will be present at the Council Meeting to
report the results of their review as well as to answer any questions the Council
may have about the review or its findings.
In conclusion, the review performed is known as a "compliance review" to
determine whether the grant expenditures conformed to the terms and conditions
expressed in the written grant agreement. The firm of Vavrinek, Trine & Co. has
provided a written document expressing its findings. However, it is up to the City
Council, the party who entered into the grant agreement, to make the final
determination based on the information provided in the compliance review and
based on its understanding of the intent of the agreement.
Attachments
CITY OF NEWPORT BEACH
July 16, 2002
P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915
Tom Naughton, President
Airport Working Group
1048 Irvine Avenue #467
Newport Beach, CA 92660
RE: Grant Agreement with the City of Newport Beach Dated May 22, 2001
Dear Mr. Naughton:
Exhibit 1
As you know, the Airport Working Group (AWG) entered into a grant agreement
with the City of Newport Beach dated May 22, 2001, in the amount of $3.6
million. As the recipient of this grant, AWG agreed to abide by certain terms and
conditions specified by the grant agreement. To validate that all grant
expenditures have been made consistent with the terms and conditions of the
grant, the Newport Beach City Council has directed City staff to hire an
independent accounting firm to review your financial records and other
documentation related to the activities of this grant.
This review may include inquiries of staff and executive management, inspection
of financial and administrative records, compliance testwork, independent
confirmations, and other substantive testwork procedures. The auditor will then
prepare a letter or opinion detailing their findings and results of testwork
procedures that will be made available to the City Manager and Newport Beach
City Council. You will be notified whom the City has hired for this engagement
and soon thereafter you will be contacted directly by the auditor to schedule this
review. -
In preparation for this review, the City would like to secure a listing of grant
expenditures, detailing the date of each individual expenditure item, check
number, vendor, the precise nature of services received, and the amount of the
expenditure. Please send this grant expenditure listing directly to my attention by
August 1, 2002, and certify to its accuracy and completeness, to the best of your
knowledge.
During fieldwork procedures, the following information should be provided directly
to our auditors:
3300 Newport Boulevard, Newport Beach
July 16, 2002
Page 2 of 2
1) The identical grant expenditure listing as requested above
2) Copies of monthly bank statements where all grant proceeds and
expenditures were recorded
3) Where grant expenditures were for a professional or administrative service,
please provide the auditors with the contract, engagement letter, or other
synopsis detailing the cost, scope, and specific services the contractor or
employee provided
4) Where independent contractors were reimbursed for substantial out -of- pocket
costs, the records substantiating the cost and specific nature of product or
service reimbursed should also be made available to the auditors
5) Where grant expenditures were used to produce a product (i.e. letter, mailer,
video, commercial, or other communication form) a sample of the product
should be provided to our auditors
6) Access to all invoices, proposals, cancelled checks, and other financial or
grant activity documentation
7) Other related information as requested
We trust you will extend our auditors the same courtesy and cooperation you
have extended to City staff during past grant inquiries. If you have any questions,
please contact Accounting Manager Dan Matusiewicz at 949.644.3126.
Very truly yours,
Homer Bludau
City Manager
cc: City Council
City Attorney
Administrative Services Director
a
CITY OF NEWPORT BEACH
July 16, 2002
P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915
Bruce Nestande, President
Citizens for Jobs and the Economy
949 South Coast Drive #600
Costa Mesa, CA 92626
Exhibit 2
RE: Grant Agreement with the City of Newport Beach Dated October 23, 2001
Dear Mr. Nestande:
As you know, Citizens for Jobs and the Economy (CJE) entered into a grant
agreement with the City of Newport Beach dated October 23, 2001, in the
amount of $300,000. As the recipient of this grant, CJE agreed to abide by
certain terms and conditions specified by the grant agreement. To validate that
all grant expenditures have been made consistent with the terms and conditions
of the grant, the Newport Beach City Council has directed City staff to hire an
independent accounting firm to review your financial records and other
documentation related to the activities of this grant.
This review may include inquiries of staff and executive management, inspection
of financial and administrative records, compliance testwork, independent
confirmations, and other substantive testwork procedures. The auditor will then
prepare a letter or opinion detailing their findings and results of testwork
procedures that will be made available to the City Manager and Newport Beach
City Council. You will be notified whom the City has hired for this engagement
and soon thereafter you will be contacted directly by the auditor to schedule this
review.
In preparation for this review, the City would like to secure a listing of grant
expenditures, detailing the date of each individual expenditure item, check
number, vendor, the precise nature of services received and the amount of the
expenditure. Please send this grant expenditure listing directly to my attention by
August 1, 2002, and certify to its accuracy and completeness, to the best of your
knowledge.
During fieldwork procedures, the following information should be provided directly
to our auditors:
3300 Newport Boulevard, Newport Beach
July 16, 2002
Page 2 of 2
1) The identical grant expenditure listing as requested above
2) Copies of monthly bank statements where all grant proceeds and
expenditures were recorded
3) Where grant expenditures were for a professional or administrative service,
please provide the auditors with the contract, engagement letter, or other
synopsis detailing the cost, scope, and specific services the contractor or
employee provided
4) Where independent contractors were reimbursed for substantial out -of- pocket
costs, the records substantiating the cost and specific nature of product or
service reimbursed should also be made available to the auditors
5) Where grant expenditures were used to produce a product (i.e. letter, mailer,
video, commercial, or other communication form) a sample of the product
should be provided to our auditors
6) Access to all invoices, proposals, cancelled checks, and other financial or
grant activity documentation
7) Other related information as requested
We trust you will extend our auditors the same courtesy and cooperation you
have extended to City staff during past grant inquiries. If you have any questions,
please contact Accounting Manager Dan Matusiewicz at 949.644.3126.
Very truly yours,
Homer Bludau
City Manager
cc: City Council
City Attorney
Administrative Services Director
August 9, 2002
CITY OF NEWPORT BEACH Exhibit 3
ADMINISTRATIVE SERVICES
3300 NEWPORT BLVD.
P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915
(949)644 -3121
Mr. Joe Aguilar, Principal
Vavrinek Trine Day & Co. LLP
P.O. Box 4407
Rancho Cucamonga, CA 91729
RE: Airport Grant Agreed Upon Procedures Engagement
Dear Mr. Aguilar:
The City of Newport Beach entered into grant agreements with two California non - profit public
corporations, the Airport Working Group (AWG) and Citizens for Jobs and the Economy (CJE).
AWG was granted and received $3.6 million from the City to conduct public outreach activities
related to the manner and means of accommodating the current and future air travel and air
cargo needs of Orange County including a commercial aviation reuse of the former El Toro air
base. CJE was granted $300,000 and received $160,000 to engage in lobbying and legislative
activities related to, and in furtherance of, policies of the City concerning the means and
methods of meeting Orange County's future air transportation demand. Both parties
acknowledged and agreed to certain terms, conditions, and restrictions on the use of these
grants.
As directed by the City Council, we are requesting an independent accounting firm review the
grant agreements and determine if the grantees have complied in all material respects with the
terms, conditions, and restrictions of use of the grant funds. On August 1, 2002, and as
requested by the City, both grantees reported to the City a listing of all grant expenditures
incurred to date, detailing the date, check number, payee, amount, and nature of the
expenditure. It is contemplated that this engagement would include both quantitative and
qualitative test -work procedures that would substantiate the expenditures reported, validate that
the expenditures are fairly represented by their reported description, and test the grantees'
compliance with the provisions of the grants. Where it is either not feasible or it is beyond the
professional scope of an accounting firm to determine whether certain expenditures meet the
terms, conditions, and restrictions on the use of the grant funds, it is contemplated that your firm
simply report back to the C,iy the specific expenditures in sufficient detail for the C1,y's legal staff
to determine whether said expenditures complied with the provisions and or spirit and intent of
the grant.
In preparation for this engagement, the City requested the following information be provided
directly to the engagement auditors during fieldwork.
August 9, 2002
Page 2 of 2
1) The identical grant expenditure listing remitted to the City on August 1, 2002.
2) Copies of monthly bank statements where all grant proceeds and expenditures were
recorded.
3) Where grant expenditure was for a professional or administrative service, the contract,
engagement letter, or other synopsis detailing the cost, scope, and specific services the
contractor or employee provided.
4) Where independent contractors were reimbursed for substantial out -of- pocket costs, the
records substantiating the cost and specific nature of product or service
5) Where grant expenditures were used to produce a product (i.e., letter, mailer, video,
commercial, or other communication form) a sample of the product.
6) Access to all invoices, proposals, cancelled checks, and other financial or grant activity
documentation.
7) Other related information as requested.
You are encouraged to request any and all further documents you deem necessary to complete
this engagement. We trust that our grantees will extend to you the utmost professional courtesy
and cooperation to perform this engagement.
It is understood that this engagement would be billed on a time and materials basis at rates to
be approved and accepted by the City prior to its start. It is requested that a good faith estimate
of the total cost of this engagement be submitted to the City prior to its start as well. It is
contemplated that this engagement would not extend beyond 30 days from the first day of
fieldwork to the date a final report is delivered to the City. If necessary, your firm may also be
requested to meet with the City Council to explain or further expound upon your engagement
findings. It is understood that this engagement would conform to AICPA standards of
independence, proficiency, due care, fieldwork, professional conduct, and other industry
standards relevant to engagements of this nature.
If you have any questions, please contact Dan Matusiewicz of my staff at (949) 644 -3126.
Very truly yours,
14-4
Home�rBIuu`d'au
cc: City Council
City Attorney
Administrative Services Director
August 20, 2002
Mr. Homer Bludau
City of Newport Beach
3300 Newport Blvd.
P.O. Box 1768
Newport Beach, CA 92658 -8915
Dear Homer:
Exhibit 4
We are pleased to have the opportunity to provide professional sen ices to the City of Newport
Beach ( "the City "). This engagement letter is in response to our recent discussions concerning
the educational grants provided to the Airport Working Group ( "AWG ") and Citizens for Jobs &
the Economy ( "CJ &E "). The following sections discuss our understanding of the engagement,
timing, our professional fees and the nature and limitations of the services we will provide.
Our Understanding of the Engagement
As discussed in our meeting on August 9, 2002, the City requests an independent analysis of
expenditures incurred by the AWG and CJ &E on educational grants provided by the City.
Specifically, the City requests that expenditures are analyzed for validity, consistency and
compliance with the authorized grant agreements. At the City's request, we will perform the
agreed upon procedures outlined in the attached Exhibit A in accordance with standards
established by the AICPA.
Timing
We performed preliminary reconnaissance work on August 15, 2002 to ascertain the existence
and condition of AWG's and CJ &E's financial records and supporting documentation. As a
result, we believe that the engagement requested by the City is feasible and accordingly, we will
begin our fieldwork on August 21, 2002. We anticipate that the engagement will require
approximately 82 hours including the preliminary work already conducted.
We would expect to have our draft report available in approximately 3 to 4 weeks.
Deliverable
We will present our findings to the City in an agreed upon procedures report.
Homer Bludau
City of Newport Beach
August 20, 2002
Page 2
Professional Fees
Our professional fees for this engagement are based on the skills required and the estimated time
required to perform the agreed scope of work. Such fees will be based on the actual time and
materials at our hourly rates. A summary of our hourly billing rates is as follows:
Based on our understanding of the agreed upon procedures engagement and our anticipated work
plans, we estimate that our professional fees will approximate $9.950.
We look forward to working with the City on this important engagement. If you have any
questions, please do not hesitate to call me at (909) 466 -4410.
Sincerely,
VAVRINEK TRINE DAY & CO., LLP
Joe Aguilar
Principal
Approx.
Hourly Rate
Hours
Cost
Principal/Partner $170
16
S 2,720
Supervisor $115
48
5,520
Senior $95
18
1,710
82
S 9,950
Based on our understanding of the agreed upon procedures engagement and our anticipated work
plans, we estimate that our professional fees will approximate $9.950.
We look forward to working with the City on this important engagement. If you have any
questions, please do not hesitate to call me at (909) 466 -4410.
Sincerely,
VAVRINEK TRINE DAY & CO., LLP
Joe Aguilar
Principal
City of Newport Beach
Agreed Upon Procedures
In completing our engagement, Vavrinek, Trine, Day & Co., LLP will perform the following to
assist the City:
For AWG and CJ &E ("grant recipients'
i 1) Review the City's authorized grant agreements identifying authorized and prohibited uses of
grant proceeds.
2) Identify the deposit/receipt of the City's proceeds in the grant recipients' bank accounts.
3) Identify the nature of any operating transfers between bank accounts and ascertain the impact
on the grant expenditures.
,4) Summarize the projects (publication, research and media productions) and approximate costs
benefiting from the grant proceeds.
5) Prepare a summary of expenditures by vendor noting the dollar magnitude and percentages
expended.
6) Identify the dollar magnitude of commissions earned by consultants or vendors on
expenditures with grant proceeds.
' 7) Select a sample of expenditures from the grant recipients' accounting records and perform
the following:
a. Validate the existence of the expenditure by tracing it from the source ledger to an
approved invoice, cancelled check and bank statement
b. Compare the nature of the expenditure to the authorized uses in the grant agreement.
Note any obvious or potential discrepancies.
8) Summarize expenditures incurred by the grant recipients after February 12, 2002.
9) Review a sample of publications and media spots and ascertain compliance with the grant
agreement provisions.
10) Obtain confirmation from the City's oversight attorneys regarding the approval of
publications and media spots prior to their dissemination to the public.
11) Select a sample of vendors utilized by the grant recipients and confirm the dollar magnitude
and nature of services provided.
12) Prepare a schedule of unexpended grant proceeds remaining as of August 20, 2002.
13) Perform limited inquiry to ascertain the nature or existence of related party transactions.
Summarize the dollar magnitude of such transactions.
The scope of our engagement is limited to the above procedures and as a result, we will not
ascertain the cost - effectiveness or efficiencies of the expenditures incurred by the grant.
Because the above procedures do not constitute an audit conducted in accordance with generally
accepted auditing standards, we will not express an opinion on any of the information referred to
above. If we perform additional procedures, other matters may come to our attention that will be
reported to you. The terms of our engagement are such that we have no obligation to update the
report because of events and transactions occurring after the computation period.
Agreed to by:
YO NEWPORTBEACU
Authorized Signatti4re
1 6 ioua L. 34a/a4w
Printed Name
X6 26cZ
Date
Vavrinek, Trine, Day & Co., LLP
Partner
Printed Name
Date
I Exhibit 5
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants & Consultants '
September 16, 2002
City Council
City of Newport Beach
Newport Beach, California
Independent Accountant's Report
on Applying Agreed -Upon Procedures
We have performed the procedures enumerated below, which were agreed to by the
Management of the City of Newport Beach, California ( "the City "), solely to assist you in
ascertaining the existence and nature of expenditures incurred by the Airport Working
Group ( "AWG ") and the Citizens for Jobs & the Economy ( "CJ &E "), in connection with
the City's educational grant agreements dated May 22, 2001 and October 23, 2001,
respectively. This agreed -upon procedures engagement was conducted in accordance
with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of these procedures is solely the responsibility of the City.
Consequently, we make no representation regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any
other purpose.
Our procedures and associated findings are as follows:
1) Review the City's authorized grant agreements identifying authorized and prohibited
uses of grant proceeds.
For the AWG grant agreement dated May 22, 2001, it was noted that grant proceeds
were intended far the purpose of " informing the public of issues and engaging in
other activity relevant to the manner and means of accommodating the current and
future air transportation demand in Orange County. " It was also noted that
expenditures directly or indirectly to support or oppose a candidate(s) for public
office or qualification, passage or defeat of a ballot measure were prohibited. Refer
to the excerpt of the AWG grant agreement included at Exhibit A.
For the CJ&E grant agreement dated October 23, 2001, it was noted that the funds
were intended for the purpose including the engaging in or retaining persons for
lobbying and legislative activities related to, and in furtherance of City policies
concerning the means and methods of serving current and future air transportation
demand in Orange County. We noted that expenditures directly or indirectly to
support or oppose a candidate(s) for public office or qualification, passage or defeat
of a ballot measure were prohibited. Refer to the excerpt of the CJ&E grant
agreement included at Exhibit B.
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PLEASANTON - RANCHO CUCAMONGA • SACRAMENTO • SAN IOSE
City of Newport Beach
September 16, 2002
Page 2
2) Identify the deposit/receipt of the City's proceeds in the grant recipients' bank
accounts.
For A WG, we noted that the grant proceeds in the amount of $3,600,000 were
received in two separate and distinct bank accounts. We further noted that the
proceeds were not commingled with other AWG funds.
For CME, we noted that proceeds in the amount of $150,000 were deposited into a
bank account that was separate and distinct from other CME funds.
3) Identify the nature of any operating transfers between bank accounts and ascertain the
impact on the grant expenditures.
For AWG, we noted operating transfers from the organization's money market
account to the checking account to cover disbursements. Further, we noted no
compliance related impact of these transfers on the grant expenditures.
For CME, we noted no operating transfers, as there was only one bank account.
City of Newport Beach
September 16, 2002
Page 3
4) Summarize the projects (publication, research and media productions) and
approximate costs benefiting from the grant proceeds.
For AWG, the detailed projects and related expenditures by project are shown at
Exhibit C. The following represents summarized grant expenditures by project
category incurred by AWG:
Summary of Expenditures by Project Category
Publication/Mailing
786,448
TV/Media
1,066,149
Consulting
523,768
Lobbying
85,000
Public Meetings
68,527
Research
289,181
Legal
395,761
Consultant Commissions
379,293
3,594,126
Percentage of
Expenditures by Project Category
Consultant
Commissions
11% Publication/Mailing
Legal
22%
11% ..4
Research _
8%
Public Meetings
2%
bbyingJ \_N%
2% 29 29
Consulting
15%
City of Newport Beach
September 16, 2002
Page 4
For CJ &E, there was a total of $120,034 in expenditures. Of this amount $120,000
was used to contract a law firm for lobbying in Washington D.0 and the remaining
$34 was incurred for bank charges.
5) Prepare a summary of expenditures by vendor noting the dollar magnitude and
percentages expended.
For AWG, expenditures by individual vendors are shown at Exhibit D. In summary,
expenditures for the top ten vendors are presented below:
Vendor
Greenstripe Media
MTA Inc.
Bruce Nestande (Retainer & Commissions)
Cheveliar, Allen & Lichman
David Ellis & Assoc., LLC (Retainer & Commissions)
Postmaster
Petrone Productions, Inc.
BBC Research & Consulting
David Ellis (Reimbursements/Pass- Through)
Kutak Rock, LLP
All Other Vendors
Total Expenditures
Service Provided
Acquisition of TV Airtime
Publication Products
Consulting Services
Legal and Research Services
Consulting Services
Postage
Media Production
Great Park Feasibility Study
Consulting Pass Through Costs
Legal and Research Services
Various
Amount
Expended
Percentage
Expended
931,168
25.91%
493,874
13.74%
346,622
9.64%
330,134
9.19%
329,647
9.17%
246,309
6.85%
133,903
3.73%
131,224
3.65%
128,415
3.57%
112,215
3.12%
410,615
11.42%
3,594,126
100.00%
For CJ &E, 99% of the expenditures were incurred for the law firm of Hecht, Spencer
& Associates, Inc for lobbying expenses. The remainder related to Wells Fargo bank
charges.
City of Newport Beach
September 16, 2002
Page 5
6) Identify the dollar magnitude of commissions earned by consultants or vendors on
expenditures with grant proceeds.
For AWG, commissions earned by consultants in connection with specific projects
are shown at Exhibit A. Total commissions paid to vendors and consultants are
summarized below.
Vendor
David Ellis & Associates, LLC
Bruce Nestande
Greenstripe Media
Basis
9% of Gross Deliverable Cost
9% of Goss Deliverable Cost
7.5% of Airtime Cost
Commission
Commission as aPercentage
Amount of Total Expenditures
$ 189,647 5.3%
189,647 5.3%
69,789 1.9%
$ 449,083 12.5%
For CJ &E, it was noted that there were no agreements or arrangements for
commissions. Accordingly, no amounts were paid for commissions.
7) Select a sample of expenditures from the grant recipients' accounting records and
perform the following:
a. Validate the existence of the expenditure by tracing it from the source ledger
to an approved invoice, cancelled check and bank statement
For AWG, an invoice, cancelled check and corresponding debit in the
organization's bank statements supported the expenditures sampled. It was
also noted that of the $3,594,126 in expenditures incurred, approximately
74% of the dollar volume was sampled.
For CJ &E, an invoice cancelled check and corresponding debit in the
organization's bank statements supported the expenditure sampled. It was
noted that CJ &E had only one disbursement totaling $120,000 to Hecht,
Spencer & Associates, Inc.
City of Newport Beach
September 16, 2002
Page 6
b. Compare the nature of the expenditure to the authorized uses in the grant
agreement. Note any obvious or potential discrepancies.
For AWG, it was noted that the sample expenditures tested were incurred for
purposes consistent with the scope and broad terms of the grant agreement
dated May 22, 2001 except as stated below:
i) It was noted that a disbursement in the amount of $250,000 was paid
to Cheveliar, Allen & Lichman for anticipated litigation. We were
unable to ascertain the nature or magnitude of the anticipated
litigation and therefore cannot conclude on consistency with the grant
agreement. Further, we were informed, that as of August 20, 2002
approximately $207,000 was remaining in the legal trust.
ii) It was noted for certain professional services vendors (i.e. lobbying or
consulting) that tangible and measurable outputs or deliverables were
not produced. Therefore, verification of the actual activities
performed by these vendors could not be performed. However, it was
noted that professional services agreements were maintained by AWG
documenting the consultant's scope of work Such agreements and
related invoices were for purposes consistent with the scope of the City
grant. Vendors and total expenditures for which the above
information applied, included the following:
• Wilson Research & Strategy - $10,000
• Platinum Advisors - $50,000
• Laura Davies /Saunders - $22,584
iii) We noted that approximately $14,555 in commissions to David Ellis &
Associates, LLC and Bruce Nestande were paid on a project that was
cancelled by attorneys. The expected costs of the project were never
invoiced by the vendor nor paid by AWG and therefore, the
commission payments are deemed as potential discrepancies with the
grant agreement.
For CJ&E, it was noted that $120,000 in payments to Hecht, Spencer &
Associates, Inc. pertained to lobbying efforts in Washington D.C. We noted
that CJ&E maintained a professional services agreement with the law firm
documenting a scope of services that was consistent with the scope of the
CJ &E grant agreement dated October 23, 2001. However, it was noted that
written summaries of actual activities performed were not provided with
monthly invoices. Further, we noted that invoices did not indicate any detail
other than "Monthly Service Fee". Therefore, actual activities performed by
the vendor could not be verified.
City of Newport Beach
September 16, 2002
Page 7
8) Summarize expenditures incurred by the grant recipients after February 12, 2002.
For AWG, it was noted that approximately $482,192 of expenditures were incurred
subsequent to February 12, 2002. Components of these expenditures include
Cheveliar Allen & Lichman — legal trust ($250,000), David Ellis & Associates —
consulting ($65,119), Bruce Nestande — consulting ($53,330), MTA Inc. -Get Out the
Vote ($47,405), Kutak Rock — legal research ($18,616), Consulting Experts —
consulting ($16,444), Lara Sanders — consulting ($8,834) and Other vendors —
miscellaneous expenses ($22,444).
For CME, it was noted that approximately $31,428 of expenditures were incurred
for Hecht, Spencer & Associates, Inc. subsequent to February 12, 2002.
9) Review a sample of publications and media spots and ascertain compliance with the
grant agreement provisions.
For AWG, we reviewed twenty-one publications /media spots or research items noting
that each was educational in nature as required by the grant agreement provisions.
In accordance with the grant provisions, it was noted that none of the publications
sampled were either in favor or opposed to a specific political candidate or ballot
measure.
For CME, we noted no publications or media spot deliverables as all costs were
incurred for lobbying efforts.
10) Obtain confirmation from the City's oversight attorneys regarding the approval of
publications and media spots prior to their dissemination to the public.
Confirmations were submitted to the City's oversight attorneys of Reed & Davidson
and Strumwasser & Woocher, LLP to obtain representation regarding the approval
of media and publications prior to public dissemination. Specifically for Reed &
Davidson, it was noted that their response was limited because of the absence of the
final physical publications and media spots. Such representation could only be
provided upon re- reviewing the final products.
It was noted however, that AWG maintained approval representation in the form of
faxed sign -offs from both of the City's oversight attorneys for each publication and
City of Newport Beach
September 16, 2002
Page 8
media spot that was disseminated. These faxed sign -offs indicated that each
publication mailer or media spot that was disseminated, had also been approved.
For CME, the requirement ofattorney oversight was not imposed given the nature of
the services and expenditures incurred (i.e. lobbying).
11) Select a sample of vendors utilized by the grant recipients and confirm the dollar
magnitude and nature of services provided.
For AWG, confirmations were submitted to third party vendors covering $1,785,993
or 50% in total expenditures. As of September 10, 2002, two confirmations were
outstanding. As a result, $1,600,769 or 45% of expenditures were confirmed with
third party vendors without material discrepancies.
For CME, a confirmation was submitted to Hecht, Spencer & Associates for
expenditures of $120,000 or 99% of total expenditures incurred. As of September 10,
2002, the confirmation is outstanding.
12) Prepare a schedule of unexpended grant proceeds remaining as of August 20, 2002.
For remaining grant proceeds as of August 20, 2002, refer to Exhibits E & F for
AWG and CME, respectively.
13)Perform limited inquiry to ascertain the nature or existence of related party
transactions. Summarize the dollar magnitude of such transactions.
For AWG, we noted that the organization had approximately $330,134 in
transactions to Cheveliar, Allen & Lichman. It was noted that Barbara Lichman,
Executive Director, is also a partner in this law firm.
For CME, we were informed that no related party transactions occurred.
City of Newport Beach
September 16, 2002
Page 9
We were not engaged to and did not conduct an audit, the objective of which would be
the expression of an opinion on the financial records and compliance of the Airport
Working Group or Citizens for Jobs & the Economy. Accordingly, we do not express
such an opinion. Had we performed additional procedures, other matters might have
come to our attention that would have been reported to you.
This report is intended solely for the information and use of the City Council and
management of the City of Newport Beach, California and is not intended to be and
should not be used by anyone other than the City.
Sincerely,
\\ /O,v �NLI� ct r �ts6^ �- G.� l l�P
VAVRINEK TRINE DAY & CO., LLP
Rancho Cucamonga, California
City of Newport Beach
September 16, 2002
Page 10
Exhibits
A Excerpt from AWG Grant Agreement Dated May 22, 2001
B Excerpt from CJ &E Grant Agreement Dated October 23, 2001
C Schedule of Projects Funded with Grant Proceeds
D Schedule of Expenditures by Vendor
E Schedule of Unspent Grant Proceeds as of August 20, 2002 - AWG
F Schedule of Unspent Grant Proceeds as of August 20, 2002 — CJ &E
City of Newport Beach
Excerpt from AWG Grant Agreement
Dated May 22, 2001
public of issues, and engaging in other activity, relevantto the manner and means of
accommodating the current and future air transportation demand in Orange County;
and
WHEREAS, the CITY has approved this Grant subject to GRANTEE'S
commitment, and appropriate safeguards to ensure, that the Grant funds will not be
Exhibit A
spent to support or oppose the qualification, passage or defeat of any ballot measure or
the election or defeat of any candidate for political office; and
WHEREAS, the CITY has also approved this Grant subject to GRANTEE'S
commitment that the Grant funds will not be used for any activity that would violate
state or federal statutory or decisional law such as regulations affecting non - profit or tax
exempt organizations.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
tit�e3�7,1►�
CITY agrees to Grant to GRANTEE the sum of three million six hundred
thousand dollars ($3,600,000.00). This Grant (Grant Funds) shall be paid in one
lump sum of one million eight hundred thousand dollars ($1,800,000.00) and
twelve equal monthly installments of one hundred fifty thousand dollars
($150,000.00). The lump sum shall be paid on or before June 1, 2001. The first
installment shall be paid on or before June 1, 2001 and the remaining
installments shall be paid on or before the first of each of the following eleven
(11) months. The Grant Funds shall be used for the purpose of informing the
0
public of issues, and engaging in other activity, relevant to the manner and
means of accommodating the current and future air transportation demand in
Orange County.
2. TERM
The term of this Agreement shall commence on May 22, 2001 (the Effective
Date) and shall continue in full force and effect until the final installment has
been paid and GRANTEE has spent all of the Grant Funds.
3. RESTRICTIONS ON USE OF FUNDS
(a) GRANTEE acknowledges that municipal corporations are
prohibited from spending, directly or indirectly, public funds to support or
oppose candidates for public office. GRANTEE also acknowledges that
public funds may not be spent, directly or indirectly, to support or oppose Q
the qualification, passage or defeat of a ballot measure. Accordingly,
GRANTEE warrants that the Grant Funds will not be spent, directly or
indirectly, to support or oppose a candidate or candidates for public office.
GRANTEE further warrants that the Grant Funds will not be spent, directly
or indirectly, to support or oppose the qualification, passage or defeat of
any ballot measure. Finally, GRANTEE warrants that the Grant Funds will
not be spent to prepare or distribute material, or to disseminate
information, if it is clear from the surrounding circumstances that the
material or information supports or opposes the election of any candidate
or the qualification, passage or defeat of any ballot measure.
(b) In addition to the commitments in Subsection 3(a), GRANTEE
warrants that the Grant Funds will not be spent in a manner that violates Q
any State or Federal statutory or decisional law applicable to non - profit
i AWG GRANT AGREEMENT
organizations exempt from taxation pursuant to Section 501(c)(3) of the
���EEEJJJ Internal Revenue Code.
(c) GRANTEE shall retain legal counsel with at least five years
experience in the fields of election law and political law to ensure
compliance with the warranties in Subsections 3(a) and 3(b). Legal
counsel retained by Grantee shall review all material or information
prepared, in whole or in part, through the expenditure of Grant Funds and
prior to duplication or dissemination to the public to ensure compliance
with all statutory and decisional law governing the conduct of political
campaigns and the other restrictions and warranties in this Agreement.
GRANTEE may use Grant Funds to compensate special counsel for this
specific and limited purpose.
(d) To further ensure compliance with the provisions of Subsection
3(a), GRANTEE shall not duplicate or disseminate to the public any
material prepared, in whole or in part, through an expenditure of Grant
funds unless and until the material has been reviewed, and determined to
comply with Section 3(a), by special counsel retained by the City Council.
CITY shall notify GRANTEE in writing, on or before May 25, 2001, of the
name or names of the special counsel retained by the CITY to review
material pursuant to this Subsection. The review by special counsel
retained by the CITY shall be conducted, and the determination
communicated to GRANTEE, by the end of the next business day
_________..following receipt of the material by special cburisel" '—
4. INDEMNIFICATION
GRANTEE shall hold harmless, defend and indemnify the CITY, and its officers
L
and employees, from any claim, loss, litigation, or liability arising out of or in any
4
,. City of Newport Beach
Excerpt from Grant Agreement Exhibit B
Dated October 23, 2001
lf� NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. GRANT
City will grant WE the sum of three hundred thousand dollars ($300,000) subject
to the terms, restrictions, covenants and conditions of this Agreement (Grant).
The Grant shall be paid in twelve (12) equal monthly installments, with the first
installment due on November 1, 2001 and the remaining eleven installments due
on or before the first of the next eleven months. The City Manager shall have the
authority to pay the balance of the Grant at any time during the Term of this
Agreement.
2. AUTHORIZED ACTIVITIES
C The Grant shall be used exclusively to fund Authorized Activities. For the
Q
purposes of this Grant, the following shall be considered to be Authorized
Activities:
(a) To engage in, or retain persons to engage in, lobbying and legislative
activities related to, and in furtherance of, City policies concerning the
means and methods of serving current and future air transportation
demand in Orange County;
(b) To give direction to, and supervise the work of, any individual or entity -
retained to perform the work described in Subsection (a); and
(c) To ensure that Grantee has strictly complied with the terms and conditions
of this Grant and to perform Grantee's duties such as maintaining
necessary records and providing period reports to the City Manager.
3. TERM
EXCERPT FROM
The term of this Agreement shall commence on October 23, 2001 (the Effective
Date) and shall continue in full force and effect until terminated by the City or until
October 31, 2002, whichever occurs first. The provisions of this Agreement that
require Grantee to defend and indemnify the City and to maintain records shall
survive the expiration or termination of this Agreement.
4. RESTRICTIONS ON USE OF GRANT FUNDS
(a) Grantee acknowledges that statutory and decisional law prohibits
governmental entities from spending, directly or indirectly, public funds to
support or oppose candidates for public office. Grantee acknowledges
that statutory and decisional law prohibits the expenditure of public funds
to, directly or indirectly, support or oppose the qualification, passage or
defeat of a ballot measure absent express legislative authority. Finally,
Grantee understands and acknowledges that certain state and /or federal
laws may apply to the expenditure of the Grant or the extent to which
Grantee may engage in Authorized Activities.
(b) Grantee expressly agrees that the Grant will not be spent, directly or
indirectly, to support or oppose a candidate or candidates for public office
or to support or oppose the qualification or passage of any ballot measure.
Grantee also expressly agrees that the Grant shall be used in a manner
consistent with applicable state and /or federal law.
S. AVAILABILITY OF GRANT
Grantee acknowledges and agrees that the City is prohibited from incurring
indebtedness in other than the current fiscal year except under certain
circumstances that are not present in this case. Grantee agrees that City is not
ip „p„te- acb9f_this.Agreement,-and_ that - Grantee -is- not- entitled.to. any - portion- .of-the-- ---- -- —
Grant due and payable in fiscal year 2002 -03, unless that City Council-has
�` allocated funds for purposes of the Grant in the budget for that fiscal year.
Exhibit C
City of Newport Beach
Schedule of Projects Funded with Grant Proceeds
For the Airport Working Group ( "AWG ")
Source: Listing of Expenditure Transactions provided by AWG
Summarized by Vavrmek. Trine, Day & Co., LLP
Refer to the Agreed Upon Procedures Report
Project
Total Direct
Approximate
Total
Project
Type
Date
Costs
Commissions
Project Costs
"Sucker" Brochure
Publication/Mailing
5/24/2001
91,477
10,776
102,252
"Bunny & the Papers"
TV/Media
5124/2001
103,000
18,540
121,540
"Bunny &the Weasel"
TV/Media
6/15/2001
102,968
18,534
121,502
"JWA Expansion- Do the Math" Brochure
Publication/Mailing
6/26/2001
41,621
5,580
47,201
"Weasel Words" Brochure
Publication/Mailing
6/2612001
89,932
10,498
100,430
"ET Airport Plan" Brochure
Publication/Mailing
6/2612001
92,770
10,498
103,267
"Bunny &the Dream"
TV/Media
7/512001
123,000
22,140
145,140
"You Decide "POink, Oink"
Publication/Mailing
8/9/2001
126,341
14,074
140,415
"Get on Board"
TV/Media
8/23/2001
119,578
21,524
141,102
"Everybody's Talking"
TV/Media
9/6/2001
127,300
22,914
150,214
"Just the Facts"
TV/Media
9/20/2001
124,300
22,374
146,674
"Great Park, Great Cost"
TV/Media
10/16/2001
123,850
22,293
146,143
"Point, Counter Point"
Publication/Mailing
11110/2001
123,649
14,373
138,022
"Point, Counter Point"
TV/Media
11/19/2001
124,870
22,477
147,347
"Point, Counter Point" replaced "Toxics"
TV/Media
1/712002
110,078
22,473
132,551
"Toxics" (Never materialized)
TV /Media
2/6/2002
7,205
-
7,205
"Great Park" Invitation & Luncheon
Publication/Mailing
9/25/2001
34,457
4,985
39,442
Get Out To Vote ( "GOTV ") Program
Publication/Mailing
2/26/2002
47,405
8,533
55,938
JWA Corridor Handout
Publication/Mailing
6/15/2001
10,798
-
10,798
"News" Brochure
Publication/Mailing
10/9/2001
127,998
14,373
142,371
Toxics Mailer (Never materialized)
1/212002
14,555
14,555
Lobbying
Lobbying
Various
85,000
15,300
100,300
Community Meetings, Invitations and Other
Public Meetings
Various
68.527
8,782
77,308
Legal Review and Services
Legal
Various
145,761
-
145,761
Consultant Costs (excluding commission)
Consulting
Various
523,768
-
523,768
Legal Reserve or Contingency
Legal
8/9101 & 2/25102
250,000
250,000
Great Park Analysis
Research
6/21/2001
164,403
32,644
197,047
Toxic Study
Research
12/20/2001
88,778
14,575
103,353
Tides Foundation Research
Research
2/132002
6,500
1,170
7,670
Contributions to Irvine Taxpayers
Research
Various
25,000
4,500
29,500
Reason Foundation
Research
2/1312002
1,000
I80
1,180
GEO Syntech Maps
Research
3/512002
3,500
630
4,130
3,214,832
379,293
3,594,126
Source: Listing of Expenditure Transactions provided by AWG
Summarized by Vavrmek. Trine, Day & Co., LLP
Refer to the Agreed Upon Procedures Report
City of Newport Beach
Schedule of Expenditures by Vendor
For the Airport Working Group ( "AWG ")
Vendor
A America Signs
Advertising & Supply
American Association of Airport Executives
Amies Communications
Arrowhead Computer Service
BBC Research & Consulting
Bell, McAndrews, Hiltachk & Davidian, LLP
Bruce Nestande (Retainer & Commissions)
Bruce Nestande (Reimbursements/Pass- Through)
Capitol Strategies Group
Cheveliar, Allen & Lichman
Coach USA Sightseeing Anaheim
Consulting Experts, Inc.
Copy Stop
Corner Bakery
Costa Mesa Parks & Recreation
David Ellis & Assoc., LLC (Retainer & Commissions)
David Ellis (Reimbursements/Pass- Through)
Davis Murray
Designed to Win
Greenstripe Media
Irvine Taxpayers
James Gregg
Kutak Rock, LLP
Lara Saunders
Litho Graphics
MTA Inc.
Source: Listing of Expenditure Transaction provided by AWG
Exhibit D
Amount
Percentage
Expended
Expended
271
0.01%
2,838
0.08%
6,000
0.17%
200
0.01%
2,233
131,224
65,568
346,622
7,793
25,000
330,134
2,796
53,000
9,305
1,961
300
329,647
128,415
535
41,824
931,168
25,000
2,000
112,215
22,584
408
493,874
0.06%
3.65%
1.82%
9.64%
0.22%
0.70%
9.19%
0.08%
1.47%
0.26%
0.05%
0.01%
9.17%
3.57%
0.01%
1.16%
25.91%
0.70%
0.06%
3.12%
0.63%
0.01%
13.74%
Summarized by Vavrinek, Trine, Day & Co., LLP Refer to the Agreed Upon Procedures Report
City of Newport Beach
Schedule of Expenditures by Vendor
For the Airport Working Group ( "AWG ")
Vendor
Newport Dunes Resort
Norman Ewers
Orange County Business Council
Pacific Media & Research
PCR
Petrone Productions, Inc.
Platinum Advisors, LLC
Postmaster
Reason Foundation
Sasso
Sjoberg Evashenk Consulting, LLC
Urban Design Camp
Urban Dimensions
URS
William A Bloomer
Wilson Research & Strategy
Source: Listing of Expenditure Transaction provided by AWG
Exhibit D
Amount
Percentage
Expended
Expended
2,563
0.07%
235
0.01%
7,592
0.21%
6,500
0.18%
905
0.03%
133,903
3.73%
50,000
1.39%
246,309
6.85%
1,000
0.03%
9,900
0.28%
30,000
0.83%
3,000
0.08%
2,608
0.07%
15,000
0.42%
1,697
0.05%
10,000
0.28%
39594,126 100.00%
Summarized by Vavrinek, Trine, Day & Co., LLP Refer to the Agreed Upon Procedures Report
City of Newport Beach
Schedule of Unspent Grant Proceeds as of August 20, 2002
For the Airport Working Group ( "AWG ")
Grant Receipts from Newport Beach 3,600,000
Add: Interest Earned(l) 10,331
Total Receipts
Less Expenditures
Refunds
Adjusted Expenditures
Remaining Cash on Hand
3,610,331
(3,594,126)
35,682
(3,558,444)
51,887
Exhibit E
t1i The Grant dated May 22, 2001 is silent with respect to the treatment of interest income.
Source: Bank statements for 5101 through 8/02 and the Listing of Expenditure Transactions provided by AWG
Summarized by Vavrinek, Trine, Day Co., LLP Refer to the Agreed Upon Procedures Report
City of Newport Beach
Schedule of Unspent Grant Proceeds as of August 20, 2002
For Citizens for Jobs & the Economy ( "CJ &E")
Grant Receipts from Newport Beach
Add: Interest Earned
Total Receipts
Less Expenditures
Refunds
Adjusted Expenditures
Remaining Cash on Hand
Source: Bank statements from 10/01 to 8/02
150,000
150,000
(120,035)
(120,035)
29,965
Exhibit F
Summarized by Vavrinek, Trine, Day & Co., LLP Refer to the Agreed Upon Procedures Report