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HomeMy WebLinkAbout05 - Financial Statement Audit ContractCITY OF City Council Staff Report Q 2EW PORT O ` d Agenda Item No. 5 May 10, 2011 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Tracy McCraner, Administrative Services Director /Treasurer 949 - 644 -3123, tmccraner @newportbeachca.gov PREPARED BY: Dan Matusiewicz, Deputy Administrative Services Director APPROVED: TITLE: Financial Statement Audit Contract Approval ABSTRACT: In accordance with Council Policy F -15 (Annual Audit), the Administrative Services Department solicited new proposals from qualified auditing firms. Based on the results of the Request for Proposal (RFP) process, staff is recommending, with the concurrence of the Finance Committee, the selection of a new external auditor. RECOMMENDATION: Authorize the Mayor and City Clerk to sign a contract with Diehl, Evans & Company, LLP to perform the City's annual financial audit for the fiscal year 2010 -11, with the option, to renew the contract for three additional one -year terms. FUNDING REQUIREMENTS: The 2011 -12 proposed budget, if approved, includes sufficient funding for the first one - year term of this contract while funding for the three remaining one -year terms is contingent upon budget appropriation each fiscal year. If approved, an annual appropriation of approximately $40,000 would be included in the Administrative Services Department, Audit Services account (0650- 8077). DISCUSSION: Per Council Policy F -15, the City issued an RFP to audit firms on February 16, 2011. Of the seven firms that were invited to propose, four firms submitted proposals by the March 14, 2011 deadline including Diehl, Evans & Company, LLP, Mayer Hoffman McCann P.C., Macias, Gini & O'Connell and Lance, Soli & Lunghard, CPAs. Proposals were submitted in two parts, including a written technical proposal and a separate dollar cost bid. Financial Statement Audit Contract Approval May 10, 2011 Page 2 Coordinated by the Accounting Manager, proposals were reviewed and scored by a four - person Audit Selection Committee comprised of financial administration staff from the Administrative Services Department, Public Works Department and Library Services Department. The written technical proposals were scored and ranked before dollar cost bids were reviewed. The Committee evaluated each firm's proposals based on minimum qualifications; knowledge and expertise in local government auditing; comparable government engagements; proposed staffing experience; ability to provide tax and other technical consultation services; adequacy of audit approach and other intangibles. All four firms were well qualified and scored well, based on the technical content of the proposals. The Audit Selection Committee rated Diehl, Evans and Company, LLP and Macias, Gini & O'Connell (MGO) as the top contenders for further consideration in the selection process. Dollar cost bids were then opened revealing the following four -year average cost per proposal: Firm Mayer Hoffman McCann Diehl, Evans & Co.LLP Lane, Soll & Lunghard CPAs Macias, Gini & O'Connell 4 -Year Average Hours Proposed 340 380 388 424 4 -Year Average Annual Fee $38,048 $39,784 $41,053 $42,311 MGO and Diehl, Evans & Company were invited for an interview on April 5, 2011. The interview process consisted of each firm making a brief presentation followed by approximately 30 minutes of questions and answers. Staff then conducted extensive reference calls to various municipalities listed in their respective proposals. Diehl, Evans & Company proposed a very seasoned team of experienced field staff, senior partners and senior consulting staff and consistently received outstanding references for their knowledge and experience, access to senior staff and ability to meet client deadlines. Staff recommends retaining the services of Diehl, Evans & Company, LLP as the City Auditor, based on the following factors: Quality and experience of proposed engagement staff • Long established presence in Southern California Financial Statement Audit Contract Approval May 10, 2011 Page 3 Technical expertise in complex local government issues Outstanding references This recommendation was previously presented to the Finance Committee on April 11, 2011 and the committee concurred with the staff recommendation. Diehl Evans & Company has long been established in Southern California, having been in business for over 75 years. Serving the governmental sector for over 61 years, they are well known and respected for their expertise in tax issues and complexities that are unique to local government. The total compensation over the four -year period for the City's annual audits shall not exceed $159,136 as reflected in the table below. The City is also responsible for administering the audit of the Integrated Law and Justice Agency of Orange County ( "ILJAOC ") for one more year, the proposal includes the audit services for ILJAOC for $12,395 which is entirely paid by the ILJAOC. City of Newport Beach FY 10 -11 $38,610 FY 11 -12 $39,382 FY 12 -13 $40,170 FY 13 -14 $40,974 Total City Obligation $159,136 ILJAOC FY 10 -11 $12,395 Grand Total $171,531 ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Financial Statement Audit Contract Approval May 10, 2011 Page 4 NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Submitted by: JV &P� A Tracy McCraner Administrative Services Director/Treasurer Attachments: A. Professional Services Agreement PROFESSIONAL SERVICES AGREEMENT WITH DIEHL, EVANS & COMPANY, LLP FOR AUDITING SERVICES THIS AGREEMENT FOR PROFESSIONAL SERVICES ( "Agreement') is made and entered into as of this 10th day of May, 2011 by and between the CITY OF NEWPORT BEACH, a California Municipal Corporation ( "City "), and DIEHL, EVANS & COMPANY, LLP, a California limited liability company ( "Auditor "), whose address is 5 Corporate Park, Suite 100, Irvine, CA 92606 and 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 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, 2011, with an option to audit each of the three subsequent fiscal years upon the terms and conditions contained in this Agreement. The full scope of the Project is defined in Exhibit A. C. The principal member of Auditor for purposes of Project shall be Nitin Patel, engagement partner. D. Auditor possesses the skill, experience, ability, background, certification and knowledge to provide services described in this Agreement. E. The 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 to render professional services under the terms and conditions set forth 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 above written date, and shall terminate on March 31, 2012 unless extended or terminated as set forth herein. The Administrative Services Director or his /her designee may extend this Agreement for three (3) additional one (1) year terms for a total of four (4) years. 2. SERVICES TO BE PERFORMED Auditor shall diligently perform all the services described in the Scope of Services attached hereto as Exhibit A and incorporated herein by reference ( "Work" or "Services "). The City may elect to delete certain tasks of the Scope of Services at its sole discretion. 3. TIME OF PERFORMANCE Time is of the essence in the performance of Services under this Agreement and Auditor shall perform the Services in accordance with the schedule included in Exhibit A. 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 the Auditor for delay. Notwithstanding the foregoing, Auditor shall not be responsible for delays due to causes beyond Auditor's reasonable control. However, in the case of any such delay in the Services to be provided for the Project, each party hereby agrees to provide notice to the other party so that all delays can be addressed. 3.1 Auditor shall submit all requests for extensions of time for performance in writing to the Project Administrator not later than ten (10) calendar days after the start of the condition that purportedly causes a delay. The Project Administrator shall review all such requests and may grant reasonable time extensions for unforeseeable delays that are beyond Auditors control. 3.2 For all time periods not specifically set forth herein, Auditor shall respond in the most expedient and appropriate manner under the circumstances, by telephone, fax, hand - delivery or mail. 4. COMPENSATION TO AUDITOR City shall pay Auditor for the Services on a time and expense not -to- exceed basis in accordance with the provisions of this Section and the Schedule of Billing Rates attached hereto as Exhibit B and incorporated herein by reference. Auditor's compensation for all Work performed in accordance with this Agreement, including all reimbursable items and subcontractor fees, shall not exceed One Hundred Seventy One Thousand, Five Hundred Thirty One Dollars and no /100 ($171,531) over the four year period which shall be paid as follows: Not to exceed Fifty One Thousand and Five Dollars ($51,005) for FY 10 -11; Thirty Nine Thousand, Three Hundred Eighty Two Dollars ($39,382) for FY 11 -12; Forty Thousand, One Hundred Seventy Dollars ($40,170) for FY 12 -13 and Forty Thousand, Nine Hundred Seventy Four Dollars ($40,974) for FY 13 -14 without prior written authorization from City. No billing rate changes shall be made during the term of this Agreement without the prior written approval of City. 4.1 Auditor shall submit monthly invoices to City describing the Work performed the preceding month. City shall pay Auditor no later than thirty (30) days after approval of the monthly invoice by City staff. 4.2 City shall reimburse Auditor only for those costs or expenses specifically approved in this Agreement, or specifically approved in writing in advance by City. Unless otherwise approved, such costs shall be limited and include nothing more than the following costs incurred by Auditor: Diehl, Evans & Company, LLP Page 2 4.2.1 The actual costs of subcontractors for performance of any of the Services that Auditor agrees to render pursuant to this Agreement, which have been approved in advance by City and awarded in accordance with this Agreement. 4.2.2 Approved reproduction charges. 4.2.3 Actual costs and /or other costs and /or payments specifically authorized in advance in writing and incurred by Auditor in the performance of this Agreement. 4.3 Auditor shall not receive any compensation for Extra Work performed without the prior written authorization of City. As used herein, "Extra Work" means any Work that is determined by City to be necessary for the proper completion of the Project, but which is not included within the Scope of Services and which the parties did not reasonably anticipate would be necessary at the execution of this Agreement. Compensation for any authorized Extra Work shall be paid in accordance with the Schedule of Billing Rates as set forth in Exhibit B. 4.4 Notwithstanding any other provision of this Agreement, when payments made by City equal 90% of the maximum fee provided for in this Agreement, no further payments shall be made until City has accepted the final Work under this Agreement. 5. PROJECT MANAGER Auditor shall designate a Project Manager, who shall coordinate all phases of the Project. This Project Manager shall be available to City at all reasonable times during the Agreement term. Auditor has designated Nitin Patel to be its Project Manager. Auditor shall not remove or reassign the Project Manager or any personnel listed in Exhibit A or assign any new or replacement personnel to the Project without the prior written consent of City. City's approval shall not be unreasonably withheld with respect to the removal or assignment of non -key personnel. Auditor, at the sole discretion of City, shall remove from the Project any of its personnel assigned to the performance of Services upon written request of City. Auditor warrants that it will continuously furnish the necessary personnel to complete the Project on a timely basis as contemplated by this Agreement. 6. ADMINISTRATION This Agreement will be administered by the Administrative Services Department. Dan Matusiewicz or his designee shall be the Project Administrator and shall have the authority to act for City under this Agreement. The Project Administrator or his /her authorized representative shall represent City in all matters pertaining to the Services to be rendered pursuant to this Agreement. Diehl, Evans & Company, LLP Page 3 7. CITY'S RESPONSIBILITIES In order to assist Auditor in the execution of its responsibilities under this Agreement, City agrees to, where applicable: 7.1 Provide access to, and upon request of Auditor, one copy of all existing relevant 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. 8. STANDARD OF CARE 8.1 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 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. By delivery of completed Work, Auditor certifies that the Work conforms to the requirements of this Agreement and all applicable federal, state and local laws and the professional standard of care. 8.2 Auditor represents and warrants to City that it has, shall obtain, and shall keep in full force in effect during the term hereof, at its sole cost and expense, all licenses, permits, qualifications, insurance and approvals of whatsoever nature that is legally required of Auditor to practice its profession. Auditor shall maintain a City business license and a California license to practice as a firm of Certified Public Accountants during the term of this Agreement. 8.3 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. 9. HOLD HARMLESS To the fullest extent permitted by law, Auditor shall indemnify, defend and hold harmless City, its City Council, boards and commissions, officers, agents, volunteers, and employees (collectively, the "Indemnified Parties ") from and against any and all claims (including, without limitation, claims for bodily injury, death or damage to property), demands, obligations, damages, actions, causes of action, suits, losses, judgments, fines, penalties, liabilities, costs and expenses (including, without limitation, attorney's fees, disbursements and court costs) of every kind and nature whatsoever (individually, a Claim; collectively, "Claims "), which may arise from or in any manner relate (directly or indirectly) to any breach of the terms and conditions of this Agreement, any Work performed or Services provided under this Agreement including, Diehl, Evans & Company, LLP Page 4 without limitation, defects in workmanship or materials or Auditor's presence or activities conducted on the Project (including the negligent and /or willful acts, errors and /or omissions of Auditor, it's principals, officers, agents, employees, vendors, suppliers, subcontractors, anyone employed directly or indirectly by any of them or for whose acts they may be liable or any or all of them). Notwithstanding the foregoing, nothing herein shall be construed to require Auditor to indemnify the Indemnified Parties from any Claim arising from the sole negligence or willful misconduct of the Indemnified Parties. Nothing in this indemnity shall be construed as authorizing any award of attorney's fees in any action on or to enforce the terms of this Agreement. This indemnity shall apply to all claims and liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by the Auditor. 10. INDEPENDENT CONTRACTOR It is understood that City retains Auditor on an independent contractor basis and Auditor is not an agent or 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 approval for Auditor or any of Auditors employees or agents, to be the agents or employees of City. Auditor shall have the responsibility for and control over the means of performing the Work, provided that Auditor is in compliance with the terms of this Agreement. Anything in this Agreement that may appear to give City the right to direct Auditor as to the details of the performance or to exercise a measure of control over Auditor shall mean only that Auditor shall follow the desires of City with respect to the results of the Services. 11. COOPERATION Auditor agrees to work closely and cooperate fully with City's designated Project 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 the Project. 12. CITY POLICY Auditor shall discuss and review all matters relating to policy and Project direction with City's Project Administrator in advance of all critical decision points in order to ensure the Project proceeds in a manner consistent with City goals and policies. 13. PROGRESS Auditor is responsible for keeping the Project Administrator and /or his /her duly authorized designee informed on a regular basis regarding the status and progress of the Project, activities performed and planned, and any meetings that have been scheduled or are desired. Diehl, Evans & Company, LLP Page 5 14. INSURANCE Without limiting Auditor's indemnification of City, and prior to commencement of Work, Auditor shall obtain, provide and maintain at its own expense during the term of this Agreement, policies of insurance of the type and amounts described below and in a form satisfactory to City. 14.1 Proof of Insurance. Auditor shall provide certificates of insurance to City as evidence of the insurance coverage required herein, along with a waiver of subrogation endorsement for workers' compensation. Insurance certificates and endorsement must be approved by City's Risk Manager prior to commencement of performance. Current certification of insurance shall be kept on file with City at all times during the term of this contract. City reserves the right to require complete, certified copies of all required insurance policies, at any time. Auditor shall procure and maintain for the duration of the contract insurance against claims for injuries to persons or damages to property, which may arise from or in connection with the performance of the Work hereunder by Auditor, his agents, representatives, employees or subcontractors. The cost of such insurance shall be included in Auditor's bid. 14.2 Acceptable Insurers. 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 Best's Key Rating Guide, unless otherwise approved by the City's Risk Manager. 14.3 Coverage Requirements. 14.3.1 Workers' Compensation Coverage. Auditor shall maintain Workers' Compensation Insurance (Statutory Limits) and Employer's Liability Insurance (with limits of at least one million dollars ($1,000,000)) for Auditor's employees in accordance with the laws of the State of California, Section 3700 of the Labor Code In addition, Auditor shall require each subcontractor to similarly maintain Workers' Compensation Insurance and Employer's Liability Insurance in accordance with the laws of the State of California, Section 3700 for all of the subcontractor's employees. Any notice of cancellation or non - renewal of all Workers' Compensation policies must be received by City at least thirty (30) calendar days (ten (10) calendar days written notice of non- payment of premium) prior to such change. Diehl, Evans & Company, LLP Page 6 Auditor shall submit to City, along with the certificate of insurance, a Waiver of Subrogation endorsement in favor of City, its officers, agents, employees and volunteers. 14.3.2 General Liability Coverage. Auditor shall maintain commercial general liability insurance in an amount not less than one million dollars ($1,000,000) per occurrence for bodily injury, personal injury, and property damage, including without limitation, blanket contractual liability. 14.3.3 Automobile Liability Coverage. Auditor shall maintain automobile insurance covering bodily injury and property damage for all activities of the Auditor arising out of or in connection with Work to be performed under this Agreement, including coverage for any owned, hired, non -owned or rented vehicles, in an amount not less than one million dollars ($1,000,000) combined single limit for each accident. 14.3.4 Professional Liability (Errors & Omissions) Coverage. Auditor shall maintain professional liability insurance that covers the Services to be performed in connection with this Agreement, in the minimum amount of three million dollars ($3,000,000) limit per claim and in the aggregate. 14.4 Other Insurance Provisions or Requirements. The policies are to contain, or be endorsed to contain, the following provisions: 14.4.1 Waiver of Subrogation. All insurance coverage maintained or procured pursuant to this agreement shall be endorsed to waive subrogation against City, its elected or appointed officers, agents, officials, employees and volunteers or shall specifically allow Auditor or others providing insurance evidence in compliance with these requirements to waive their right of recovery prior to a loss. Auditor hereby waives its own right of recovery against City, and shall require similar written express waivers and insurance clauses from each of its subcontractors. 14.4.2 Enforcement of Contract Provisions. Auditor acknowledges and agrees that any actual or alleged failure on the part of the City to inform Auditor of non - compliance with any requirement imposes no additional obligations on the City nor does it waive any rights hereunder. 14.4.3 Requirements not Limiting. Requirements of specific coverage features or limits contained in this Section are not intended as a limitation on coverage, limits or other requirements, or a waiver of any coverage normally provided by any insurance. Specific Diehl, Evans & Company, LLP Page 7 reference to a given coverage feature is for purposes of clarification only as it pertains to a given issue and is not intended by any party or insured to be all inclusive, or to the exclusion of other coverage, or a waiver of any type. 14.4.4 Notice of Cancellation. Auditor agrees to oblige its insurance agent or broker and insurers to provide to City with thirty (30) days notice of cancellation (except for nonpayment for which ten (10) days notice is required) or nonrenewal of coverage for each required coverage. 14.4.5 Timely Notice of Claims. Auditor shall give City prompt and timely notice of claims made or suits instituted that arise out of or result from Auditor's performance under this Agreement. 14.4.6 Additional Insurance. 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. 15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS Except as specifically authorized under this Agreement, the Services to be provided under this Agreement shall not be assigned, transferred contracted or subcontracted out without the prior written approval of City. Any of the following shall be construed as an assignment: 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 venture or syndicate member or cotenant if Auditor is a partnership or joint- venture or syndicate or co tenancy, which shall result in changing the control of Auditor. 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. 16. SUBCONTRACTING The parties recognize that a substantial inducement to City for entering into this Agreement is the professional reputation, experience and competence of Auditor. Assignments of any or all rights, duties or obligations of the Auditor under this Agreement will be permitted only with the express written consent of City. Auditor shall not subcontract any portion of the Work to be performed under this Agreement without the prior written authorization of City. 17. OWNERSHIP OF DOCUMENTS The audit work papers are the property of the Auditor, however, all working papers and reports must be retained, at the Auditor's expense, for a minimum of three (3) years, unless Auditor is notified in writing by the City of the need to extend the retention period. The Auditor will be required to make working papers available, upon request, to the City or their designees. Diehl, Evans & Company, LLP Page 8 In addition, Auditor shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance as determined by City. 18. CONFIDENTIALITY All Documents, including drafts, notes and communications that result from the Services in this Agreement, shall be kept confidential unless City authorizes in writing the release of information. 19. INTELLECTUAL PROPERTY INDEMNITY The Auditor shall defend and indemnify City, its agents, officers, representatives and employees against any and all liability, including costs, for infringement of any United States' letters patent, trademark, or copyright infringement, including costs, contained in Auditor's Reports, drafts or documents under this Agreement. 20. 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 and any Services, expenditures and disbursements charged to City, for a minimum period of three (3) years, or for any longer period required by law, from the date of final payment to Auditor under this Agreement. All such records and invoices shall be clearly identifiable. Auditor shall allow a representative of City to examine, audit and make transcripts or copies of such records and invoices during regular 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 to Auditor under this Agreement. 21. WITHHOLDINGS City may withhold payment to Auditor 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 /her designee with respect to such disputed sums. Auditor shall be entitled to receive interest on any withheld sums at the rate of return that City earned on its investments during the time period, from the date of withholding of any amounts found to have been improperly withheld. 22. 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 what 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 the law or any other sections of this Agreement. Diehl, Evans & Company, LLP Page 9 23. CITY'S RIGHT TO EMPLOY OTHER AUDITORS City reserves the right to employ other auditor(s) or consultants in connection with the Project. 24. CONFLICTS OF INTEREST 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 any 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. 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 immediate 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. 25. NOTICES All notices, demands, requests or approvals to be given under the terms of 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. All notices, demands, requests or approvals from Auditor to City shall be addressed to City at: Attn: Dan Matusiewicz Deputy Administrative Director City of Newport Beach 3300 Newport Boulevard PO Box 1768 Newport Beach, CA 92658 All notices, demands, requests or approvals from City to Auditor shall be addressed to Auditor at: Attention: Nitin Patel, CPA Diehl, Evans & Company, LLP 5 Corporate Park, Suite 100 Irvine, CA 92606 26. CLAIMS The Auditor and the City expressly agree that in addition to any claims filing requirements set forth in this Agreement, the Auditor shall be required to file any claim the Auditor may have against the City in strict conformance with the Tort Claims Act (Government Code sections 900 et seq.). Diehl, Evans & Company, LLP Page 10 27. TERMINATION In the event that either party fails or refuses to perform any of the provisions of this Agreement at the time and in the manner required, 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) calendar days, or if more than two (2) calendar days are reasonably required to cure the default and the defaulting party fails to give adequate assurance of due performance within two (2) calendar days after receipt of written notice of default, specifying the nature of such default and the steps necessary to cure such default, and thereafter diligently take steps to cure the default, the non- defaulting party may terminate the Agreement forthwith by giving to the defaulting party written notice thereof. Notwithstanding the above provisions, City shall have the right, at its sole discretion and without cause, of terminating this Agreement at any time by giving seven (7) calendar days prior written notice to Auditor. In the event of termination under this Section, City shall pay Auditor for Services satisfactorily performed and costs incurred up to the effective date of termination for which Auditor has not been previously paid. On the effective date of termination, Auditor shall deliver to City all reports, documents and other information developed or accumulated in the performance of this Agreement, whether in draft or final form. 28. COMPLIANCE WITH ALL LAWS Auditor shall at its own cost and expense comply with all statutes, ordinances, regulations and requirements of all governmental entities, including federal, state, county or municipal, whether now in force or hereinafter enacted. In addition, all Work prepared by Auditor shall conform to applicable City, county, state and federal laws, rules, regulations and permit requirements and be subject to approval of the Project Administrator and City. 29. 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. 30. 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. 31. CONFLICTS OR INCONSISTENCIES In the event there are any conflicts or inconsistencies between this Agreement and the Scope of Services or any other attachments attached hereto, the terms of this Agreement shall govern. Diehl, Evans & Company, LLP Page 11 32. INTERPRETATION The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of the Agreement or any other rule of construction which might otherwise apply. 33. AMENDMENTS This Agreement may be modified or amended only by a written document executed by both Auditor and City and approved as to form by the City Attorney. 34. SEVERABILITY If any term or portion of this Agreement is held to be invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. 35. CONTROLLING LAW AND VENUE The laws of the State of California shall govern this Agreement and all matters relating to it and any action brought relating to this Agreement shall be adjudicated in a court of competent jurisdiction in the County of Orange. 36. EQUAL OPPORTUNITY EMPLOYMENT Auditor represents that it is an equal opportunity employer and it shall not discriminate against any subcontractor, employee or applicant for employment because of race, religion, color, national origin, handicap, ancestry, sex or age. 37. NO ATTORNEY'S FEES In the event of any dispute or action arising under this Agreement the prevailing party shall not be entitled to attorney's fees. Diehl, Evans & Company, LLP Page 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the dates written below. APPROVED AS TO FORM: OFFICE OF HE PITY ATTORNEY y Date- i2 , 11 M Assistant ATTEST: By: Leilani I. Brown City Clerk Attachments: CITY OF NEWPORT BEACH, A California municipal corporation Bv: Michael F. Henn Mayor AUDITOR: DIEHL, EVANS & COMPANY, LLP Date: in M Exhibit A — Scope of Services Exhibit B — Schedule of Billing Rates Diehl, Evans & Company, LLP Page 13 Exhibit A SCOPE OF PROJECT The objectives and scope of the work to be performed is based upon the request for proposal. Based upon the foregoing Auditor understands the objectives and scope of work to be as follows: 1) Auditor will perform an audit examination of the governmental activities, business type activities, each major fund and the aggregate remaining fund information for the City of Newport Beach for the four years beginning with the fiscal year ending June 30, 2011. The examinations will be conducted in accordance with auditing standards generally accepted in the United States of America, Government Auditing Standards as set forth by the GAO, and the requirements of the American Institute of Certified Public Accountants' Industry audit Guide entitled "Audits of State and Local Governmental Units." City Staff will draft and word process the Comprehensive Annual Financial Report (CAFR) of the City of Newport Beach. Auditor will review the report for conformity with the reporting standards set forth by GFOA for their CAFR award programs. Auditor will finalize financial statements opinion by the second week of December each year. The auditors will provide their auditors' report thereon. Auditor will apply to management's discussion and analysis those procedures required by the auditing standards to be applied to required supplementary information (understanding the method of preparation, the source and basis for the information presented, comparing for consistency to the audited data pertaining to the City, and ascertaining the management's discussion and analysis contains all the information required by GASB Statement No. 34 and does not contain information prohibited to be presented in the management's discussion and analysis). 2) As part of the Single Audit for the years in which the City expends greater than $500,000 in federal funding, Auditor will supplement their approach by reviewing all pertinent federal and AICPA publications including The Single Audit Act Amendments of 1996 (Public Law 104 -156); OMB Circular A -133 entitled Audits of States, Local Governments, and Non - Profit Organizations; GAO Government Auditing Standards (Yellow Book), 2007 version; AICPA Audit and Accounting Guide Audits of State and Local Governments Units and Statement of Position 98- 3, Audits of States, Local Governments, and Not - for - Profit Organizations Receiving Federal Awards; SAS No. 117, Compliance Auditing Consideration in Audits of Governmental Entities and Other Recipients of Federal Financial Assistance and Catalog of Domestic Assistance Programs. The single audit will cover all federal grants received by the City and its component units either as a primary or secondary recipient for fiscal years ended June 30, 2011 through June 30, 2014.The City will provide to the Auditors the Schedule of Federal Financial Assistance encompassing all direct and pass- through federal funds received by the City and component units. Auditor will render reports on the single audit in accordance with the single audit requirements by OMB Circular A -133. Auditor will also prepare the electronic submission of the data collection form required to be filed with the Single Audit Central Clearinghouse. 3) Auditor will perform agreed -upon audit procedures to test and report on the City's Gann Limit for the four years beginning with the fiscal years ending June 30, 2011 through June 30, 2014. 4) Auditor will perform the financial audit of the Integrated Law and Justice Agency of Orange County (ILJAOC), and the single audit, if needed, for the fiscal year ending June 30, 2011. Auditor will draft and prepare the financial statements for the Agency and issue their reports on compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards. 5) Auditor will provide the Finance Committee communications required by the auditing standards: the auditor's responsibility under generally accepted auditing standards, significant accounting policies, management judgment and accounting estimates, significant audit adjustments, other information in documents containing audited financial statements, disagreements with management, management consultation with other accountants, major issues discussed with management prior to retention, difficulties encountered in performing the audit, errors, irregularities, and illegal acts detected in the course of the audit. 6) Auditor will immediately report in writing any irregularities or illegal acts that come to their attention to the City Council, City Attorney, and the City Manager as required by the auditing standards. 7) For each year of their engagement, Auditor'will prepare a letter to the City Council reporting matters, dealing with internal control that meet the threshold of being reportable conditions, as defined by professional auditing standards. 8) Auditor will prepare a management letter that will provide other recommendations to the City ensuing from their review of the City's internal control procedures. This letter will address non - reportable conditions (those constructive comments not required to be included in the reportable conditions to City Council or in the single audit report). Auditor will discuss those comments with the Administrative Services Director or her designee prior to its finalization. 9) Auditor will keep City staff abreast of all new developments affecting local government finance and relevant accounting issues. Auditor will advise and assist City staff in understanding of and implementation of new GASB pronouncements. 10) Auditor will be available to assist with other professional assistance requiring research and answer accounting and reporting issues raised by the City. Such assistance may include, but is not limited to tax matters, review of bond documents, cost allocation plans and employee benefit programs. 11) Finally, Auditor perceives the scope of their work as being advisors to the City of Newport Beach regarding generally accepted accounting principle, debt issuances, and other matters relating to the City. Diehl, Evans & Company, LLP also offer a wide range of consulting services to governmental agencies and the firm's Director of Consulting Services, Mr. William S. Morgan, CPA has over thirty years of experience in providing accounting, auditing, and consulting services. Under the attestation standards, the City may request a specific procedure or study it wishes to have performed. Auditor would then perform those procedures and report on their findings. Such special services are not part of their standard fee and would be subject to a separate fee quotation. Exhibit B City of Newport Beach, California Maximum Price Summary Our maximum fee for the four years ending June 30, 2014 will be as follows: Fiscal Year Option Period Service 2010 -11 2011 -12 2012 -2013 2013 -2014 City of Newport Beach: Financial Audit, including SAS No. 114 and SAS No. 115 letters, GANN Limit Total Review and related reports $ 32,800 $ 33,456 $ 34,125 $ 34,808 $ 135,189 Single Audit 5,810 5,926 6,045 6,166 City Total 38,610 39,382 40,170 40,974 159,136 Integrated Law & Justice Agency for Orange County (ILJAOC): Financial Audit, including SAS No. 114 and SAS No. 115 letters and related reports 9,060 Single Audit ILJAOC Total Grand Total • e.E 3,335 3,335 12,395 12,395 $ 51,005 $ 39,382 $ 40,170 $ 40,974 $ 171,531 Manner of Payment Progress payment will be made on the basis of hours of work completed during the course of the engagement and out -of- pocket expenses incurred in accordance with the firm's dollar cost bid proposal. Interim billings shall cover a period of not less than a calendar month and are payable on presentation. No more than 90% of the total fee may be billed prior to the presentation of final audit reports and financial statements. Also, fees will be payable in full regardless of findings that result from this engagement. Exhibit B - continued Hourly Rates For Additional Professional Services If the City wishes us to perform consulting or other services outside the scope of the services described herein, a separate written request from the City will be required. Our hourly rates for these services during each year under the basic contract will be as follows: Nitin P. Patel, CPA - Engagement Partner Robert J. Callanan, CPA - Concurring Review Partner Bill Morgan, CPA - Director of Consulting Services Managers Supervisory Staff Staff Clerical Fiscal Year Option Period 2010 -11 2011 -12 2012 -2013 2013 -2014 $ 195 $ 199 $ 203 $ 207 195 199 203 207 195 199 203 207 135 138 140 143 105 107 108 111 85 87 88 90 50 51 52 53