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HomeMy WebLinkAboutC-2949 - Audit ServicesFebruary 22, 1999 Agenda Item No. 4 - CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES DEPARTMENT Resource Management • Human Resources • Risk Management • Fiscal Services • M.I.S. • Revenue • Accounting DATE: February 22, 1999 TO: Honorable Mayor and Members of the City Council FEB22 FROM: Dick Kurth, Interim Director of Administrative Services RE: Audit Service Contract "__ _ APPROVED RECOMMENDATION- Grant an exception to Council Policy F -15 on Annual Audits by extending our current auditor's contract to a seventh consecutive year without going through a formal bid selection process. BACKGROUND: In 1993, the City requested bids for Annual Audit services and selected KPMG Peat Marwick to perform the City's Annual Financial Audit and Single Audits. Starting with fiscal 1992 -93, KPMG has satisfactorily performed the audit services for six consecutive years. Per Council Policy F -15: The City will normally award an audit contract for a three -year period. The audit contract may be renewed for an additional three -year period, without going through a new invitation to bid procedure, with the same firm, if the City Council is satisfied with the performance of the auditors and authorizes the extension. At this time, the City would normally invite interested audit firms to bid for the 1998 -99 audit services. If a new auditor was selected through the bid process, the first year audit is particularly disruptive and time consuming to many departments. Before the routine part of the audit is started, the new auditors must familiarize themselves and document the control environment of the City including all internal controls, automated systems, operating processes, procedures and Council policies. Although having a fresh perspective on our operations is a healthy process, taking on this task this year will be particularly burdensome considering the recent departure of the former City Manager and workloads of personnel serving in acting capacities within the Administrative Services Department. Additionally, the new City Manager will undoubtedly need assistance getting orientated to City operations. L� CITY OF NEWPORT BEACH OFFICE OF THE CITY CLERK P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915 (714) 644 -3005 Cw'z� ex - i TO: FINANCE DIRECTOR FROM: CITY CLERK DATE: August 30, 1993 SUBJECT: Contract No. C -2949 Description of Contract Audit Services Effective date of Contract August 27, 1993 Authorized by Minute Action, approved on June 14, 1993 Contract with KPMG Peat Marwick Address 650 Town Center Drive Costa Mesa. CA 92626 Amount of Contract (See Agreement) Wanda E. Raggio City Clerk WER:pm Attachment 3300 Newport Boulevard, Newport Beach V , • C7 • May 26,1993 TO: FROM: SUBJECT: FACTS: �J CITY OF NEWPORT BEACH FINANCE DEPARTMENT Interdepartmental Memorandum 0 Council Agenda No. 12 ROVED HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL Dennis Danner, Director of Finance AWARD OF CONTRACT FOR AUDIT SERVICES C 1. Council Policy A -14 requires the City to obtain bids for audit services every three years. However, upon satisfactory completion of the work performed during each of the first three years, the City Council may extend the auditing services agreement an additional three years without obtaining written proposals. 2. Moreland and Associates has been the City's auditors for eight of the past ten years, and their current contract expires June 30, 1993. 3. Staff has solicited proposals for the audit of the City for the fiscal years ending June 30, 1993, 1994, 1995. To reduce the number of proposals to a manageable number it was decided that for an audit firm to qualify for consideration it must have an office in Orange County and must have experience in municipal audits. Eight Request for Proposals (RFD's) were sent to qualifying firms. These RFD's were considerably more detailed than has been the case in the past. Moreland and Associates, our present auditor, was not asked to submit a proposal. 4. Proposals were received from four audit firms as follows: Firm Diehl Evans & Co. Conrad & Associates KPMG Peat Marwick Ernst & Young Hours Proposed Annual Fee 327 $ 19,950 624 $ 24,960 700 $ 32,000 850 $ 49,800 0 0 AWARD OF AUDIT CONTRACT Page Two 5. Each firm made an in person presentation to City staff made up of the • Finance Director, Deputy Finance Director, and Accounting Manager. These sessions lasted approximately two hours each. In addition to presentations, each firm responded to a set of interview questions from staff. DISCUSSION: The criteria staff used in evaluating the audit proposals and the in person interviews included the following: General firm qualifications, Specific firm governmental engagement experience, Specific staff government experience, Audit approach, Location, and finally, Pricing. Based upon this criteria, staff has recommended the selection of KPMG Peat Marwick (Peat Marwick) as the auditors for the City. Although all of the four respondents exceeded the minimum requirements, we believe Peat Marwick is best suited to the City's needs at this particular time. • General Firm Qualifications - Peat Marwick is one of the six largest auditing firms in the World. It is staffs opinion that the reputation of a "Big Six" auditing firm is important for the City of Newport Beach. In addition, the depth of resources of a "Big Six" auditing firm are certainly substantial. Specific Firm Government Engagement Experience - Peat Marwick's services to governmental organizations represents one of the largest segments of the firm's business. Both locally and nationally, it is the firm with the most experience in auditing municipalities and other governmental agencies. Locally, they audit the cities of Anaheim, Irvine, Laguna Beach, San Clemente, Dana Point and Huntington Beach as well as many others. Nationally, Peat Marwick serves over 3,000 public sector clients. Specific Staff Government Engagement Experience - Both the Engagement Partner and the Concurring and Technical Resource Partner devote nearly 100% of their time to governmental audits. The Audit Manager proposed for the • engagement is very technically versed in auditing governmental agencies and lives in Newport Beach. The Audit Senior proposed for the engagement is likewise very experienced in auditing governmental agencies and appears to be technically strong. The audit manager and senior proposed for the engagement audit many local municipalities in Orange County. • AWARD OF AUDIT CONTRACT Page Three • Audit Approach - Peat Marwick's audit approach incorporates audit programs and checklists to insure a thorough and quality controlled audit. It also offers the auditor flexibility in test work and encourages the auditor to exercise professional judgment. There is a heavy emphasis on accounting systems evaluation and testing, and balance sheet testing. Peat Marwick's approach emphasizes early identification of reporting problems (during interim field work), and attempts to resolve these problems before year end. They are also very informed about Single Audit issues (concerning special compliance and reporting requirements for funds received from the Federal Government). Location - Peat Marwick's Orange County office is located at 650 Town Center, Suite 1000, Costa Mesa. They are close to the City if any problems arise that require immediate, personal attention. Estimated Pricing and Time Requirement - Although pricing is certainly not the • most important issue in selecting an auditing firm, the fee proposed ($32,000) is reasonable and below the budgeted amount. In addition, the 700 hours estimate for performing the audit is realistic for auditing an entity the size and complexity of the City. Pricing should not be used as a criteria for selecting a professional service. Our current audit contract was for $20,500. This amount was not realistic for our audit and resulted in a significant amount of accounting assistance being billed by the auditors. The current proposal is for a fixed fee contract and no additional work will be performed or authorized without a written agreement on behalf of both the audit firm and the City. RECOMMENDATION: That the auditing firm of KPMG Peat Marwick be selected to audit the City's financial statement for the fiscal year ending June 30, 1993, 1994, and 1995. Upon satisfactory completion of the work performed during each of the first • three year, the City Council may extend the auditing services agreement an additional three years without obtaining written proposals. 0 AUDITOR AGREEMENT 0 C - 4vf THIS AGREEMENT, entered into this l7 day of 1993, by and between CITY OF NEWPORT BEACH , a Charter City and a Municipal Corporation, (hereinafter referred to as "City "), and KPMG, Peat Marwick, whose address is 6500 Town Center, Suite 1000, Costa Mesa, California, 92626, (hereinafter referred to as "Auditor ".) This agreement is entered into with regard to the following facts: 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 the City. B. On April 9, 1993, the City issued its Audit Committee request for proposals for professional auditing services, ("RFP") pursuant to Council Policy A -14, which requires a City to obtain bids for audit services every three years. Whereas the RFP solicited for the performance of audits for the Fiscal Years ending June 30, 1993, 1994, and 1995. C. After a review of proposals for audit firms, the City Council for the City of Newport Beach awarded a contract for audit services to Auditor. 0C 0 0 D. City desires to engage Auditor to provide audit services upon the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the promises, agreements, covenants, and conditions contained in this Agreement and the Technical Proposal to Provide Professional Auditing Services submitted by Auditor on April 30, 1993, (hereinafter the "Proposal "), the parties hereby agree as follows: 1. TERM The Term of this Agreement shall commence effective on 1st day of July, 1993, and shall terminate on the 30th day of June, 1994, unless terminated earlier or extended as set forth herein. Upon mutual agreement of the parties, the term of this agreement may be extended for the two subsequent Fiscal Years, 1994 -95, and 1995 -96. 2. AUDITING SERVICES TO BE PERFORMED Auditor shall perform the audit services as set forth in the RFP and the Proposal, as described in Exhibit "A" and as certified in Exhibit A -1. 3. COMPENSATION TO AUDITOR Auditor shall be compensated for services performed pursuant to this Agreement in the amount and manner set forth in Exhibit "B ", attached hereto and incorporated herein by this reference. -2- 4. STANDARD OF CARE All of the work shall be performed by Auditor. Auditor represents that it possesses the professional and technical personnel required to perform the services required by this Agreement and that it will perform all services in a manner commensurate with the community professional standards. All services shall be performed by qualified and experienced personnel who are not employed by City nor have any contractual relationship with City. The Auditor shall be responsible to City for any errors or omissions in the execution of this Agreement. Auditor represents and warrants to City that it has or shall obtain all licenses, permits, qualifications and approvals required of its profession. Auditor further represents and warrants that it shall keep in effect all such licenses, permits and other approvals during the term of this Agreement. 5. INDEPENDENT PARTIES City retains Auditor on an independent contractor basis and Auditor is not an employee of the 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 express terms of this Agreement. No civil service status or other right of employment with City will be acquired by virtue of Auditor's services. None of the benefits provided by City to its employees, including, but not limited to, unemployment insurance, worker's compensation plans, vacation and sick leave, are available from City to Auditor, its employees or agent. Deductions shall not C I= 0 0 be made for any state or federal taxes, FICA payments, PERS payments or other purposes normally associated with an employer- employee relationship from any fees due Auditor. Payments of the above items, if required, are the responsibility of Auditor. 6. COOPERATION Auditor agrees to work closely and cooperate fully with City's designated Project Administrator, and any other agencies which may have jurisdiction or interest in the work to be performed. City agrees to cooperate with the Auditor on the project. 7. PROJECT MANAGER The Auditor shall assign the project to a Project Manager, who shall coordinate all phases of the project. This Project Manager shall be available to the City at all times. The Auditor has designated Peggy McBride to be its Project Manager. 8. ADMINISTRATION This Agreement will be administered by the Finance Department. The Finance Director or his designees shall be considered the Project Administrator and shall have the authority act for the City under this Agreement. The Project Administrator or his designee shall represent the City in all matters pertaining to the services to be rendered pursuant to this Agreement. 9. TIME OF PERFORMANCE The task to be performed by Auditor under and pursuant to this Agreement shall be completed in accordance with the schedule set forth in the Proposal. Auditor shall receive no additional compensation if completion of its obligation under this Agreement -4- 0 0 requires a time greater than as set forth herein, unless such extension is caused solely by the conduct of the City. 10. CITY POLICY Auditor will discuss and review all matters relating to policy and project direction with the Project Administrator in advance of all critical decision points in order to ensure that the project proceeds in a manner consistent with City goals and policies. 11. PROGRESS Auditor is responsible to keep the Project Administrator and /or his designee informed on a regular basis regarding the status and progress of the work, activities performed and planned, and any meetings that have been scheduled or are desired. 12. HOLD HARMLESS Auditor agrees to indemnify, defend, save and hold harmless City, its City Council, boards and commissions, officers and employees from and against any and all loss, damages, liability, or claims, costs and expenses for damages of any nature whatsoever, including, but not limited to, bodily injury, death, personal injury, property damages, attorneys fees and court costs arising from any and all negligent actions of Auditor, its employees, agents or subcontracts in the performance of services or work conducted or performed pursuant to this Agreement. 13. INSURANCE Without limiting Auditor's indemnification of City, Auditor shall obtain and provide and maintain at its own expense during the term of this Agreement policy or policies of professional errors -5- • • and omissions insurance which covers the services to be performed in connection with this Agreement in the minimum amount of Two Million Dollars ($2,000,000.00). Said policy or policies shall be endorsed to state that coverage shall not be suspended, voided or canceled by either party, or reduced in coverage or in limits except after thirty (30) days' prior notice has been given in writing to City. Auditor shall give to City prompt and timely notice of claim made or suit instituted arising out of Auditor's operation hereunder. Auditor shall also procure and maintain, at its own cost and expense, any additional kinds of insurance, which in its own judgment may be necessary for its proper protection and prosecution of the work. 14. PROHIBITION AGAINST TRANSFERS Auditor shall not assign, delegate or subcontract its responsibilities under this Agreement or any interest in this Agreement, directly or indirectly, by operation of law or otherwise without prior written consent of City. 15. WORKING PAPERS AND REPORTS No report, information or other data given to or prepared or assembled by Auditor pursuant to this Agreement shall be made available to any individual or organization not listed below without prior approval by City. All working papers, reports, and other data prepared in accordance with this Agreement must be retained, at Auditor's expense, for a minimum of three (3) years, unless the firm is notified in writing by the City of Newport Beach of the need to 0 • extend the retention period. Auditor will be required to make its working papers, reports, and other data available, upon request, to the following parties or their designees: City of Newport Beach Department of Housing and Urban Development U.S. General Accounting Office (GAO) Parties designated by federal or state government or by the City of Newport Beach as part of an audit quality review process Auditors of entities of which the City of Newport Beach is a subrecipient of grant funds Auditors of entities of which the City of Newport Beach is a component unit In addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. 16. CITY'S RESPONSIBILITIES City shall furnish to Auditor existing studies, ordinances, data and other existing information as shall be requested by Auditor and materials in City's possession necessary for Auditor to complete the work contemplated by this Agreement. City further agrees to provide all such materials in a timely manner so as not to cause delays in Auditor's work schedule. 17. REIMBURSEMENT FOR EXPENSES Auditor shall not be reimbursed for any expenses unless 2FIC 0 0 authorized in writing by City. 18. INVOICES Auditor shall submit invoices to the City when each audit phase is completed in accordance with Auditor's schedule of fees contained in Exhibit "B" 19. PAYMENT OF COMPENSATION City shall make payments to Auditor within thirty (30) days of receiving an invoice unless City disputes the amount Auditor claims is owned under this Agreement. 20. WITHHOLDINGS City may withhold payment of any disputed sums until satisfaction of the dispute with respect to such payment. Such withholding shall not be deemed to constitute a failure to pay according to the terms of this Agreement. Auditor shall not discontinue its work for a period of thirty (30) days from the date of withholding as a result of such withholding. Auditor shall have an immediate right to appeal to the City Manager or his designee with respect to such disputed sums. The determination of the City Manager with respect to such matter shall be final. Auditor shall be entitled to receive interest on any withheld sums at the rate of seven percent (7 %) per annum from the date of withholding of any amounts found to have been improperly withheld. 21. TEN PERCENT (10 %) WITHHOLDING City may withhold an amount equivalent to ten percent (10 %) of the total compensation provided herein, to be released to Auditor upon final adoption of the reports by the Mayor and City Council. mc 0 i The City reserves the right to refuse to pay all billings requesting amounts in excess of ninety percent (90 %) of the total compensation provided herein until the project is completed and adopted as specified above. 22. NONDIS BY AUDITOR Auditor represents and agrees that Auditor, its affiliates, subsidiaries or holding companies do not and will not discriminate against any subcontractor, auditor, employee or applicable for employment because of race, religion, color, sex, handicap or national origin. Such nondiscrimination shall include, but not be limited to, the following: employment, upgrading, demotion, transfers, recruitment, recruitment advertising, layoff, termination, rates of pay or other forms of compensation and selection for training, including apprenticeship. 23. CITY'S RIGHT TO EMPLOY OTHER AUDITORS City reserves the right to employ other auditors in connection with this project. 24. CONFLICTS OF INTEREST A. The Auditor or its employees may be subject to the provisions of the California Political Reform Act of 1974 (the "Act "), which (1) requires such persons to disclose financial interest that may foreseeable be materially affected by the work performed under this Agreement, and (2) prohibits such persons from making, or participating in making, decisions that will foreseeable financially affect such interest. B. If subject to the Act, Auditor shall conform to all cm 9 0 requirements of the Act. Failure to do so constitutes a material breach and is grounds for termination of this Agreement by the City. The Auditor shall indemnify and hold harmless the City for any claims for damages resulting from the Auditor's violation of this Section. 25. NOTICES All notices, demands, requests or approvals to be given under this Agreement shall be given in writing and conclusively shall be deemed served when delivered personally or on the second business day after the deposit thereof in the United States mail, postage prepaid, registered or certified, addressed as hereinafter provided. All notices, demands, requests or approvals from Auditor to City shall be addressed to City at: City of Newport Beach 3300 Newport Boulevard P. O. Box 1768 Newport Beach, CA 92659 -1768 Attention: Dennis Danner, Finance Director All notices, demands, requests or approvals from City to Auditor shall be addressed to Auditor at: KPMG Peat Marwick 650 Town Center, Suite 1000 Costa Mesa, CA 92626 Attention: Peggy McBride 26. TERMINATION In the event Auditor hereto fails or refuses to perform any of the provisions hereof at the time and in the manner required hereunder, Auditor shall be deemed in default in the performance of this Agreement. If such default is not cured within a period of -10- two (2) days, or if more than two (2) days are reasonably required to cure the default and Auditor fails to give adequate assurance of due performance within two (2) days after receipt by Auditor from City of written notice of default, specifying the nature of such default and the steps necessary to cure such default, City may terminate the Agreement forthwith by giving to the Auditor written notice thereof. City shall have the option, at its sole discretion and without cause, of terminating this Agreement without cause by giving fourteen (14) days' prior written notice to Auditor as provided herein. Upon termination of this Agreement, each party shall pay to the other party that portion of compensation specified in this Agreement that is earned and unpaid prior to the effective date of termination. 27. COST OF LITIGATION If any legal action is necessary to enforce any provision hereof or for damages by reason for an alleged breach of any provisions of this Agreement, the prevailing party shall be entitled to receive from the losing party all costs and expenses in such amount as the court may adjudge to be reasonable attorneys' fees. 28. COMPLIANCES Auditor shall comply with all laws, state or federal and all ordinances, rules and regulations enacted or issued by City. 29. WAIVER A waiver by City of any breach of any term, covenant or -11- • 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 together with the RFP and the Proposal represent the full and complete understanding of every kind or nature whatsoever between the parties hereto. To the extent the Proposal and this Agreement are in conflict, the provisions of this Agreement shall rule. No verbal agreement or implied covenant shall be held to vary the provisions hereon. Any modification of this Agreement will be effective only by written agreement signed by both City and Auditor. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first written above. DATE • G ATTEST: 2�- CITY CLERK -12- CITY OF NEWPORT BEACH A Municipal Corporation By: vjv,--, mN000 y.�- AUDITOR: �J i �j -12- CITY OF NEWPORT BEACH A Municipal Corporation By: vjv,--, mN000 y.�- AUDITOR: APPROVED AS TO FORM: wb /agr /ccnaudit.agt 8/93 -13- 0 SPECIFIC AUDIT APPROACH We believe it is important to note that, while audits conducted by different accounting firms might appear to be similar, it is only because one focuses on the end product -- the audit report. In fact, significant differences are apparent if one focuses on the conduct and approach to the audit. We at KPMG Peat Marwick believe our audit of local governmental units are distinguishable from those of our competitors because of our commitment to our clients and the governmental industry. It is our goal to provide our clients with the highest level of service available. This includes providing timely year - around responses to inquiries, developing management letter comments that will help to improve City operations, communicating the most recent developments within the industry, and meeting agreed -upon deadlines. Audit Scope The engagement will include the annual audit of the following financial statements: • City's General Purpose Financial Statements Compliance audits: • Single Audit • Gann Limit Attestation The financial statement audits will be conducted in accordance with generally accepted auditing standards as promulgated by the American Institute of Certified Public Accountants in their audit guide, Audits of State and Local Governmental Units, and will accordingly include such tests of the accounting records and such other auditing procedures as we consider necessary. The accounting and reporting principles adopted by the Governmental Accounting Standards Board will be applied. The primary purpose of the examinations is to enable us to form an opinion as to the combined financial position of the City and related entities at June 30, 1993 and the results of their operations for the year then ending. A detailed check of the day -to-day transactions is not contemplated. Reliance must be placed upon adequate methods of internal check and control as your principal guard against irregularities which a test examination may not disclose. If conditions are discovered which lead us to believe that material errors, defalcations or other irregularities may exist or if other circumstances are encountered that require extended services, we will promptly advise City officials as detailed in your request for proposal. No extended services will be provided without proper authorization. The compliance audit, the Single Audit, of the City will be performed as a single audit as defined in Office of Management and Budget (OMB) Circular A -128, Audits of State and Local Governments. The audit will encompass all Federal funds administered by the City. Furthermore, it will be conducted in accordance with the provisions of. Government Auditing Standards (1988) promulgated by the U.S. General Accounting Office, which pertain to financial and compliance audits; Compliance Supplement for Single Audits of State and Local Governments and Guidelines for Compliance Audits of California Redevelopment Agencies, as appropriate. Our examination will not extend to third -party recipients' uses of grant funds. 16 EXHIBIT A Reporting The following would be the output of each annual audit: • Our report on the City's general purpose financial statements and on the combining and individual fund statements, as supplementary data; • Our reports on internal accounting controls and compliance with applicable laws and regulations reports as required by Govemmental Auditing Standards (the "Yellow Book "); • Our reports as required by the Single Audit Act of 1984: - Our report on the Schedule of Federal Financial Assistance as supplementary data ( "In relation to" report) ; - Our report on the internal control structure used in administering federal financial assistance programs; - Our report on compliance with specific requirements applicable to major and nonmajor federal financial assistance programs; - Our report on compliance with general requirements for both major and nonmajor federal financial assistance programs; • Our report on the Gann limit (Article X IIB) attestation; • Our report to the audit committee as required by SAS 61; • Our management letter. We consider the development of a comprehensive, practical management letter to be a major by- product of the audit process. We emphasize meaningful comments focusing not only on matters of internal control and the City's financial management systems, but also on operating economy and efficiency. As is our usual procedure, we will review our understanding of the facts obtained during our examination with appropriate City personnel prior to submitting our recommendations. Communications The underlying element of our entire work plan is interaction with the City officials overseeing the audit in order to appraise them of our progress. We shall conduct periodic progress report meetings with the City Finance Officer and Staff. We obviously believe communication is vital. We have stressed the importance of continuous close relationships throughout this proposal. We strongly believe in the benefit derived from regular progress meetings between our top engagement personnel and the City's officials. It is our intent to use these meetings to report: • Accomplishments • Outlook • Problems to be resolved In addition, we are available to attend meetings of the Audit/Finance Committee, City Council and/or City Management as the City deems appropriate. This includes, but is not necessarily limited to, the meetings detailed in your request for proposal. 17 0 0 Our Audit Philosophy Our basic audit philosophy has been developed from our many years of experience in providing audit services to local governments. We stress the efficiency and timeliness of our procedures; therefore, we also place heavy emphasis on early planning, communications and coordination of the efforts of our people with your personnel. Because our approach stresses early resolution of audit, accounting and related problems and questions, much of our preliminary work will deal with seeking out and resolving potential problems before year -end when alternatives for their resolution are more flexible and available. In this manner we have consistently proven that we can render more effective client service and meet your objectives of timely and accurate financial reporting. Overall Audit Approach The implementation of our audit approach to the City can be divided into the following phases: 6 i trITRIMMMM The key element of our plan of service is to be responsive to City requests for ongoing assistance and consultation throughout the year. We will not, however, wait to be asked for specific service, but rather our professionals will meet with the City to discuss current developments. We will regularly update you on developments that come to our attention from our active involvement in governmental finance and reporting technical committees and task forces. II. Initial Planning Obtain an Understanding of the City and Its Operating Environments - The audit will begin by expanding KPMG Peat Marwick's understanding of the City and its operating environments. We will do this by accumulating and reviewing applicable background information pertinent to the City. A sample of such background items typically include: • The City's organization and personnel • Our understanding of the principal accounting and administration systems • Operational and capital budgets • Minutes of the City Council • Contracts and major commitments including bond agreements and covenants, if any • Operating agreements with other government agencies • Policy and procedure manuals, administrative codes, rules and regulations • Local, State and Federal legislation impacting the City Discuss Planning Considerations with the City - At this point we would meet with the appropriate City personnel to discuss, as necessary: • The application of generally accepted accounting principles • Initial audit concerns • Concerns of the City Management and the City Council • Report requirements, refinements and deadlines • A detailed work schedule and audit calendar of key audit dates (See example audit calendar in Appendix C) IV • Initial audit approach and timing schedule • Assistance from City personnel • Establishment of initial contacts • Space and equipment needs • Progress reporting process Develop an In -Depth Understanding of Areas of Concern - Develop our knowledge of the City, and as a result of our fact-finding process, we are prepared to identify the areas of audit emphasis. We will review such areas in -depth to obtain an early understanding resolution of any "problem" areas that may impede our progress and to develop our overall approach so that the City has sufficient time to develop that data necessary for completion of the audit with a minimum amount of disruption of the day -to-day routine. Review Data Collection Procedures - Documenting, evaluating and testing of the system is performed by interviews of responsible accounting personnel and the tracing of a number of input documents through the accounting systems related to major transaction cycles within the organization. Conduct Analytical Reviews -- Using the City's budget, interim and prior year financial statements, the audit team will employ analytical review techniques to identify other areas that might require attention. We can thus identify certain more sensitive areas to determine whether they are indeed areas requiring extra attention. Identify Major Areas of Audit Concern and Define the Major Audit Objectives - Based on our understanding of the City's operating environment, our analytical reviews and other planning procedures, we can highlight the areas to be emphasizes during the audit. Perform Single Audit Administrative Matters - With regard to planning single audit requirements, we will also identify major federal and state programs administered by the City, if any, and the related compliance requirements. The City will be asked to prepare a schedule that lists each grant program it administered during the audit period, categorized by grantor agency and identifying number. Discuss and Agree upon Financial Statement Formats - We will work with the City to develop quality, meaningful financial statements and footnotes for the year, in accordance with all NCGA/GASB statements. Develop Audit Plan - It is our policy to prepare a formal memorandum or audit plan for each of our engagements. A formal plan is especially needed to inform all parties as to our intent, deadlines and the like. Specifically an Audit and Annual Report Process Schedule which would detail key audit dates for each year's audit. See example in Appendix C Phase II will be performed as part of our interim fieldwork during June. 19 i III. ,Systems Evaluation The steps in this phase are as follows: Document and Test Internal Control Systems, Perform Single Audit testwork and Flowchart the Significant Accounting Cycles - Using KPMG Peat Marwick flowcharting techniques, we will identify critical points in the flow of information. We will perform a detailed test of transactions from the financial accounting records to determine whether, in fact, the accounting procedures and systems of internal control were applied as described. We will, for example, perform tests to assist in determining whether. • State and Federal grants to which the City is entitled were received, if any • Single Audit Compliance testing, as necessary • Revenues received were deposited • Materials were requisitioned by authorized employees • Bidding practices established by City requirements were used • Materials were received • Necessary approvals were documented • Discounts, if any, were taken • Expenditures were charged to the correct accounts • Persons on City payrolls were bona fide employees • Employees were paid in accordance with appropriate salary scales, etc. • Compensation was charged to the correct accounts. We will identify the strengths and weaknesses in each transaction subcycle and subaudit areas that have a bearing on the audit objectives. Develop SeaCas Applications - SeaCas ("Systems Evaluation Approach -- Computerized Audit Support") is a micro computer based support system, using Macintosh computers, developed by KPMG peat Marwick to assist our field auditors in doing their jobs faster and more thoroughly. Develop Tailored Audit Programs - Our engagement service team will develop tailored audit programs based upon the identification of internal control strengths, and reference to our comprehensive "State and Local Government Practice Guide ". Our audit program will include the compliance tests performed and noted above and substantive tests for testing account balances. Phase III will be performed as part of our interim fieldwork during June. 20 IV. Testing L When we will have identified the major auditing, accounting and reporting issues and worked with you so that we will have a clear -cut plan for resolving these issues, we will commence our final testwork. The scheduling will be worked out so as to be convenient to the City yet sufficient for us to meet the City's reporting deadlines. Our year -end work will consist principally of. • Performing substantive tests to ascertain the validity of year -end financial statement balances. • If necessary, update single audit testwork. • Resolving the last- minute auditing, accounting and reporting issues which sometimes occur. • Preparing the financial statements and independent auditors' reports of the entities as noted above. Phase VI will be performed as part of our final fieldwork would commence in September and conclude in October. V. Reporting The last phase of our audit cycle is the reporting phase. Because of our emphasis on early problem resolution in the planning phase of the audit and extensive interim testwork, our final audit fieldwork will be mainly concerned with reviewing the fair presentation of the final numbers that will appear in the annual financial reports. We will work closely with City personnel in preparing the Comprehensive Annual Financial Report (CAFR) and other financial statements. Prior to the providing our signed auditors' reports, a second KPMG Peat Marwick partner will perform a "cold" review of the draft reports and other documents in order to evaluate the professional excellence of the examination. He will then give his concurrence as to the propriety of the auditors' reports. All reports will be prepared by KPMG Peat Marwick and include City personnel throughout the review and draft process. Printing of the CAFR will be the responsibility of the City. Draft copies of all audit reports and financial statements will be provided to the City by November 15, 1993. All final reports will be delivered to the City by November 24, 1993. We consider the development of a comprehensive, practical management letter to be a major by- product of the audit process. We emphasize meaningful comments focusing not only on matters of internal control and the City's financial management systems, but also on operating economy and efficiency. As is our usual procedure, we will review our understanding of the facts obtained during our examination with appropriate City personnel prior to submitting our recommendations. 21 Estimated Audit Hours by Audit Phase We estimate the following hours will be required to complete the noted phases of the engagement on an ongoing basis: Phase Total Planning 100 Systems evaluation 100 Testing 400 Reporting -M Total 700 Our planned audit team includes a Partner, Senior Manager, Manager, Senior and two Staff auditors. Peggy McBride, as Engagement Partner, will be involved throughout the engagement, concentrating her time in the areas of planning, in the review of critical audit areas, and in the review of the financial statements. Joe Parker, the Engagement Manager, will monitor the progress of the audit on at least an every- other -day basis, and can be expected to be on -site at least once a week during fieldwork. Carla Mills, the Engagement Senior, is responsible for the day -to- day progress of the audit and will be on -site throughout all phases of the audit, supported by the Staff auditor. It is important to re- emphasize that both the Partner and Manager will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. City Staff Assistance Beginning with the initial planning phase, we will arrange for assistance in obtaining supporting documents, typing confirmations and the like. Specifics of such assistance will be agreed upon and confirmed in writing well in advance of our needs so that City personnel will have ample time to complete the agreed -upon work, thereby avoiding inefficiency and day - today ineffectiveness. We do not expect that the time required of City clerical personnel in providing this assistance will exceed 60 hours. We assume that the City prepares and retains account reconciliations and we will request and use copies of these schedules for our audit working papers. Thus, the preparation of additional schedules and analyses by City staff should be held to a minimum Working Paper Retention We will retain the working papers in accordance with regulatory requirements, for a minimum of three years. The working papers will be available to the City upon request. 22 i r I. The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section 11, Nature of Services Required of the Request for Proposal. Signature of Official: Name: Margaret 1. &Bride Tide: Partner Firm: KPMG Peat Marwick Date: April 30, 1993 i 35 EXHIBIT All 0 Ll PROFESSIONAL FEES - KPMG PEAT MARWICK Fee Analysis City officials and management are cognizant of their responsibilities to manage their public resources and to obtain value in exchange for their resources. Value is measured by the effective use of City personnel, the quality of advice, counsel and service, a return on investment and, of course, out -of- pocket costs. In evaluating our fees we ask that the City also consider the following factors in establishing the degree of value we might add to the City: • Our demonstrated engagement team resources and continuity of personnel. • Our efficient audit methodology, precise focus and degree of audit coverage. • The current state of our audit technology, its attendant efficiencies, and the degree to which that technology can be placed in the hands of the City for its own use in the future. • Our proven abilities to deliver quality advice, counsel and service. • Our demonstrated commitment to local government. Our estimates of the fees we shall charge anticipate a long -term relationship with the City. We are prepared to commit to a fixed fee which includes all out -of- pocket expenses as summarized below: 92 -93 City of Newport Beach Financial Audit $ 27,500 Single Audit 4.500 Total $ 32,000 Our estimates of the fees we shall charge anticipate a long -term relationship with the City. We believe that our fees are fair and reasonable considering the quality of our professional staff and the extensive service we provide. However, we would not willingly allow a minor fee differential to impact our ability to serve the City. We are, therefore, prepared to discuss the impact of varying levels of City assistance and other factors on the fee calculation process, and work with the City to minimize audit fees in every way possible. We are prepared to commit to a fee including out -of- pocket expenses as summarized on the following page. 2 EXHIBIT B • 0 Schedule of Professional Fees and Expenses for the Audit of the June 30, 1993 Financial Statements and Single Audit Subtotal 700 41,650 Out -of- pocket expenses: Printing, office expenses and supplies 2.500 44,150 Less "preferred client" discount 1( 2.150) Net fee to City $32,000 Our fees for accounting and auditing services or other special services rendered (not in connection with the aforementioned services) will be estimated using the hourly rates quoted above. Fees for services utilizing our management consulting personnel will be negotiated at such time as they are requested. Prior to commencing any special work, we would meet with appropriate City personnel to review the scope of the proposed work and provide an estimate of our fees. As set forth in the request for proposal, all out -of- pocket expenses are included in the our fixed fee and KPMG Peat Marwick will calculate these out -of- pocket expenses for travel, lodging and subsistence at the prevailing City of Newport Beach rates for its employees. It is important to re- emphasize that both the Partners and Managers will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. Standard Quoted Hourly Hourly Hou s Rates Rates Total Partners 35 $313 $175 $ 6,125 Senior Manager 20 188 120 2,400 Manager 60 155 110 6,600 In- charge 235 95 65 15,275 Staff (composite rate) 250 79 45 11.250 Subtotal 700 41,650 Out -of- pocket expenses: Printing, office expenses and supplies 2.500 44,150 Less "preferred client" discount 1( 2.150) Net fee to City $32,000 Our fees for accounting and auditing services or other special services rendered (not in connection with the aforementioned services) will be estimated using the hourly rates quoted above. Fees for services utilizing our management consulting personnel will be negotiated at such time as they are requested. Prior to commencing any special work, we would meet with appropriate City personnel to review the scope of the proposed work and provide an estimate of our fees. As set forth in the request for proposal, all out -of- pocket expenses are included in the our fixed fee and KPMG Peat Marwick will calculate these out -of- pocket expenses for travel, lodging and subsistence at the prevailing City of Newport Beach rates for its employees. It is important to re- emphasize that both the Partners and Managers will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. f • Peat Marwick Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 April 30, 1993 Mr. Dennis C. Danner Finance Director City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Dear Mr. Danner: • C -z9fI Enclosed please find our cost proposal to audit the financial statements of the City of Newport Beach for the year ended June 30, 1993. The cost proposal includes the fees we would charge and the rates for the various classifications of audit personnel, which would be the basis for fees to provide services beyond the scope of this engagement. As further discussed on the following pages, our proposed fee for the 1993 engagement is $32,000. We are very enthusiastic about the possibility of serving as the City's auditors. Please do not hesitate to contact me at (7 14) 850 -4363 if you have any questions or require additional information. As was noted in our Proposal, I will act as our Firm contact and am authorized to make representations and binding decisions on behalf of the Firm. Very truly yours, KPMG Peat Marwick Margaret J. McBride, Partner Enclosure Member Firm of KWveld Pea, Mawck Goerdeler 0 PROFESSIONAL FEES - KPMG PEAT MARWICK Fee Analysis City officials and management are cognizant of their responsibilities to manage their public resources and to obtain value in exchange for their resources. Value is measured by the effective use of City personnel, the quality of advice, counsel and service, a return on investment and, of course, out -of- pocket costs. In evaluating our fees we ask that the City also consider the following factors in establishing the degree of value we might add to the City: • Our demonstrated engagement team resources and continuity of personnel. • Our efficient audit methodology, precise focus and degree of audit coverage. • The current state of our audit technology, its attendant efficiencies, and the degree to which that technology can be placed in the hands of the City for its own use in the future. • Our proven abilities to deliver quality advice, counsel and service. • Our demonstrated commitment to local government. Our estimates of the fees we shall charge anticipate a long -term relationship with the City. We are prepared to commit to a fixed fee which includes all out -of- pocket expenses as summarized below: L'y3x City of Newport Beach Financial Audit $ 27,500 Single Audit 4.500 Total $ 32,000 Our estimates of the fees we shall charge anticipate a long -term relationship with the City. We believe that our fees are fair and reasonable considering the quality of our professional staff and the extensive service we provide. However, we would not willingly allow a minor fee differential to impact our ability to serve the City. We are, therefore, prepared to discuss the impact of varying levels of City assistance and other factors on the fee calculation process, and work with the City to minimize audit fees in every way possible. We are prepared to commit to a fee including out -of- pocket expenses as summarized on the following page. 2 9 0 Schedule of Professional Fees and Expenses for the Audit of the June 30, 1993 Financial Statements and Single Audit Our fees for accounting and auditing services or other special services rendered (not in connection with the aforementioned services) will be estimated using the hourly rates quoted above. Fees for services utilizing our management consulting personnel will be negotiated at such time as they are requested. Prior to commencing any special work, we would meet with appropriate City personnel to review the scope of the proposed work and provide an estimate of our fees. As set forth in the request for proposal, all out -of- pocket expenses are included in the our fixed fee and KPMG Peat Marwick will calculate these out -of- pocket expenses for travel, lodging and subsistence at the prevailing City of Newport Beach rates for its employees. It is important to re- emphasize that both the Partners and Managers will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. Standard Quoted Hourly Hourly Hours Rates Rates Total Partners 35 $313 $175 $ 6,125 Senior Manager 20 188 120 2,400 Manager 60 155 110 6,600 In- charge 235 95 65 15,275 Staff (composite rate) 50 79 45 11.250 Subtotal 700 41,650 Out -of- pocket expenses: Printing, office expenses and supplies 2.500 44,150 Less "preferred client' discount (12J50) Net fee to City $32,000 Our fees for accounting and auditing services or other special services rendered (not in connection with the aforementioned services) will be estimated using the hourly rates quoted above. Fees for services utilizing our management consulting personnel will be negotiated at such time as they are requested. Prior to commencing any special work, we would meet with appropriate City personnel to review the scope of the proposed work and provide an estimate of our fees. As set forth in the request for proposal, all out -of- pocket expenses are included in the our fixed fee and KPMG Peat Marwick will calculate these out -of- pocket expenses for travel, lodging and subsistence at the prevailing City of Newport Beach rates for its employees. It is important to re- emphasize that both the Partners and Managers will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. City of Newport Beach AUDIT CONINUTTEE REQUEST FOR PROPOSALS IKSM PROFESSIONAL AUDITING SERVICES April 9, 1993 3300 Newport Boulevard Newport Beach, California 92663 I. II. III. IV City of Newport Beach REQUEST FOR PROPOSALS TABLE OF CONTENTS INTRODUCTION A. General Information B. Term of Engagement C. Subcontracting NATURE OF SERVICES REQUIRED A. General B. Scope of Work to be Performed C. Auditing Standards to be Followed D. Reports to be Issued E. Special Considerations F. Working Paper Retention and Access to Working Papers DESCRIPTION OF THE GOVERNMENT A. Name and Telephone Number of Chart/Location of Offices B. Background Information C. Fund Structure D. Budgetary Basis of Accounting E. Federal and State Financial Assistance F. Pension Plans G. Component Units H. Magnitude of Finance Operations I. Computer Systems J. Internal Audit Function K. Miscellaneous TIME REQUIREMENTS Contact Persons /Organizational A. Proposal Calendar B. Date Contract to be Awarded C. Notification and Contract Dates D. Schedule for the June 30, 1993 Fiscal Year Audit 1. Interim Work 2. Detail Audit Plan and Programs 3. Fieldwork 4. Draft Reports 2 E. Entrance Conferences, Progress Reporting and Exit Conferences F. Date Final Report is Due V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION A. Finance Department and Clerical Assistance B. Electronic Data Processing (EDP) Assistance C. Statements and Schedules to be Prepared by the Staff of the City of Newport Beach D. Work Area, Telephone, Photocopying and FAX Machines E. Report Preparation VI. PROPOSAL REQUIREMENTS A. General Requirements 1. Inquiries 2. Submission of Proposals B. Technical Proposal 1. General Requirements 2. Independence 3. Firm Qualifications and Experience 4. Partner, Supervisory and Staff Qualifications and Experience 5. Similar Engagements with Other Government Entities 6. Specific Audit Approach 7. Identification of Anticipated Potential Audit Problems 8. Report Format C. Sealed Dollar Cost Bid 1. Total All - Inclusive Maximum Price 2. Rates by Partner, Specialist, Supervisory and Staff Level Times Hours Anticipated for Each 3. Out -of- pocket Expenses in the Total All- inclusive Maximum Price and Reimbursement Rates 4. Rates for Additional Professional Services 5. Manner of Payment VII. EVALUATION PROCEDURES A. Review of Proposals B. Evaluation Criteria 1. Mandatory Elements 3 0 0 2. Technical Qualifications 3. Price C. Final Selection D. Right to Reject Proposals APPENDICES A. Organizational Chart B. List of Key Personnel and Telephone Numbers C. City of Newport Beach Network Diagram D. Preliminary Prepared by Client (PBC) list. E. Proposer Guarantees F. Proposer Warranties 0 G. Format for Schedule of Professional Fees and Expenses to Support the Total All - Inclusive Maximum Price H. Audited 1992 Comprehensive Annual Financial Report. 5 L] f� ryl<�i�i iZ�IIi]�I City of Newport Beach REQUEST FOR PROPOSALS A. General Information The City of Newport Beach is requesting proposals from certain qualified firms of certified public accountants with an office(s) located in Orange County to audit its financial statements for the fiscal year ending June 30, 1993, with the option of auditing its financial statements for each of the two subsequent fiscal years. These audits are to be performed in accordance with generally accepted auditing standards, the standards set forth for financial audits in the General Accounting Office's (GAO) Government Auditing Standards (1988), the provisions of the federal Single Audit Act of 1984 and U.S. Office of Management and Budget (OMB) Circular A -128, Audits of State and Local Governments There is no expressed or implied obligation for the City of Newport Beach to reimburse responding firms for any expenses incurred in preparing proposals in response to this request. To be considered, ten copies of a proposal must be received by Wanda Raggio, City Clerk at 3300 Newport Boulevard by 2:00 pm on May 3, 1993. The City of Newport Beach reserves the right to reject any or all proposals submitted. Proposals submitted will be evaluated by a five member Audit Committee and selected by the Newport Beach City Council based on the recommendations of the Audit Committee. The Audit Committee consists of the Mayor, two council members, the City Manager and the Finance Director. During the evaluation process, the Audit Committee and the City of Newport Beach reserve the right, where it may serve the City of Newport Beach's best interest, to request additional information or clarifications from proposers, or to allow corrections of errors or omissions. At the discretion of the City of Newport Beach or the Audit Committee, the engagement Manager and Senior Auditor of firms submitting proposals may be requested to make oral presentations as part of the evaluation process. The City of Newport Beach reserves the right to retain all proposals submitted and to use any ideas in a proposal regardless of whether that proposal is selected. Submission of a proposal indicates acceptance by the firm of the conditions contained in this request for proposals, unless clearly and specifically noted in the proposal submitted and confirmed in the contract between the City of Newport Beach and the firm selected. It is anticipated the selection of a firm will be completed by May 25, 1993. Following the notification of the selected firm it is expected a contract will be 3 executed between both parties by May 28, 1993. B. Term of Engagement A three -year contract is contemplated, subject to the annual review and recommendation of the Audit Committee, the satisfactory negotiation of terms (including a price acceptable to both the City of Newport Beach and the selected firm), the concurrence of the Newport Beach City Council and the annual availability of an appropriation. C. Subcontracting Firms submitting proposals are encouraged to consider subcontracting portions of the engagement to small audit firms or audit firms owned and controlled by socially and economically disadvantaged individuals. If this is to be done, that fact, and the name of the proposed subcontracting firms, must be clearly identified in the proposal. Following the award of the audit contract, no additional subcontracting will be allowed without the express prior written consent of the City of Newport Beach. II. NATURE OF SERVICES REQUIRED A. General The City of Newport Beach is soliciting the services of certain qualified firms of certified public accountants with an office(s) located in Orange County to audit its financial statements for the fiscal year ending June 30, 1993 with the option to audit the City of Newport Beach's financial statements for each of the two subsequent fiscal years. These audits are to be performed in accordance with the provisions contained in this request for proposals. B. Scope of Work to be Performed The City of Newport Beach desires the auditor to express an opinion on the fair presentation of its general purpose financial statements in conformity with generally accepted accounting principles. The auditor is not required to audit the combining and individual fund and account group financial statements and supporting schedules. However, the auditor is to provide an "in- relation -to" report on the combining and individual fund financial statements and supporting schedules based on the auditing procedures applied during the audit of the general purpose financial statements. The auditor is not required to audit the statistical section of the report. 7 0 0 The auditor is not required to audit the schedule of federal financial assistance. However, the auditor is to provide an "in- relation -to" report on that schedule based on the auditing procedures applied during the audit of the financial statements. C. Auditing Standards To Be Followed To meet the requirements of this request for proposals, the audit shall be performed in accordance with generally accepting auditing standards as set forth by the American Institute of Certified Public Accountants, the standards for financial audits set forth in the U.S. General Accounting Office's Government Auditing Standards (1988), the provisions of the Single Audit Act of 1984 and the provisions of U.S. Office of Management and Budget (OMB) Circular A -128, Audits of State and Local Governments. D. Reports to be Issued Following the completion of the audit of the fiscal year's financial statements, the auditor shall issue: 1. A report on the fair presentation of the financial statements in conformity with generally accepted accounting principles. 2. A report on the internal control structure based on the auditors' understanding of the control structure and assessment of control risk. 3. A report on compliance with applicable laws and regulations. 4. An "in- relation -to" report on the schedule of federal financial assistance. 5. A report on the internal control structure used in administering federal financial assistance programs (this report may be combined with report number 2). 6. A report on compliance with specific requirements applicable to major federal financial assistance programs. 7. A report on compliance with specific requirements applicable to nonmajor federal financial assistance programs (this report may be combined with report number 6). 8. A report on compliance with general requirements for both major and nonmajor federal financial assistance programs. F1 0 0 In the required reports on internal controls, the auditor shall communicate any reportable conditions found during the audit. A reportable condition shall be defined as a significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. Reportable conditions that are also material weaknesses shall be identified as such in the report. Nonreportable conditions discovered by the auditors shall be reported in a separate letter to management, which shall be referred to in the reports on internal controls. The reports on compliance shall include all instances of noncompliance. Irregularities and illegal acts. Auditors shall be required to make an immediate, written report of all irregularities and illegal acts or indications of illegal acts of which they become aware to the following parties: Kevin Murphy, City Manager Robert Burnham, City Attorney Dennis C. Danner, Finance Director Reporting to the audit committee. Auditors shall assure themselves that the City of Newport Beach's audit committee is informed of each of the following: 1. The auditor's responsibility under generally accepted auditing standards 2. Significant accounting policies 3. Management judgments and accounting estimates 4. Significant audit adjustments 5. Other information in documents containing audited financial statements 6. Disagreements with management 7. Management consultation with other accountants 8. Major issues discussed with management prior to retention 9. Difficulties encountered in performing the audit 6 E. Special Considerations 1. The City of Newport Beach will send its comprehensive annual financial report to the Government Finance Officers Association of the United States and Canada for review in their Certificate of Achievement for Excellence in Financial Reporting program. It is anticipated that the auditor will be required to provide special assistance to the City of Newport Beach to meet the requirements of that program. 2. The City of Newport Beach has determined that the United States department of Housing and Urban Development will function as the cognizant agency in accordance with the provisions of the Single Audit Act of 1984 and U.S. Office of Management and Budget (OMB) Circular A -128, Audits of State and Local Governments. The schedule of federal financial assistance and related auditor's report, as well as the reports on the internal controls and compliance are not to be included in the comprehensive annual financial report, but are to be issued separately. The Auditors will be responsible for preparation and duplicating of twenty -five copies of this report. F. Working Paper Retention and Access to Working Papers All working papers and reports must be retained, at the auditor's expense, for a minimum of three (3) years, unless the firm is notified in writing by the City of Newport Beach of the need to extend the retention period. The auditor will be required to make working papers available, upon request, to the following parties or their designees: City of Newport Beach Department of Housing and Urban Development U.S. General Accounting Office (GAO) Parties designated by the federal or state governments or by the City of Newport Beach as part of an audit quality review process Auditors of entities of which the City of Newport Beach is a subrecipient of grant funds Auditors of entities of which the City of Newport Beach is a component unit In addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. 10 0 M. DESCRIPTION OF THE GOVERNMENT 0 A. Location of Offices, Name and Telephone Number of Contact Persons The City Hall is located at 3300 Newport Boulevard, Newport Beach, California 92663 The auditor's principal contact with the City of Newport Beach will be Dennis C. Danner, Finance Director, (714) 644 -3123. Dan Matusiewicz, Accounting Manager (714) 644 -3126 will coordinate the assistance to be provided by the City of Newport Beach to the auditor. Organizational charts (Appendix A) of the City, the Finance Department and division responsibilities are attached. Also attached is a list of key personnel and their telephone numbers (Appendix B ). B. Background Information The City of Newport Beach serves an area of 36.5 square miles with a population of 68,443. The City of Newport Beach's fiscal year begins on July 1 and ends on June 30. The City of Newport Beach was incorporated September 1, 1906 under the General Laws of the State of California and adopted a Municipal Charter effective January 7, 1955. The City operates under a Council- Manager form of government and provides the following services: police and fire protection, marine services, highways and streets, capital facility improvements, planning and zoning, utilities, sanitation and solid waste disposal, recreational activities, cultural events, and general administrative services. The City of Newport Beach has a total yearly payroll of $38,522,658 covering 906 employees. The City of Newport Beach is organized into sixteen departments. The accounting and financial reporting functions of the City of Newport Beach are centralized. More detailed information on the government and its finances can be found in the Annual Report (attached) or by discussion with applicable key personnel listed in Appendix ( B ). C. Fund Structure The City of Newport Beach uses the following fund types and account groups in its financial reporting: 11 i • Number of Number With Individual Legally Adopted Fund Type /Account Group Funds Annual Budgets General fund 1 1 Special revenue funds I I 11 Debt service funds I 1 Capital projects funds 3 3 Enterprise funds 4 4 Internal service funds 1 1 Expendable trust funds - - Nonexpendable trust funds - - Pension trust funds Agency funds 3 - General fixed assets account group 1 NA General long -term debt account group 1 NA D. Budgetary Basis of Accounting Budgets for the General, Special Revenue and Debt Service Funds are adopted on a basis consistent with generally accepted accounting principles. The modified accrual basis of accounting is employed in the preparation of the budget. At fiscal year-end, budget appropriations lapse. Capital projects are budgeted on an annual basis. Incomplete capital improvement budget appropriations are rebudgeted in the following fiscal year. Projects that are not started during the budget year are reevaluated in the following year. E. Federal and State Financial Assistance During the fiscal year to be audited, the City of Newport Beach received the following financial assistance: Department of Housing and Urban Development, Community Development Block Grant(CDBG), C.F.D.A. 14.218 Major Department of Transportation Intermodal Surface Transportation Efficiency Act (ISTEA) , C.F.D.A. (Unknown) Major (anticipated) 12 • Federal Emergency Management Agency (FEMA), Emergency Disaster Assistance C.F.D.A. 83.516 Non -Major Department of Justice Narcotic Asset Forfeitures C.F.D.A. (Unavailable) Major (anticipated) F. Pension Plans • The City contributes to the California Public Employees' Retirement System (PERS), an agent multiple- employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. As of January 1, 1992 the City implemented a defined contribution plan (PARS) for all of its non - regular employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All non - regular employees are eligible to participate from the date of employment. G. Component Units The City of Newport Beach is defined, for financial reporting purposes, in conformity with the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards, Section 2100. The financial statements of the City of Newport Beach include the financial activities of the City, the Newport Beach Public Facilities Corporation and the Cannery Village Public Financing Authority. Although these entities are legally separate from the City, their financial operations are closely related and the City Council has a continuing oversight responsibility over these entities. Oversight responsibility was considered on the basis of budget adoption, taxing authority, funding and appointments of the governing board. The activities of these component units are included as a part of the basic reporting entity. The following entities are not covered because they do not meet the established criteria for inclusion in this City's report: State of California, County of Orange, Public Employees Retirement System and Newport-Mesa Unified School District. H. Magnitude of Finance Operations The finance department is headed by Dennis C. Danner and consists of four divisions (Accounting, Budget & Admin; Purchasing; Data Processing and Revenue) totalling 40 employees. See Appendix ( A) for principal functions and the number of employees assigned to each division . 13 i • I. Computer Systems Hardware The City has a mixed environment of approximately one - hundred fifty Macintosh and IBM compatible personal computers networked through Novel, Appletalk and Unix networks. Major applications are serviced on the HP 9000 and HP 3000 workstations. See City of Newport Beach Network Diagram (Appendix C ). Software The City's financial software, Fund Accounting Manager by Pentamation, is a relational database written in Informix 4GL serviced by the HP 9000 workstation on a Unix platform. The City currently utilizes the Payroll, Purchasing, Utility Billing and Cash Receipts subsidiary systems which are fully integrated with the Fund Accounting General Ledger and plan to eventually utilize integrated Inventory, Fixed Asset and Fleet Management Systems. Personal computing software that is frequently used by the Finance Department includes Windows versions of Excel, Word, WordPerfect and a DOS version of Paradox. J. Internal Audit Function The City of Newport Beach is in the process of staffing an internal control position for the first time. A list of tasks and functions more than sufficient to comprise a full work -load has already been developed, but specific program scheduling, a policy statement, and prioritization and focus of effort are still being refined. K. Miscellaneous The City of Newport Beach will make its best efforts to answer all questions related to the City's audit involvement, accounting ledgers, systems and records to proposers to aid their response to this request for proposals. IV. TIME REQUIREMENTS A. Proposal Calendar The following is a list of key dates up to and including the date proposals are due to be submitted: Request for proposal issued April 13, 1993 Due date for proposals May 3, 1993 14 i 0 B. Notification and Contract Dates Selected firm notified May 25, 1993 Contract date May 28, 1993 C. Date Audit May Commence The City of Newport Beach wilt have all records ready for audit and all management personnel available to meet with the firm's personnel as of May 28, 1993. D. Schedule for the 1993 Fiscal Year Audit (A similar time schedule will be developed for audits of future fiscal years if the City of Newport Beach exercises its option for additional audits). Each of the following should be completed by the auditor no later than the dates indicated. 1. Interim Work The auditor shall complete interim work by July 9, 1993. 2. Detailed Audit Plan The auditor shall provide City of Newport Beach by July 15, 1993 both a detailed audit plan and a list of all schedules to be prepared by the City of Newport Beach. 3. Fieldwork The auditor shall complete all fieldwork by October 11, 1993 4. Draft Reports The auditor shall have drafts of the audit reports and recommendations to management available for review by the Audit Committee and the chief financial officer by November 15, 1993. E. Entrance Conferences, Progress Reporting and Exit Conferences (A similar time schedule will be developed for audits of future fiscal years if the City of Newport Beach exercises its option for additional audits). At a minimum, the following conferences should be held by the dates indicated on the schedule: 15 • i Entrance conference with all key finance department personnel The purpose of this meeting will be to discuss prior audit problems and the interim work to be performed. This meeting will also be used to establish overall liaison for the audit and to make arrangements for work space and other needs of the auditor After May 28, 1993 Progress conference with all key finance department personnel The purpose of this meeting will be to summarize the results of the preliminary tests of the key internal controls and to discuss items of concern or other matters to be tested Entrance conference with Dan Matusiewicz to commence year -end audit work September 13, 1993 Exit conference with Dennis C. Danner and finance officers. October 11, 1993 The purpose of this meeting will be to summarize the results of the field work and to review significant findings F. Date Final Report is Due The Accounting Manager shall prepare draft financial statements, notes and all required supplementary schedules and statistical data by November 1, 1993. The auditor shall provide all recommendations, revisions and suggestions for improvement to the Finance Director by November 8, 1993. A revised report, including draft auditor's reports shall be delivered to the audit committee by November 15, 1993. The Accounting Manager and the Audit Committee will complete their review of the draft report as expeditiously as possible. It is not expected that this process should exceed one week. During that period, the auditor should be available for any meetings that may be necessary to discuss the audit reports. Once all issued for discussion are resolved, the final signed report shall be delivered to the Dennis C. Danner within 3 working days. It is anticipated that this process will be IV completed and the final report delivered by November 24, 1993. The final report and three signed copies should be delivered to the Dennis C. Danner, Finance Director at 3300 Newport Boulevard, Newport Beach, California 92663. V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION A. Finance Department and Clerical Assistance The finance department staff and responsible management personnel will be available during the audit to assist the firm by providing direction to needed sources of information, documentation and explanations. B. Electronic Data Processing (EDP) Assistance EDP personnel will also be available to provide systems documentation, special reports and explanations. The auditor will be provided computer terminal access to the City of Newport Beach's accounting system to query account summaries and transaction details with the option to print to a local printer. D. Statements and Schedules to be Prepared by the Staff of the City of Newport Beach As noted in paragraph "A" of this section, the City of Newport Beach Finance staff will provide limited audit assistance as is reasonably possible and appropriate. A preliminary "Prepared By Client' (PBC) list is included in appendix "G" but its final form and contents is subject to discussion during interim entrance conference and after the results of interim testwork. E. Work Area, Telephones, Photocopying and FAX Machines The City of Newport Beach will provide the auditor with reasonable work space, desks and chairs. The auditor will also be provided with access to telephone lines, photocopying facilities and FAX machines subject to the following restrictions: Personal use Other Client work within reason F. Report Preparation Report preparation, editing and printing shall be the responsibility of the City of Newport Beach. 17 VI. PROPOSAL REQUIREMENTS A. General Requirements 1. Inquiries Inquiries concerning the request for proposals and the subject of the request for proposals should be made initially to: Dennis C. Danner, Finance Director (714) 644 -3123 However, if Dennis Danner is unavailable or at the Finance director's discretion, Dick Kurth, Deputy Finance Director may be contacted at (714) 644 -3124 or Dan Matusiewicz, Accounting Manager at (714) 644 -3126. 2. Submission of Proposals The following material is required to be received by May 3, 1993 for a proposing firm to be considered: a. A master copy (so marked) of a Technical Proposal and ten copies to include the following: Title Page Title page showing the request for proposals subject; the firm's name; the name, address and telephone number of the contact person; and the date of the proposal. ii. Table of Contents iii. Transmittal Letter A signed letter of transmittal briefly stating the proposer's understanding of the work to be done, the commitment to perform the work within the time period, a statement why the firm believes itself to be best qualified to perform the engagement and a statement that the proposal is a firm and irrevocable offer for four weeks. iv. Detailed Proposal The detailed proposal should follow the order set forth in Section VI B of this request for proposals. 18 V. Executed copies of Proposer Guarantees and Proposer Warranties attached to this request for proposal (Appendix E and Appendix F) b. The proposer shall submit an original and ten copies of a dollar cost bid in a separate sealed envelope marked as follows: SEALED DOLLAR COST BID PROPOSAL FOR City of Newport Beach FOR PROFESSIONAL AUDITING SERVICES May 3, 1993 C. Proposers should send the completed proposal consisting of the two separate envelopes to the following address: Wanda Raggio, City Clerk 3300 Newport Boulevard Newport Beach, California 92663 B. Technical Proposal 1. General Requirements THERE SHOULD BE NO DOLLAR UNITS OR TOTAL COSTS INCLUDED IN THE TECHNICAL PROPOSAL DOCUMENT. The purpose of the Technical Proposal is to demonstrate the qualifications, competence and capacity of the firms seeking to undertake an independent audit of the City of Newport Beach in conformity with the requirements of this request for proposals. As such, the substance of proposals will carry more weight than their form or manner of presentation. The Technical Proposal should demonstrate the qualifications of the firm and of the particular staff to be assigned to this engagement. It should also specify an audit approach that will meet the request for proposals requirements. The Technical Proposal should address all the points outlined in the request for proposals (excluding any cost information which should only 19 • 0 be included in the sealed dollar cost bid). The Proposal should be prepared simply and economically, providing a straightforward, concise description of the proposer's capabilities to satisfy the requirements of the request for proposals. While additional data may be presented, the following subjects, items Nos. 2 through 10, must be included. They represent the criteria against which the proposal will be evaluated. 2. Independence The firm should provide an affirmative statement that is independent of the City of Newport Beach as defined by [generally accepted auditing standards /the U.S. General Accounting Offices Government Auditing Standards (1988)] The firm also should provide an affirmative statement that it is independent of all of the component units of the City of Newport Beach as defined by those same standards.The firm should also list and describe the firm's (or proposed subcontractors') professional relationships involving the City of Newport Beach or any of its [agencies or component units /agencies, component units or oversight unit] for the past five (5) years, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed audit. In addition, the firm shall give the City of Newport Beach written notice of any professional relationships entered into during the period of this agreement. 3. Firm Qualifications and Experience The proposer should state the size of the firm, the size of the firm's governmental audit staff, the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff to be employed in this engagement on a full -time basis and the number and nature of the staff to be so employed on a part-time basis. If the proposer is a joint venture or consortium, the qualifications of each firm comprising the joint venture or consortium should be separately identified and the firm that is to serve as the principal auditor should be noted, if applicable. The firm is also required to submit a copy of the report on its most recent external quality control review, with a statement whether that quality control review included a review of specific povemment engagements. The firm shall also provide information on the results of any federal or state desk reviews or field reviews of its audits during the past three (3) 20 0 0 years. In addition, the firm shall provide information on the circumstances and status of any disciplinary action taken or pending against the firm during the past three (3) years with state regulatory bodies or professional organizations. 4. Partner, Supervisory and Staff Qualifications and Experience Identify the principal supervisory and management staff, including engagement partners, managers, other supervisors and specialists, who would be assigned to the engagement. Indicate whether each such person is registered or licensed to practice as a certified public accountant in California. Provide information on the government auditing experience of each person, including information on relevant continuing professional education for the past three (3) years and membership in professional organizations relevant to the performance of this audit. Provide as much information as possible regarding the number, qualifications, experience and training, including relevant continuing professional education, of the specific staff to be assigned to this engagement. Indicate how the quality of staff over the term of the agreement will be assured. The proposer should identify the extent to which staff to be assigned to the audit reflect the City of Newport Beach's commitment to Affirmative Action. Engagement partners, managers, other supervisory staff and specialists may be changed if those personnel leave the firm. These personnel may also be changed for other reasons with the express prior written permission of the City of Newport Beach. However, in either case, the City of Newport Beach retains the right to approve or reject replacements. Consultants and firm specialists mentioned in response to this request for proposal can only be changed with the express prior written permission of the City of Newport Beach, which retains the right to approve or reject replacements. Other audit personnel may be changed at the discretion of the proposer provided that replacements have substantially the same or better qualifications or experience. 5. Similar Engagements With Other Government Entities For the firm's office that will be assigned responsibility for the audit, list the most significant engagements performed in the last five years that are similar to the engagement described in this request for proposal. These 21 0 • engagements should be ranked on the basis of total staff hours. Indicate the scope of work, date, engagement partners, total hours, and the name and telephone number of the principal client contact. 6. Specific Audit Approach The proposal should set forth a work plan, including an explanation of the audit methodology to be followed, to perform the services required in Section II of this request for proposal. In developing the work plan, reference should be made to such sources of information as City of Newport Beach's budget and related materials, organizational charts, manuals and programs, and financial and other management information systems. Proposers will be required to provide the following information on their audit approach: a. Proposed segmentation of the engagement b. Level of staff and number of hours to be assigned to each proposed segment of the engagement C. Sample size and the extent to which statistical sampling is to be used in the engagement d. Extent of use of EDP software in the engagement e. Type and extent of analytical procedures to be used in the engagement £ Approach to be taken to gain and document an understanding of the City of Newport Beach's internal control structure g. Approach to be taken in determining laws and regulations that will be subject to audit test work h. Approach to be taken in drawing audit samples for purposes of tests of compliance 7. Identification of Anticipated Potential Audit Problems The proposal should identify and describe any anticipated potential audit problems, the firm's approach to resolving these problem and any special assistance that will be requested from the City of Newport Beach. 22 0 0 C. Sealed Dollar Cost Bid 1. Total All- Inclusive Maximum Price The sealed dollar cost bid should contain all pricing information relative to performing the audit engagement as described in this request for proposal. The total all- inclusive maximum price to be bid is to contain all direct and indirect costs including all out -of- pocket expenses. The City of Newport Beach will not be responsible for expenses incurred in preparing and submitting the technical proposal or the sealed dollar cost bid. Such costs should not be included in the proposal. The first page of the sealed dollar cost bid should include the following information: a. Name of Firm b. Certification that the person signing the proposal is entitled to represent the firm, empowered to submit the bid, and authorized to sign a contract with the City of Newport Beach. c. A Total All- Inclusive Maximum Price for the 1993 engagement. 2. Rates by Partner, Specialist, Supervisory and Staff Level Times Hours Anticipated for Each The second page of the sealed dollar cost bid should include a schedule of professional fees and expenses, presented in the format provided in the attachment (Appendix G), that supports the total all- inclusive maximum price. The cost of special services described in Section II E of this request for proposal should be disclosed as separate components of the total all - inclusive maximum price. 3. Out -of- pocket Expenses Included in the Total All - inclusive Maximum Price and Reimbursement Rates Out -of- pocket expenses for firm personnel (e.g., travel, lodging and subsistence) will be reimbursed at the rates used by the City of Newport Beach for its employees. All estimated out -of- pocket expenses to be reimbursed should be presented on the second page of the sealed dollar cost bid in the format provided in the attachment (Appendix G). All expense reimbursements will be charged against the total all- inclusive maximum price submitted by the firm. In addition, a statement must be included in the sealed dollar cost bid 23 3 5. 0 0 stating the firm will accept reimbursement for travel, lodging and subsistence at the prevailing City of Newport Beach rates for its employees. Rates for Additional Professional Services If it should become necessary for City of Newport Beach to request the auditor to render any additional services to either supplement the services requested in this RFP or to perform additional work as a result of the specific recommendations included in any report issued on this engagement, then such additional work shall be performed only if set forth in an addendum to the contract between City of Newport Beach and the firm. Any such additional work agreed to between City of Newport Beach and the firm shall be performed at the same rates set forth in the schedule of fees and expenses included in the sealed dollar cost bid. Manner of Payment Progress payments 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 billing shall cover a period of not less than a calendar month. Ten percent (10 %) will be withheld from each billing pending delivery of the firm's final reports. VII. EVALUATION PROCEDURES A. Review of Proposals Proposals will be evaluated by Finance staff which will submit recommendations to the Audit Committee selected by the Newport Beach City Council. The evaluators will use a point formula during the review process to score proposals. Each evaluator will first score each technical proposal by each of the criteria described in Section VII B below. The Finance staff will submit the evaluations and a recommendation to the full Audit Committee who then convene to review and discuss these evaluations and to combine the individual scores to arrive at a composite technical score for each firm. At this point, firms with an unacceptably low technical score will be eliminated from further consideration. After the composite technical score for each firm has been established, the sealed dollar cost bid will be opened and additional points will be added to the technical score based on the price bid. The maximum score for price will be assigned to the firm offering the lowest total all- inclusive maximum price. Appropriate fractional scores will be assigned to other proposers. Upon recommendation by the Audit committee, the Newport Beach City Council will make the final 24 0 0 selection from the finalist during the next available Council session. The City of Newport Beach reserves the right to retain all proposals submitted and use any idea in a proposal regardless of whether that proposal is selected. B. Evaluation Criteria Proposals will be evaluated using three sets of criteria. Firms meeting the mandatory criteria will have their proposals evaluated and scored for both technical qualifications and price. The following represent the principal selection criteria which will be considered during the evaluation process. 1. Mandatory Elements a. The audit firm is independent and licensed to practice in California b. The firm has no conflict of interest with regard to any other work performed by the firm for the City of Newport Beach C. The firm adheres to the instructions in this request for proposal on preparing and submitting the proposal d. The firm submits a copy of its last external quality control review report and the firm has a record of quality audit work. 2. Technical Quality: (Maximum Points -80 ) a. Expertise and Experience (1) The firm's past experience and performance on comparable government engagements (2) The quality of the firm's professional personnel to be assigned to the engagement and the quality of the firm's management support personnel to be available for technical consultation b. Audit Approach (1) Adequacy of proposed staffing plan for various segments of the engagement (2) Adequacy of sampling techniques (3) Adequacy of analytical procedures 25 0 0 3. Price: (Maximum Points - 20) COST WILL NOT BE THE PRIMARY FACTOR IN THE SELECTION OF AN AUDIT FIRM C. Final Selection The Newport Beach City Council will select a firm based upon staff evaluation and the recommendation of the Audit Committee. It is anticipated that a firm will be selected by May 25, 1993. Following notification of the firm selected, it is expected a contract will be executed between both parties by May 28, 1993. D. Right to Reject Proposals Submission of a proposal indicates acceptance by the firm of the conditions contained in this request for proposal unless clearly and specifically noted in the proposal submitted and confirmed in the contract between the City of Newport Beach and the firm selected. The City of Newport Beach reserves the right without prejudice to reject any or all proposals. 0 APPENDICES A. Organizational Chart B. List of Key Personnel and Telephone Numbers C. City of Newport Beach Network Diagram D. Preliminary Prepared by Client (PBC) list. E. Proposer Guarantees F. Proposer Warranties 0 G. Format for Schedule of Professional Fees and Expenses to Support the Total All - Inclusive Maximum Price H. Audited 1992 Comprehensive Annual Financial Report. 27 [Il �o N a n O� H �o APPENDIX A • - - - - -- - - - -- - - --� I I g'c I �9g �G G m .K I I I I I p €22 - - - - -- m 01z �O o `e €z hu 7S >I a' g� I I I p I I M v — — — — — — — — — — 9 e W Page 1 pi ( R --- -- p p io I z z z I I p I I M v — — — — — — — — — — 9 e W Page 1 ) Q � ■ APPENDIX 6 `a®r 2 £0[ƒ2777® (\ \�|}|( \( | � §��� J�� ! ; |, ( |kk - �§ �z T « | � / RL ! § ! 2 | #n$ ■ Mg ! | ` ` | {) 1 mn � � � n CD 0 CD m � � � CD � � O m x 0 6 APPENDIX B LIST OF KEY PERSONNEL, AND TELEPHONE NUMBERS Title Name Telephone Mayor Clarence J. Turner (714) 644 -3004 City Manager Kevin J. Murphy (714) 644 -3000 City Attorney Robert H. Burnham (714) 644 -3131 City Clerk Wanda Raggio (714) 644 -3005 Finance Director Dennis C. Danner (714) 644 -3123 Assistant Finance Director Richard Kurth (714) 644 -3124 Accounting Manager Daniel Matusiewicz (714) 644 -3126 Accountant 11 Emma Bello (714) 644 -3125 Data Processing Manager Michael Spohn (714) 644 -3092 Revenue Manager Glen Everroad (714) 644 -3141 Systems Analyst Janice Manning (714) 644 -3091 Personnel Director Duane K. Munson (714) 644 -3300 28 7 � 0 Z m f 0 0 0 N G m G . APPENDIX C r�1 • n O z 0 f7 z 0 d W/P SCHED REF REF 0 APPENDIX D CITY OF NEWORT BEACH WORK TO BE PERFORMED BY CLIENT 6 -30 -93 - Cash & Investments 1 Schedule of Cash Accounts by Fund 2 Bank Reconcilations for all Accounts @ 6- 30-93: General Account Returned Items Account CDBG Account Section 108 Account Petty Cash - All Funds 3 Schedule of Bank Account Balances per Book Balance (Tie step 1 & 2) 4 Schedule of Investments at 6 -30-93 - Current Receivables 5 Account Receivable Listing (by type by fund) 6 Prepare schedule and pull all cash receipts for the month of July greater than a specified dollar amount per fund type 7 Copies of Daily Cash Summaries for Revenue Accruals at 6 -30-93 & reconciling receipts to G/L fund totals 8 Schedule of PERS Surplus by fund ( beginning balance, usage and ending balance) 9 Copy of Letter from PERS RE: SURPLUS 10 Schedule of Due to/ Due from other funds - Inventories 11 Schedule of inventories by category - Fixed Assets 12 Schedule fixed asset additions and deletions by category 13 Schedule of Contributed Capital - Current Liabilities 14 Schedule of Current Liabilities by fund and account type 15 Reconcilition of A/P warrant registers to A/P per GL by fund 16 Schedule of Accrued Salaries Payable 17 Prepare schedule and pull payments for the month of July where amount charged to fund exceeds a specified dollar amount per fund type - Long Term Liabilities 18 Schedule of General Long Term Debt beginning balances, additions, deletions and ending balances. 19 Schedule of Claims Payable(General Liabifity and Workers Comp by Fund) 20 Schedule of Accrued Sick Leave and Vacation by fund 21 Fiscal Agent Summaries through year end - Fund Balance 22 Analysis of Beginning Fund Balance ( G/L to Prior Year F /S). • Page I DATE TO DATE RECEIVE RECEIVED 0 APPENDIX D CITY OF NEWORT BEACH WORK TO BE PERFORMED BY CLIENT 6 -30.93 W/P SCHED REF REF - Revenues 23 Prepare Revenue Lead and Analytical Review Schedule 24 Reconciliation of County Property Tax confirm to General Ledger 25 Reconciliation of State Revenue confine to General Ledger 26 Schedule of Interfund Transfers 27 Schedule of Interest Allocation (INT.XLS) - Expenditures 28 Prepare Expenditure Lead and Analytical Review Schedule 29 Reconciliation of Payroll Expenditures to 947 e's L, Page 2 DATE TO DATE RECEIVE RECEIVED • • APPENDIX E PROPOSER GUARANTEES The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required. Signature of Official: Name (typed): Title: Date: 29 0 APPENDIX F PROPOSER WARRANTIES A. Proposer warrants that it is willing and able to comply with State of California laws with respect to foreign (non -state of California) corporations. B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents in conjunction with the services to be provided. Coverage limits shall be $2,000,000 or more, per occurrances without reduction for claims paid during the policy period. The carrier should be duly insured and authorized to issue similar insurance policies for this nature in the State of California. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Newport Beach. D. Proposer warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: Name (typed): Title: Date: 30 0 9 APPENDIX G Page I SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30 1993 FINANCIAL STATEMENTS Standard Quoted Hourly Hourly Hours Rates Rates Total Partners Managers Supervisory staff Staff Other (specify): Subtotal Total for services Described in Section II E of the RFP (Detail on subsequent pages) Out -of- pocket expenses Meals and lodging Transportation Other (specify): Total all- inclusive maximum price for June 30, 1993 audit Note: The rate quoted should not be presented as a general percentage of the standard hourly rate or as a gross deduction from the total all- inclusive maximum price. 31 0 APPENDIX G 0 Page 2 SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30. 1993 FINANCIAL STATEMENTS COMBINING SCHEDULE - ALL SERVICES DESCRIBED IN RFP SECTION II E Nature of Service To Be Provided Total Price Schedule 32 0 9 Appendix G Page 3 SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE JUNE 30. 1993 FINANCIAL STATEMENTS: SUPPORTING SCHEDULE FOR [NAME OF SERVICEI Standard Quoted Hourly Hourly Hours Rates Rates Total Partners Managers Supervisory staff Staff Other (specify): Subtotal Out -of- pocket expenses: Meals and lodging Transportation Other (specify): Total price for [NAME OF SERVICE] Note: The rate quoted should not be presented as a general percentage of the standard hourly rate or as a gross deduction from the total all- inclusive maximum price. 33 tj 1 Technical Proposal to Provide Professional Auditing Services for the 1 1 1 1 i 1 1 [1 1 1 F �J I twpokpz�9c Submitted by: /Eft wPM Marwick 650 Town Center Suite 1000 Costa Mesa, CA 92626 Partner Contact: Pe McBride (71 850 4 Aprd,1993 I I )M Peat Marwick ' April 30, 1993 I Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 Mr. Dennis C. Danner Finance Director City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92663 Dear Mr. Danner: ' KPMG Peat Marwick is pleased to respond to your Request for Proposal to provide audit services to the City of Newport Beach. Your aim for excellence meets our aim to serve those organizations who seek a reputation for the highest quality among municipal professional organizations (such as GFOA and CSMFO), bond rating ' agencies, bond counsel firms, state and Federal agencies, and of course, the general public. Accordingly, your engagement would be staffed from among our most experienced governmental auditors and the City can be assured of receiving timely, responsive professional services from our staff throughout our tenure as the City's auditors. 1 I I 1 E i I Your selection of an accounting firm is a decision that has implications beyond the annual audit. The accounting firm you engage must be qualified to provide management with the advice and support needed to develop and implement the City's business strategy. We have relevant experience in specialized areas of importance to the City, including transient occupancy tax revenue audits, financial reviews of franchise refuse haulers, contract compliance procedures, activity based costing and reviews of fee collection controls and procedures. The challenges the City faces also make it imperative that your accounting firm have the resources necessary to fulfill this expanded role. We firmly believe that KPMG Peat Marwick is the firm best qualified to meet these objectives. The engagement team to be assigned to the City of Newport Beach has experience auditing approximately 50 governmental entities, including some of the largest governmental entities in Orange, Los Angeles, Riverside and San Bernardino Counties. The team includes professionals who have authored and instructed Governmental Training Courses for both KPMG Peat Marwick and the AICPA and who serve as reviewers for the Government Finance Officers Association (GFOA) and California Municipal Finance Officers (CSMFO) Certificate programs. Accordingly, the City can be assured that competent, professional consultation will be available to City staff and management throughout the year, and that the audit will be accomplished efficiently and with minimal disruption to City finance and accounting personnel. We will maintain continuity of personnel assigned to the engagement and our key people will be continually available when needed. We use the words "commitment' and "assurance" often throughout this proposal. These are not words th that we take lightly. We believe at our commitment to deliver superior client service through a stable, experienced engagement team is the cornerstone of a lasting professional relationship. As you study our qualifications and compare our expertise with that of other firms, we ask that you give thought to each firm's ability to work effectively with you. There are several reasons why we believe KPMG Peat Marwick is best suited to serving you: Unparalleled Governmental Industry Expertise: Our Government Services Practice is unmatched by any other firm. We have served over 2,300 governmental entities. We audit by far the most cities, counties, school districts, joint power authorities and other governmental entities in Southern California. We are therefore able to acquire and dissemenate valuable information between our many government clients. MemUal Frtm of K"veld Peal Mamick Gwraele! L1 ' Mr. Dennis C. Danner City of Newport Beach April 30, 1993 ' Page 2 ' • Our Extensive Local Resources: Our local governmental practice is actually a triad of offices with locations in Ontario, Orange County and Los Angeles. Our local resources include 5 partners, 14 senior managers and managers, and more than 50 staff auditors who spend a significant amount of time in the government services area, thus, we can assure the continued availability of experienced, qualified personnel. ' • Our Extensive National Resources: KPMG Peat Marwick is the preeminent firm of Certified Public Accountants in terms of leadership in the development and formation of accounting principles for governments. Our thrust is to be fully knowledgeable about the latest accounting practices, audit techniques and other developments in the governmental industry. Locally, we are supported by a national practice which develops and disseminates the most comprehensive and practical guidance available in the industry. ' • Our Focus on Quality Service: Providing the highest quality service to our clients is the cornerstone of KPMG Peat Marwick. We utilize a formal client survey process to continually improve our service delivery process, thus insuring that we meet or exceed our clients' expectations. • New Perspective: We will bring a fresh viewpoint and objectivity to the engagement. Additionally, by using experienced governmental auditors and management consultants in the engagement, we will be able to provide recommendations to enhance internal controls and to suggest innovative ways for improvement of City procedures and systems. • Our Commitment to the Public Sector: We are actively involved in CSMFO, GFOA and the California CPA Society (both at the state and local levels), as well as being involved in current municipal reporting and accounting developments. These activities furnish a basis to provide you with ongoing, continuous assistance on current municipal accounting issues. • We are Competitive: When the overall level of service delivered is considered, we believe that our fees are very competitive and include services not being offered by other firms. It is our practice to ' provide year round consultation and advice to our clients at no additional charee. • We are International: We take pride in our position as the world's leading accounting and ' consulting fum. Our reputation has been built by providing quality client service at the local level. We bring to the City our reputation, our resources and our assurance that we will honor our commitments made in this proposal. This proposal is intended to represent our firm and irrevocable offer to provide professional services for the City of Newport Beach, valid for 60 days from the date of this letter. The designated Firm contact who is authorized to make representations and binding decisions on behalf of the Firm is as follows: Margaret J. McBride KPMG Peat Marwick Partner 650 Town Center Drive (714) 850-4363 Costa Mesa, California 92626 ' We appreciate being considered for this important engagement and once again assure you that, with our selection, the City will receive the finest professional effort and services available on a timely basis and within established deadlines. We give you both our professional and personal guarantees. Very truly yours, KPMG PEAT MARWICK ' Margaret J. McBride, Partner CITY OF NEWPORT BEACH ' Proposal of Audit Services ' Table of Contents age LETTER OF TRANSMITTAL EXECUTIVE SUMMARY: WHAT MAKES US DIFFERENT ..................... 1 DETAILED PROPOSAL: ' KPMG PEAT MARWICK PROFILE: Independence.......................................... ............................... 3 Firm Qualifications and Experience ................. ............................... 3 Accounting and Auditing Services .................. ............................... 4 Our Use of the Computer ............................. ............................... 4 ' EDP Specialists ........................................ ............................... Tax Services — State and Local Government Perspective ....................... 5 5 Management Consulting Services ................... ............................... 5 Our Commitment to Quality Service ................ ............................... 6 ' GFOA - Certificate of Achievement Program ...... ............................... California State License ............................... ............................... 6 6 Federal /State Desk Reviews .......................... ............................... 6 Quality Control and Peer Review .................... ............................... PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS: 7 ' Engagement Team..................................... ............................... Education and Training ............................... ............................... Resource Group - National Expertise .............. ............................... 8 9 10 ' SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES Local References ...................................... ............................... 12 t Redevelopment Agency Experience ................ ............................... Single Audit Experience ............................. ............................... 14 14 GFOA - Experience and Special Review Committee ............................ 15 ' SPECIFIC AUDIT APPROACH AuditScope ............................................ ............................... 16 ' Reporting............................................... ............................... Communications ....................................... ............................... Our Audit Philosophy ................................. ............................... 17 17 18 Overall Audit Approach ............................... ............................... 18 Estimated Audit Hours by Audit Phase ............. ............................... 22 City Staff Assistance .................................. ............................... 22 ' Working Paper Retention ............................. ............................... 22 APPENDIX A: Engagement Team Resumes .......... ............................... APPENDIX B: References of Southern California Municipal Clients ............ 23 32 APPENDIX C: Audit Calendar ......................... ............................... 33 APPENDIX D: Proposer Guarantees .................. ............................... 35 APPENDIX E: Proposer Warranties ................... ............................... 36 ' APPENDIX F: External Quality Control Review Report ........................... 37 1 1 I 1 Executive Summary: What Makes Us Different "Peat Marwick has never been one to follow the crowd. It has a history of charting new ground, and that philosophy continues today... Peat Marwick has invested heavily to be a leader in information technology, it has invested heavily to deliver very industry specialized services, it provides a very personal level of service to all -sized clients, it has unparalled international reach and scope, it is bold, it is aggressive, it has tremendous business savvy... a Firm that is leading today and is extremely well - positioned for tomorrow." THE BIG SIX REVIEW [J L EXECUTIVE SUMMARY: WHAT MAKES US DIFFERENT The selection of auditors is just one part of assembling a team to assist the City in carrying out its plan and meeting its financial goals. KPMG Peat Marwick is known world -wide for its long- standing commitment to our governmental clients. We are excited about the possibility of serving the City of Riverside and hope to demonstrate our tradition of excellence and our record of innovation in the governmental arena. The thrust of this proposal is to emphasize what makes us different from local and other international firms. We truly believe there is no other firm better equipped to serve the City of Riverside, whether in the areas of accounting, reporting, development of internal controls, procedural design, organizational or business development. We Bring to the Table: • The world's foremost accounting firm, with virtually unlimited resources. KPMG Peat ' Marwick employs over 72,000 professionals in more than 700 offices. We are known world- wide as a quality - oriented organization which stands behind its reports and its clients. • Depth of our Government Practice. We are currently serving more than 3,000 public [1 I I 11 1 sector clients nationwide, with more than 1,300 government services specialists. No other firm is able to come close to this depth of personnel and breadth of experience. • Our Business Advisor attitude. Our focus is to provide our clients with useful, money- making or money- saving ideas. We have performed numerous studies for Southern California cities in the areas of Transient Occupancy Tax Revenues, Rubbish Removal Costs, Personnel Organization, Purchasing, Golf Course Revenues, Parking Revenues, Payroll and other related areas, resulting in real dollar benefits being recognized by our clients. • Unparalleled experience. We audit by far, more cities, counties, redevelopment agencies, joint powers authorities, school districts and other governmental agencies in Southern California than any other firm, local or international. Our knowledge of so many local governmental entities allows us to bring an informed perspective to our clients' problems and opportunities. • Payroll and Benefit Tax Expertise. With the ever - changing tax laws, it is important to engage a firm that has extensive resources in the tax areas specifically involving local governments. Our local and national resources have proven invaluable to our clients in keeping them updated on the most recent developments, including such areas as taxation of employee benefits, expanded reporting requirements, accountable employee expense plans and providing suggestions for implementation of new requirements. P, ' Continuity and depth of local office personnel. Because of the depth of our practice, we are able to involve a minimum of two partners on every engagement. We likewise assign to our engagements managers, seniors, staff and assistants in order to ensure that all work will be thoroughly reviewed and that our clients will benefit from continuity of staff on their ' engagements throughout our tenure as their auditors. • Trained personnel. We truly believe that our people are our most important resource. ' Their highly developed skills have been accumulated through the successful performance of engagements for numerous local government clients and through KPMG Peat Marwick's comprehensive and formal professional staff training programs. The depth of our practice and the experience of our professionals, at all levels, allows us to provide services that cannot be matched by any other fum. We understand the competitive environment in which we practice and, accordingly, have proposed a fee which we feel is very competitive. ' It is our strong desire to be associated with cities like Newport Beach. We are committed to providing the highest level of quality services available anywhere, and doing so at a competitive ' fee. 11 17 11 I� The KPMG Peat Marwick Profile I �J INDEPENDENCE KPMG Peat Marwick is committed to establishing and maintaining client relationships that are consistent with the professional standards established by the American Institute of Certified Public Accountants, the California Society of CPA's, the SEC and governmental and regulatory agencies, including those standards defined by generally accepted auditing standards, the U. S. General Accounting Office's Government Auditing Standards (1988). Such standards include the requirement of independence in the performance of audit engagements. It is fundamental to an audit that it be performed and that the opinions be given by a professional accountant who is, and who is seen to be, independent. We are of independent the City of Newport Beach and any other component units of the City as defined by generally accepted auditing standards and the U. S. General Accounting Office's Government Auditing Standards (1988). We have not been involved in any professional relationships with the City of Newport Beach or any of its component units within the past five years. If, during our tenure as the City's auditors, we were to enter into any professional relationships with the City or its component units, we would notify City officials in writing and discuss with them any potential conflicts of interest. FIRM QUALIFICATIONS AND EXPERIENCE KPMG Peat Marwick is one of the world's largest multinational certified public accounting firms, providing auditing, accounting taxation and a variety of management consulting services. KPMG Peat Marwick is organized as a co- partnership with annual earnings in excess of one billion dollars. Founded over 100 years ago, we achieved our present status, not just through the 1987 merger of Peat, Marwick, Mitchell & Co. and Klynveld Main Goerdeler (KMG), but through over years of concentrated worldwide effort and focused, coordinated strategic direction. As a result, we have developed a solid reputation for responsiveness to client's needs and for consistently rendering top quality professional services to clients engaged in all segments of business activities. ' KPMG Peat Marwick's services to governmental organizations represent one of the largest and most rapidly growing segments of our total practice. We anticipate that a primary concern of the City in choosing an accounting firm is the depth of the fan's government experience and the local I I I availability of qualified personnel. A substantial local practice with the attendant highly trained, experienced personnel, backed by an equally strong national practice, is what we have to offer to the City of Newport Beach. The engagement will be staffed with experienced governmental auditors from our Orange County Office. Our Orange County Office represent the third largest office in the Firm's Far West Region. We have experienced substantial growth during the past decade and currently have a full time staff of approximately 300 personnel, including 20 partners and principals representing all three operating departments: Accounting and Auditing, Tax and Management Consulting. This ability to place a number of locally available qualified personnel at the disposal of the City of Newport Beach is especially important when the total auditing, accounting and advisory needs of the City are considered. 3 �l ' Accounting and Auditing Services ' The foundation of KPMG Peat Marwick has been built on our accounting and auditing services. For years, we have served organizations by helping them anticipate and implement new rules, guidelines and accounting procedures and by attesting to the fairness of the presentation of ' financial statements. Our Audit Department has over 200 personnel including 12 partners and 26 managers. The audit ' group has extensive experience in nearly all types of business enterprises, including real estate, financial institutions, manufacturing, high technology, and insurance entities, as well as governmental, not - for -profit and educational institutions industries. Our services have become widely diversified as the needs of our clients have expanded To ensure that designated professional staff attain maximum proficiency in specialized areas, specialized industry practices have been organized within the Firm, one of which is the Government ' Services Practice. This department is responsible for keeping abreast of new developments and current accounting ' and auditing problems pertaining to state and local governmental entities. Its findings are made available to all offices, thus, enabling the Firm to benefit from the combined experience gained in dealing with this field. ' The thrust of our National Government Services Practice is to be fully knowledgeable about the latest accounting practices, auditing techniques and other developments in the industry. The practice develops and disseminates special audit tools, conducts training sessions and has published a State and Local Government Practice Guide. The information supplied to our professionals is the most comprehensive, practical guidance available in the industry. [1 I 1 I J Our Orange County Government Services Practice is made up of 3 Partners, 8 Senior Managers and Managers, and approximately 80 professional staff. In connection with the audit of the City of Newport Beach, we anticipate involving 2 Partners, 1 Manager, 1 Senior, and 3 additional members from our professional staff, all members of our Government Services Department. The responsibilities of each is further discussed later on in this proposal. Our Use of the Computer KPMG Peat Marwick was responsible for a major advance in auditing techniques with the launch of SeaCas (Systems Evaluation Approach -- Computer Audit Support). SeaCas is a microcomputer -based audit tool that assists in gathering, analyzing and distributing information, primarily for auditing and reporting on financial statements. SeaCas automates many audit procedures that have been performed manually up until now. SeaCas is a stand -alone computer system designed to be easily transported and used at client locations. The system significantly improves audit productivity through automating such tasks as posting audit adjustments, providing analytical review data, updating trial balances and preparing financial statements. This frees the auditor from many time- consuming non - judgmental clerical tasks; instead, the auditor can devote more time to solving audit and accounting problems, analyzing financial data and offering advice on how to improve financial accounting and reporting systems. Services to the client can often be improved or increased without a corresponding increase in fees. 4 ' KPMG Peat Marwick places as much emphasis on assuring optimum application of these computerized tools as on developing them. The Firm was the first in the profession to equip its auditors with personal computers. All of the firm's auditors are trained in the use of SeaCas and are supported by teams of computer specialists. EDP Specialists In order to determine the effect that computer processing has on the audit approach and to assist, where necessary, in achieving audit objectives, KPMG Peat Marwick has available, in every office, qualified EDP specialists. Computer Controls Specialists (CCS) are audit professionals who are highly trained in performing thorough internal control evaluations in EDP environments. These professionals advise and assist the audit team in planning audits of computerized systems and in testing computerized internal controls. t Computer Processing Specialists (CPS) provide assistance on installing and processing System 2190 programs, which are used for processing and for testing the reliability of our clients' EDP - generated data, and coding advanced programs that are not suited to the experience of the ' engagement team. Our local offices have over 20 of these EDP specialists on the staff, including your engagement senior manager, Mark Thomas. ' Tax Services - -State and Local Government Perspective The Tax Department has 32 professionals including 6 partners and 11 managers. They are [1 J involved in tax planning and consulting and compliance engagements for a diversity of clients, ranging from private companies to multinational corporations, not - for - profit and government entities, and individual income tax assignments. Our tax consulting services include: • Comprehensive tax reviews for governmental organizations • Planning for organizations and individuals to minimize taxes • Assistance with tax examinations by governmental agencies • Unrelated business income studies and planning to minimize tax impact • Tax penalty reviews • Consultation regarding state sales tax, real property and other taxes • Federal and State exemption applications • Planning and structuring proposed transactions Management Consulting Services Accounting firms provide varying levels of management consulting services, and while many of these services seem similar, our management consulting capabilities provide our clients with the most breadth and depth of services in the profession. Our Management Consulting Department includes a staff of approximately 800 professionals ( including 140 in Southern California and 25 in the Orange Office), most of whom hold advanced degrees in business and public administration, economics, engineering and related fields. It includes specialists in human resources, municipal administration, advanced management techniques, program evaluation and urban planning. Many members of the consulting staff have served as.operating officers in state and local government agencies. M [1 ' Our Commitment to Quality Service We have made Superior Quality Service our Number One Priority! The KPMG Mission Statement states this very simply: ' "KPMG is committed to being the world's leading accounting and consulting firm. We will achieve this by delivering the highest quality services which provide ' significant added benefits to our clients." We have developed a quality service program which includes direct feedback from our clients to determine whether we are meeting or exceeding our clients' expectations. KPMG is the only firm to implement a formal program of obtaining tangible feedback from our clients. We use this feedback to develop strategies to further improve our delivery of quality service. The City's management team will be requested annually to give us a "report card" on our efforts. We know of ' no other firm that matches KPMG Peat Marwick in its tradition of quality service or in the steps taken to continually guarantee that its professionals focus on quality service as their number one priority. ' GFOA - Certificate of Achievement Program KPMG Peat Marwick currently has approximately 150 governmental clients which currently hold ' the Certificate of Achievement. Approximately 80% of the government entities audited by KPMG Peat Marwick received the certificate on their first submission. As the GFOA becomes more strict in its reviews, this experience should prove invaluable to the City in submitting for the Certificate. ' In addition, KPMG Peat Marwick has approximately 50 members on the Certificate of Achievement Special Review Committee, including Peggy McBride, your engagement partner. As ' a result, we are prepared to provide recommendations necessary to help the City prepare its Comprehensive Annual Financial Report for submission to the GFOA Certificate of Achievement Special Review Committee. ' California State License KPMG Peat Marwick and its assigned key professional staff are appropriately registered/licensed ' to practice in the State of California. Our employees are well trained in the standards set forth by the AICPA, the State Controller's Office, the United States Governmental Accounting Office and the California Society of CPA's and will perform your audits in accordance with such standards. ' Federal /State Desk Reviews Federal and state entities routinely perform desk reviews of single audit and other reports issued by ' KPMG Peat Marwick. Field reviews of our supporting workpapers are also performed by Federal and state agencies as they see fit. During the past three years there have been, and currently are, no actions taken by Federal or state agencies as a result of these reviews that would preclude KPMG Peat Marwick from performing the work detailed in this proposal. 0 I I u 1 E LJ [I 1 Quality Control and Peer Review KPMG Peat Marwick has an extensive internal quality review program, the basis of which is that all work is reviewed at least once and, as is the case in critical audit areas, up to three times. These procedures are reinforced by a review of selected engagements at each office by a team of specialists not associated with that office. Additionally, KPMG Peat Marwick is committed to peer review. The purpose of a peer review is to provide an independent review of compliance with an accounting firm's quality control policies and procedures. KPMG Peat Marwick pioneered the concept of peer review in 1975 when another large accounting firm was asked to review and publicly report on our practice. Both the independent auditor and Quality Control Review Panel of the American Institute of Certified Public Accountants gave KPMG Peat Marwick an unqualified opinion with respect to conforming to professional standards. The practice of peer review continues today, with an independent accounting fain reviewing the practice in selected offices on a rotational basis each year. Local office reviews included inspection of reports, working papers, files, continuing education practices, Finn literature and administrative matters relating to the auditing accounting, tax and management consulting practices. The results of the reviews have been highly favorable contributing to overall unqualified opinions issued for the entire KPMG Peat Marwick practice by Price Waterhouse in 1990. A copy of this external quality control review report is included in Appendix F. Our commitment to peer review as a means of maintaining high standards of performance in the profession has been demonstrated in many ways. We have participated with others in developing peer review and in obtaining public acceptance of this means of monitoring compliance with professional standards. ' In summary, our objective is to provide service that meets the highest standards of the profession. The continuing commitment of each of our professionals to adhere to the quality control policies of the Firm will keep us on course toward that objective. 1 1 7 I 1 1 1 1 1 1 The KPMG Peat Marwick Service Vision: Summary of Qualifications 1 KPMG Peat Marwick has developed a vision for the future of our Firm. This vision is to provide the strongest, most balanced and most consistent service on a global basis compared to any other professional services firm. The key to implementing this vision is focusing on our people. We have invested significant time and financial resources in planning, communicating and implementing a concise and cohesive service strategy 1 which centers around the quality of our people. Our people are key to making our service vision achievable. 1 1 1 1 11 11 i 11 11 IPARTNER, SUPERVISORY AND STAFF QUALIFICATIONS ' The success of any audit engagement depends on the people selected to actually perform the audit tasks undertaken. Our single overriding commitment to the City is to provide superior quality service. This can be accomplished by providing the City with people whom we know possess superior technical skills and have a sense of professional commitment and dedication to provide superior quality service to the City. ' Members of the engagement team have, collectively, audited more than 50 cities and 6 counties and have conducted more than 60 single audits, including compliance audits of every grant program the City has. In addition, our Government Services Department professional staff attends an annual government update course in order to maintain a current knowledge of governmental ' rules and standards. Accordingly, our people can be expected to "know" the City in a very short time. Further, the people we have assigned to this engagement team have been chosen for their ability to repeat on future years' engagements. ' Engagement Team ' A brief introduction and description of the responsibilities of each of the individuals we propose for this engagement is set forth in the following paragraphs. A resume of each individual, indicating their public sector experience and time with the Firm, appears in Appendix A to this proposal. As discussed in the section entitled Education and Training, KPMG Peat Marwick is ' committed to providing training to its professionals in excess of that required by the AICPA and GAO. Client Engagement Partner Ms. Peggy McBride will serve as client engagement partner. In this capacity, Peggy will have responsibility for providing quality professional services to the City of Newport Beach. The Engagement Partner is responsible for determining the scope of the engagement to be performed and the necessary resources required. Additionally, she will be responsible for satisfying Firm and professional standards and maintaining communication with key management as to our progress ' and findings. Peggy has previous experience as a Director of a municipal Department of Finance, as well as fifteen years experience serving as a consultant and auditor with Peat Marwick. Peggy authored the majority of KPMG Peat Marwick's Single Audit training course and recently revised and updated KPMG Peat Marwick's Government In- Charge Training Course. Peggy is the Partner -in- Charge of the Orange County Government Services Practice. Concurring and Technical Resource Partner ' Mr. Tom Snow will provide technical advice and assistance on developing governmental issues on an as- needed basis. Tom will also have responsibility for performing an independent "cold" review of all financial statements and auditors' reports included in the scope of our engagement. Tom has been with KPMG Peat Marwick for over 25 years and has experience conducting audits of numerous Southern California cities, redevelopment agencies, counties and other local ' governmental entities. u u IEngagement Technical Senior Manager Mr. Mark Thomas is uniquely qualified to serve as engagement senior manager for the City of Newport Beach engagement. Throughout his public accounting career, he has specialized in governmental auditing while also serving insurance and friancial institution clients. Mark's M experience with evaluating self - insurance risks and investment risks will be of benefit to the City and the engagement team. In his capacity as engagement technical manager, he will maintain frequent contact with the engagement manager and will assist in the technical aspects of the audit, 1 particularly in the GFOA review, to ensure that necessary technical is provided to the engagement team and issues are adequately addressed to meet the objectives and requirements of the City of Newport Beach. ' Engagement Manager Mr. Joseph Parker will serve as engagement manager for the City of Newport-Beach engagement. Throughout his public accounting career, Joe has specialized in governmental auditing while also serving on manufacturing and healthcare clients. Joe has provided accounting and auditing services to other local City clients at every level of his career at KPMG Peat Marwick. In his capacity as engagement manager, he will maintain frequent contact with the City's personnel and will directly coordinate the performance of all personnel participating in the audit to ensure that the results of the engagement meet the objectives and requirements of the City. ' In- Charge Accountants /Staff Ms. Carla Mills will serve as the in- charge accountant on this engagement and will be responsible ' for the conduct of the day -to -day audit fieldwork. Carla will be charged with the responsibility of keeping the engagement manager informed as to the status of the engagement. She has audited cities with annual budgets ranging from $12 million to $100 million. She also has experience with Single Audits in accordance with Office of Management and Budget (OMB) Circular A -128. Assisting our in- charge accountants will be staff professionals who have had significant ' engagement responsibilities with our other public sector clients. As suggested previously, we have ample public sector auditing capabilities at the staff level; we assure the City that no one department, division or entity in the City will feel "shortchanged" in terms of experienced people or the professional time we spend on an engagement. All personnel assigned to the City of Newport Beach engagement will possess specific knowledge of public sector auditing necessary to successfully conduct the examinations to be performed. Education and Training One of the best measures of a firm's commitment to a governmental practice is the depth of specialized training provided to its professionals. To ensure that our professionals maintain the highest level of technical proficiency, KPMG Peat Marwick's government services practice conducts the courses described below. We offer an extensive and complete formal governmental training to our staff. A listing of our in -house courses follows: • Government Audit Training Level I • Government Audit Training Level Il • Advanced Government Auditing Training • Examination of Federally Assisted Programs • Elementary and Secondary Education Training Level I • State and Local Government Roundtables 9 i 7 I I I • Conducting Single Audits • Managing Single Audits • Utility Accounting and Auditing • Senior Government Services Consulting Specialists Program • Governmental Accounting, Auditing and Financial Reporting for SEC Reviewing Partners In addition to formal training programs, our public sector specialists receive KPMG Peat Marwick's bimonthly "State and Local Government Bulletin," which describes the latest developments, requirements and procedures pertaining to public sector accounting, auditing, reporting and financial management. All personnel assigned to this engagement will have attended the above classes appropriate to their classifications. Resource Group - National Expertise In any engagement of a multifaceted governmental entity such as the City of Newport Beach, the talents and expertise of several individuals not normally associated with the day -to-day work occasionally need to be called upon to effectively meet client needs. KPMG Peat Marwick is dedicated to providing quality client service; accordingly, we commit all of our technical and professional resources to each client. City management can be assured that KPMG Peat Marwick will bring to bear our personnel resources on their unique problems. Presented below is an example of the kind of professional specialist that we believe could be a valuable resource to the City. • Governmental Accounting Specialist - -Mr. Jack Miller is National Director of the Firm's 1 Government Services Practice. Jack is considered a leading national authority on governmental accounting, auditing and reporting. He is presently Chairman of the AICPA's Committee on Government Accounting and Auditing, a member of the Government Accounting Standards ' Advisory Council and a member of the United States Comptroller General's Auditing Standards Advisory Council. Jack's extensive experience in governmental accounting and auditing is yet another resource that has proven beneficial to our clients. National Governmental Practice The City of Newport Beach understandably desires that its auditor have proven experience, in -depth knowledge and technical expertise in dealing with the unique issues facing California cities. The existence of the GASB with its accounting pronouncements, the implementation of OMB Circular A -128 and the updated AICPA Industry Audit Guide, Audits of State and Local Governmental Units, which has been expanded to address single audit requirements, the recently issued Statements of Auditing Standards, the new "Yellow Book" and the continually evolving State and Federal agency regulations all serve to heighten the need for an auditor who can serve in an advisory capacity and keep the City abreast of current developments. The thrust of our National .Government Services Practice is to be fully knowledgeable about the latest accounting practices, auditing techniques and other developments in the industry. The practice develops and disseminates special audit tools, conducts training sessions and has published a State and Local Government Practice Guide. The information supplied to our professionals is the most comprehensive, practical guidance available in the industry. r10 I I 1 1 1 1 I 1 L I 1 i 1 1 1 1 1 1 1 The auditors who make up our client service team are highly trained and are backed by the professional support of KPMG Peat Marwick nationally and worldwide. These combined resources provide clients with the best possible assistance that will enable them to grow and prosper. Our national client list includes literally thousands of public sector clients from all 50 states for whom we are presently performing or have recently performed professional accounting, auditing and consulting services. 11 I ' Similar Engagements With Other Government Entities I I KPMG Peat Marwick is the local and national leader in serving the government services industry, which is ' one of our Firm's largest, most important and fastest growing practice areas. Our experience in government gives us a clear understanding I of key financial issues facing municipalities, including: debt financing, arbitrage, revenue generation, cash management and resource utilization. We are able to address these issues along with our ability to provide top quality accounting, 1 audit, tax and management consulting services. We feel this distinguishes us from our competition and makes us the best firm to serve dynamic and growing municipalities such as the City of Newport Beach. I I I I I I SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES Local References The City understandably desires that its auditors have proven experience, in -depth knowledge and technical expertise in dealing with the unique issues facing governmental entities. As you can appreciate, a firm with a large number of governmental clients can devote the resources, both nationally and on a local level, to conduct research and disseminate the information to its clients on ' a timely basis. Our Orange County practice has been active in the audit of governmental entities for over 20 years. A listing of References of Southern California Municipal Clients appears in Appendix B. The References of Southern California Municipal Clients lists the types of audits performed and CSMFO /GFOA award winners. Additionally, the key members of the engagement team have extensive City auditing experience. See the resumes of each of the key members of the engagement team at Appendix A. ' The following is a list of five current Orange County City clients which members of your proposed engagement team have provided audit services. Ms. Peggy McBride served as the engagement ' partner on all the following audits. We encourage you to contact any of the following regarding the satisfactory delivery of our services. Mr. George Ferrone Finance Director City of Anaheim P.O. Box 3222 ' Anaheim, California 92805 (714) 254 -5119 Scope of work: Full scope audit of city, redevelopment agency, electric and water utilities, golf course, convention center and stadium, Office of Criminal Justice Planning grant, Hazardous Material JPA. ' Hours: Approximately 2,600 Most recent audit: June 30, 1991 ' Mr. Andrew Glass Accounting Manager ' City of Dana Point 33282 Golden Lantern Dana Point, California 92629 ' (714) 248 -3521 Scope of work: Full scope audit of city, review of appropriations limit, contract ' compliance audits and transient occupancy tax reviews. Total hours: Approximately 300 ' Most recent audit: June 30, 1992 12 I I I] P ' 13 �J Mr. Jeffrey Niven Manager of Fiscal Services City of Irvine 17200 Jamboree Road Irvine, California 92713 (714) 724 -6027 Scope of work: Full scope audit of city, theater and two pension plans. Engagement includes annual transient occupancy tax return audits and other ' special projects. Total hours: Approximately 1,200 ' Total hours: Approximately 1,300 ' Most recent audit: June 30, 1992 I] P ' 13 �J Ms. Carole Coney Accounting Manager City of Ontario Civic Center 303 East B Street Ontario, California 91764 (714) 391 -2555 Scope of work: Full scope audit of city, redevelopment agency, industrial ' development authority and office of criminal justice grants. Total hours: Approximately 1,200 ' Most recent audit: June 30, 1992 I] P ' 13 �J I J 1 1 1 i Mr. Robert Sedlak, Jr. Assistant Finance Director City of Huntington Beach 2000 Main Street Huntington Beach, California 92648 (714) 536 -5907 Scope of work: Full scope audit of city and redevelopment agency. Total hours: Approximately 1,000 Most recent audit: June 30, 1992 ' We have also performed a variety of special projects for the aforementioned cities as well as many others. The following is a sample listing of some of those special projects: 1 1 I� City of Laguna Beach - City of Dana Point - City of Irvine - City of Westminster - City of Anaheim - Various Cities - Report on the Police Citation and Parking Meter Collection procedures and practices. Agreed -upon procedures of financial and management policies. Report on Dewey Disposal compliance with the City contract. Design and implementation of a fixed asset tracking system. Review of efficiency and controls pertaining to a payroll system. Agreed -upon procedures concerning reporting of Transient Occupancy Taxes by numerous hotels. Redevelopment Agency Experience Members of the engagement team have collectively audited more than 20 redevelopment agencies. Our local redevelopment agency clients include very active agencies with multiple project areas and complex financing vehicles. In summary, we have ample experience and knowledge to meet the City's needs concerning its Redevelopment Agency audit. 1 Single Audit Experience All cities, counties and school districts audited by the engagement team are single audits. Our ' client listing reflects the extensive single audit experience we have obtained. The engagement partner has conducted single audits for more that 50 governmental entities with Federal expenditures of up to $750 million and encompassing every major program the City has. Thus, we will be able to guide the City through the single audit in a manner designed specifically to avoid subsequent problems with Federal agencies. Set forth on the following page are selected Federal financial assistance programs which members of the audit team have audited. L �I 11 !1 14 i I 'J u I 1 State Level Aid to Families with Dependent Children Alcohol, Drug Abuse and Mental Health Services Block Grants Child Support Enforcement Program (Title IV- D) Commodities Food Distribution Program Community Services Block Grants Developmental Disability Program Food Stamp Program Low Income Home Energy Assistance Block Grants Medicaid Program Refugee Resettlement Social Services Block Grants Vocational Rehabilitation Program Welfare Aid to Refugees Local Level Child Support Enforcement (Title IV -D) Community Development Block Grants Comprehensive Employment and Training Act (CETA) Construction Grants for Wastewater Treatment Works Economic Development Grants Federal Aid Urban Grants Housing Assistance Payments for Low- Income Families Job Training Partnership Act QTPA) Low Income Housing Assistance Program Maternal and Child Health Services Block Grants National School Lunch Program Revenue Sharing Entitlements Special Programs for the Aging (Title III) Urban Development Action Grants Vocational Education GFOA • Experience and Special Review Committee A majority of KPMG Peat Marwick - Orange County City Clients apply and receive the GFOA Certificate of Achievement. Approximately 80% of the government entities audited throughout the nation by KPMG Peat Marwick received the certificate on their first submission. As the GFOA becomes more strict in its reviews, this experience should prove invaluable to the City in submitting for the Certificate. In addition, KPMG Peat Marwick has approximately 50 members on the Certificate of Achievement Special Review Committee, including Peggy McBride, your engagement partner and Tom Snow, your Concurring Partner. As a result, we are prepared to provide recommendations necessary to help the City prepare its Comprehensive Annual Financial Report for submission to the GFOA Certificate of Achievement Special Review Committee. As mentioned above, both the engagement partner and the technical resource partner serve as reviewers on the GFOA Special Review Committee. They have each assisted at least 50 governments in acquiring or maintaining the GFOA Certificate of Achievement for Excellence in Financial Reporting. 15 I 1 I Specific Audit Approach I 7 i i I 1 I j I �I 1] I I I 1 I ' SPECIFIC AUDIT APPROACH ' We believe it is important to note that, while audits conducted by different accounting firms might appear to be similar, it is only because one focuses on the end product -- the audit report. In fact, significant differences are apparent if one focuses on the conduct and approach to the audit. We at ' KPMG Peat Marwick believe our audit of local governmental units are distinguishable from those of our competitors because of our commitment to our clients and the governmental industry. It is our goal to provide our clients with the highest level of service available. This includes providing ' timely year- around responses to inquiries, developing management letter comments that will help to improve City operations, communicating the most recent developments within the industry, and meeting agreed -upon deadlines. ' Audit Scope The engagement will include the annual audit of the following financial statements: ' City's General Purpose Financial Statements ' Compliance audits: • Single Audit • Gann Limit Attestation ' The financial statement audits will be conducted in accordance with generally accepted auditing standards as promulgated by the American Institute of Certified Public Accountants in their audit ' guide, Audits of State and Local Governmental Units, and will accordingly include such tests of the accounting records and such other auditing procedures as we consider necessary. The accounting and reporting principles adopted by the Governmental Accounting Standards Board will ' be applied. The primary purpose of the examinations is to enable us to form an opinion as to the combined financial position of the City and related entities at June 30, 1993 and the results of their operations ' for the year then ending. A detailed check of the day -to-day transactions is not contemplated. Reliance must be placed upon adequate methods of internal check and control as your principal guard against irregularities which a test examination may not disclose. If conditions are discovered which lead us to believe that material errors, defalcations or other irregularities may exist or if other circumstances are encountered that require extended services, we will promptly advise City officials as detailed in your request for proposal. No extended services will be provided without proper authorization. The compliance audit, the Single Audit, of the City will be performed as a single audit as defined in Office of Management and Budget (OMB) Circular A -128, Audits of State and Local Governments. The audit will encompass all Federal funds administered by the City. Furthermore, it will be conducted in accordance with the provisions of: Government Auditing Standards (1988) promulgated by the U.S. General Accounting Office, which pertain to financial and compliance audits; Compliance Supplement for Single Audits of State and Local Governments and Guidelines for Compliance Audits of California Redevelopment Agencies, as appropriate. Our examination will not extend to third -party recipients' uses of grant funds. 1 16 I L 11 1 Reporting The following would be the output of each annual audit: • Our report on the City's general purpose financial statements and on the combining and individual fund statements, as supplementary data; • Our reports on internal accounting controls and compliance with applicable laws and regulations reports as required by Governmental Auditing Standards (the "Yellow Book "); • Our reports as required by the Single Audit Act of 1984 : - Our report on the Schedule of Federal Financial Assistance as supplementary data ( "In relation to" report) ; - Our report on the internal control structure used in administering federal financial assistance programs; - Our report on compliance with specific requirements applicable to major and nonmajor federal financial assistance programs; - Our report on compliance with general requirements for both major and nonmajor federal financial assistance programs; ' • Our report on the Gann limit (Article 3HIB) attestation; • Our report to the audit committee as required by SAS 61; ' • Our management letter. ' We consider the development of a comprehensive, practical management letter to be a major by- product of the audit process. We emphasize meaningful comments focusing not only on matters of internal control and the City's financial management systems, but also on operating economy and efficiency. As is our usual procedure, we will review our understanding of the facts ' obtained during our examination with appropriate City personnel prior to submitting our recommendations. ' Communications The underlying element of our entire work plan is interaction with the City officials overseeing the audit in order to appraise them of our progress. We shall conduct periodic progress report ' meetings with the City Finance Officer and Staff. We obviously believe communication is vital. We have stressed the importance of continuous close relationships throughout this proposal. We strongly believe in the benefit derived from regular progress meetings between our top engagement personnel and the City's officials. It is our intent to use these meetings to report: ' Accomplishments • Outlook • Problems to be resolved ' In addition, we are available to attend meetings of the Audit/Finance Committee, City Council and/or City Management as the City deems appropriate. This includes, but is not necessarily limited to, the meetings detailed in your request for proposal. ' 17 D ' Our Audit Philosophy Our basic audit philosophy has been developed from our many years of experience in providing audit services to local governments. We stress the efficiency and timeliness of our procedures; ' therefore, we also place heavy emphasis on early planning, communications and coordination of the efforts of our people with your personnel. ' Because our approach stresses early resolution of audit, accounting and related problems and questions, much of our preliminary work will deal with seeking out and resolving potential problems before year -end when alternatives for their resolution are more flexible and available. In this manner we have consistently proven that we can render more effective client service and meet ' your objectives of timely and accurate financial reporting. Overall Audit Approach The implementation of our audit approach to the City can be divided into the following phases: ' I. Continuous Service The key element of our plan of service is to be responsive to City requests for ongoing assistance and consultation throughout the year. We will not, however, wait to be asked for ' specific service, but rather our professionals will meet with the City to discuss current developments. We will regularly update you on developments that come to our attention from our active involvement in governmental finance and reporting technical committees and task ' forces. II. Initial Planning ' Obtain an Understanding of the City and Its Operating Environments - The audit will begin by expanding KPMG Peat Marwick's understanding of the City and its operating environments. We will do this by accumulating and reviewing applicable background information pertinent to the City. A sample of such background items typically include: • The City's organization and personnel ' Our understanding of the principal accounting and administration systems • Operational and capital budgets • Minutes of the City Council • Contracts and major commitments including bond agreements and covenants, if any ' Operating agreements with other government agencies • Policy and procedure manuals, administrative codes, rules and regulations • Local, State and Federal legislation impacting the City Discuss Planning Considerations with the City - At this point we would meet with the appropriate City personnel to discuss, as necessary: • The application of generally accepted accounting principles • Initial audit concerns • Concerns of the City Management and the City Council • Report requirements, refinements and deadlines • A detailed work schedule and audit calendar of key audit dates (See example audit calendar in Appendix Q 18 1 ' • Initial audit approach and timing schedule ' • Assistance from City personnel • Establishment of initial contacts • Space and equipment needs • Progress reporting process Develop an In -Depth Understanding of Areas of Concern - Develop our knowledge ' of the City, and as a result of our fact - finding process, we are prepared to identify the areas of audit emphasis. We will review such areas in -depth to obtain an early understanding resolution of any "problem" areas that may impede our progress and to develop our overall approach so that the City has sufficient time to develop that data necessary for completion of the audit with a ' minimum amount of disruption of the day -to-day routine. Review Data Collection Procedures - Documenting, evaluating and testing of the system is performed by interviews of responsible accounting personnel and the tracing of a number of input documents through the accounting systems related to major transaction cycles within the organization. Conduct Analytical Reviews -- Using the City's budget, interim and prior year financial statements, the audit team will employ analytical review techniques to identify other areas that might require attention. We can thus identify certain more sensitive areas to determine whether ' they are indeed areas requiring extra attention. Identify Major Areas of Audit Concern and Define the Major Audit Objectives - ' Based on our understanding of the City's operating environment, our analytical reviews and other planning procedures, we can highlight the areas to be emphasizes during the audit. Perform Single Audit Administrative Matters - With regard to planning single audit requirements, we will also identify major federal and state programs administered by the City, if any, and the related compliance requirements. The City will be asked to prepare a schedule that lists each grant program it administered during the audit period, categorized by grantor ' agency and identifying number. Discuss and Agree upon Financial Statement Formats - We will work with the City to develop quality, meaningful financial statements and footnotes for the year, in accordance with all NCGA/GASB statements. Develop Audit Plan - It is our policy to prepare a formal memorandum or audit plan for ' each of our engagements. A formal plan is especially needed to inform all parties as to our intent, deadlines and the like. Specifically an Audit and Annual Report Process Schedule which would detail key audit dates for each year's audit. See example in Appendix C Phase II will be performed as part of our interim fieldwork during June. 19 ' III. Systems Evaluation The steps in this phase are as follows: ' Document and Test Internal Control Systems, Perform Single Audit testwork and Flowchart the Significant Accounting Cycles - Using KPMG Peat Marwick flowcharting techniques, we will identify critical points in the flow of information. We will ' perform a detailed test of transactions from the financial accounting records to determine whether, in fact, the accounting procedures and systems of internal control were applied as described. We will, for example, perform tests to assist in determining whether. ' State and Federal grants to which the City is entitled were received, if any • Single Audit Compliance testing, as necessary • Revenues received were deposited ' Materials were requisitioned by authorized employees • Bidding practices established by City requirements were used • Materials were received ' • Necessary approvals were documented • Discounts, if any, were taken • Expenditures were charged to the correct accounts • Persons on City payrolls were bona fide employees • Employees were paid in accordance with appropriate salary scales, etc. • Compensation was charged to the correct accounts. We will identify the strengths and weaknesses in each transaction subcycle and subaudit areas that have a bearing on the audit objectives. ' Develop SeaCas Applications - SeaCas ( "Systems Evaluation Approach -- Computerized Audit Support") is a micro computer based support system, using Macintosh computers, developed by KPMG peat Marwick to assist our field auditors in doing their jobs faster and more thoroughly. Develop Tailored Audit Programs - Our engagement service team will develop tailored audit programs based upon the identification of internal control strengths, and reference to our comprehensive "State and Local Government Practice Guide ". Our audit program will include the compliance tests performed and noted above and substantive tests for testing account balances. ' Phase III will be performed as part of our interim fieldwork during June. 1 20 ' IV. Testing ' When we will have identified the major auditing, accounting and reporting issues and worked with you so that we will have a clear -cut plan for resolving these issues, we will commence our final testwork. The scheduling will be worked out so as to be convenient to the City yet sufficient for us to meet the City's reporting deadlines. Our year -end work will consist principally of: ' Performing substantive tests to ascertain the validity of year -end financial statement balances. • If necessary, update single audit testwork. • Resolving the last- minute auditing, accounting and reporting issues which sometimes occur. ' • Preparing the financial statements and independent auditors' reports of the entities as noted above. ' Phase VI will be performed as part of our final fieldwork would commence in September and conclude in October. V. Reporting ' The last phase of our audit cycle is the reporting phase. Because of our emphasis on early problem resolution in the planting phase of the audit and extensive interim testwork, our final audit fieldwork will be mainly concerned with reviewing the fair presentation of the final t numbers that will appear in the annual financial reports. We will work closely with City personnel in preparing the Comprehensive Annual Financial Report (CAFR) and other financial statements. Prior to the providing our signed auditors' ' reports, a second KPMG Peat Marwick partner will perform a "cold" review of the draft reports and other documents in order to evaluate the professional excellence of the examination. He will then give his concurrence as to the propriety of the auditors' reports. ' All reports will be prepared by KPMG Peat Marwick and include City personnel throughout the review and draft process. Printing of the CAFR will be the responsibility of the City. Draft copies of all audit reports and financial statements will be provided to the City by ' November 15, 1993. All final reports will be delivered to the City by November 24, 1993. We consider the development of a comprehensive, practical management letter to be a major by- product of the audit process. We emphasize meaningful comments focusing not only on matters of internal control and the City's financial management systems, but also on ' operating economy and efficiency. As is our usual procedure, we will review our understanding of the facts obtained during our examination with appropriate City personnel prior to submitting our recommendations. J 1 21 IEstimated Audit Hours by Audit Phase ' We estimate the following hours will be required to complete the noted phases of the engagement on an ongoing basis: ' Phase TZ911 Planning 100 Systems evaluation 100 Testing 400 Reporting -M Total 700 ' Our planned audit team includes a Partner, Senior Manager, Manager, Senior and two Staff auditors. Peggy McBride, as Engagement Partner, will be involved throughout the engagement, concentrating her time in the areas of planning, in the review of critical audit areas, and in the review of the financial statements. Joe Parker, the Engagement Manager, will monitor the progress of the audit on at least an every- other -day basis, and can be expected to be on -site at least once a week during fieldwork. Carla Mills, the Engagement Senior, is responsible for the day-to- day progress of the audit and will be on -site throughout all phases of the audit, supported by the Staff auditor. ' It is important to re- emphasize that both the Partner and Manager will be accessible and available for meetings and/or consultation throughout the year, as we see this as being an essential part of keeping abreast of issues relating to the City. ' City Staff Assistance Beginning with the initial planning phase, we will arrange for assistance in obtaining supporting ' documents, typing confirmations and the like. Specifics of such assistance will be agreed upon and confirmed in writing well in advance of our needs so that City personnel will have ample time to complete the agreed -upon work, thereby avoiding inefficiency and day - today ineffectiveness. ' We do not expect that the time required of City clerical personnel in providing this assistance will exceed 60 hours. We assume that the City prepares and retains account reconciliations and we will request and use copies of these schedules for our audit working papers. Thus, the preparation of additional schedules and analyses by City staff should be held to a minimum. Working Paper Retention ' We will retain the working papers in accordance with regulatory requirements, for a minimum of three years. The working papers will be available to the City upon request. I ' 22 Appendix A: Engagement Team Resumes _.:.l�u�°C']t�: `�:nin... '..'. ia�wr <Yarau'- .�Iil�.`..S.L�u. —Y�C' - w6• ' ^?', J'r..e4..['£F. .i+• ...e" � �� ' MARGARET J. MCBRIDE - Client Engagement Partner Firm Position Ms. McBride is a Certified Public Accountant and an audit partner in the Orange County Office of KPMG Peat Marwick who has specialized in providing governmental services throughout her more than fifteen years with the Firm. Peggy is Partner -in- Charge of the Orange County Government Services Practice and Partner -in- Charge of Technology for the Orange County office. 1 Client Experience Ms. McBride's responsibilities with the Firm have included: 1 • Serving as an instructor for the Firm's governmental and single audit training courses. I [1 I i LJ LJI • Authoring a major portion of KPMG Peat Marwick's governmental and single audit training courses. • Conducting financial audits of more than 30 cities, counties and state agencies, 11 water utilities, 5 local governmental retirement systems, as well as not - for -profit organizations, electric and gas utilities and commercial businesses. Selected local governmental clients she serves include the following: • City of Brea • City of Chino Hills • City of Corona • City of Dana Point • City of Huntington Beach • City of Indian Wells • City of Irvine • City of Laguna Beach • City of Ontario • City of San Clemente • City of Westminster • Mesa Consolidated Water District • Municipal Water District of Orange County • Orange County Water District • OMNPI'RANS • Riverside County Office of • Education SANBAG • San Bernardino County Water Works #8 • South Coast Water District • County of San Bernardino • County of Riverside • Orange County Transportation Commission • Orange County Sanitation Districts • Providing a variety of management consulting services including cost allocation studies, design of manual and computerized accounting systems, financial forecasting, and design of operating procedures for utility customer service functions, transit systems and recreational facilities. Prior Governmental Experience Ms. McBride joined KPMG Peat Marwick Main after serving as Assistant Director of Finance for the City of Columbia, Missouri. Her responsibilities included: • Direction and supervision of the municipal accounting division. • Financial management of municipal utilities, including preparation of bond offerings, user rate studies and inventory systems. • Coordination of cash management and investment policies. • Serving as financial advisor to the Police and Firemen's Retirement Board. 23 ' Professional Activities Ms. McBride is a member of the Government Finance Officers Association (GFOA) and she serves on the GFOA's Committee for the Certificate of Achievement Program. She is also a member of the California Society of Municipal Finance Officers, serving on the Associations' Professional and Technical Standards Committee, and the California Society of Certified Public ' Accountants, serving on its Governmental Accounting and Auditing Committee. She has published articles on the subjects of cash management and the Single Audit process and has served as a speaker to professional organizations on subjects including Fixed Asset Systems, Internal Controls, Governmental Accounting, the Single Audit and Investment Practices. She also serves as an instructor for the AICPA, teaching its governmental auditing courses. Education ' Ms. McBride received her Bachelor of Science degree in Accounting from the University of Missouri, Columbia. I I i 1 I I I 11 I 1 24 L] �I I LJ (1 I C� 1 I THOMAS W. SNOW- Concurring and Technical Resource Partner Firm Position Mr. Snow is an audit partner in the Los Angeles office of KPMG Peat Marwick, specializing in the government services and insurance practices. Mr. Snow also serves as Technical Advisor to KPMG Peat Marwick offices in the 11 western states. Client Experience A partial list of California cities and counties for which Mr. Snow has assumed engagement responsibility follows: • City of Alhambra - all aspects • City of Anaheim - all aspects • City of Avalon • City of Bakersfield • City of Bellflower - all aspects • City of Burbank - all aspects • City of Carson - all aspects • City of Chino - all aspects • City of Commerce - all aspects • City of Compton - all aspects • City of Culver City • City of El Segundo - all aspects • City of Glendale - all aspects • City of Long Beach • City of Los Angeles: - Department of Water and Power Employees' Pension Systems - Harbor Department - Community Redevelopment Agency • City of Palos Verdes • City of Palos Verdes Estates • City of Paramount - all aspects • City of Redondo Beach - all aspects • City of Rolling Hills Estates • City of San Buenaventura - all aspects • City of San Luis Obispo - all aspects • City of Santa Barbara - all aspects • City of Santa Clarita • City of Santa Monica - all aspects • City of Simi Valley - special rubbish collection study • City of Solvang • City of South Pasadena - all aspects, including redevelopment • City of Thousand Oaks - all aspects • City of Upland • County Sanitation Districts of Los Angeles County • Burbank Airport Authority • Los Angeles County Transportation Commission • County of Imperial - all aspects • County of Kern - all aspects • County of Los Angeles - all aspects • County of Ventura - all aspects • Grand Juries of the Counties of Los Angeles, Orange, Ventura and Riverside 25 i Private Sector Clientele Industry Groupings 1 Computer service bureaus - operational/control reviews • Insurance (life and property/casualty) • Banking • Real estate development • Manufacturing iProfessional Activities 1 Mr. Snow is a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants, the EDP Auditors Association, the Governmental Finances Officers Association (GFOA) and the California Society of Municipal Finance Officers (CSMFO). He has served on the GFOA's Special Review Committee for the Certificate of Conformance Program and as an instructor for KPMG Peat Marwick's governmental auditing staff training programs. Mr. Snow has also spoken on numerous occasions on public sector and commercial accounting and auditing topics. He has instructed courses in governmental accounting at UCLA and USC. Education 1 Mr. Snow holds a Bachelor of Science degree in Accounting from Weber State College and a Master of Business Administration degree from the University of Utah. Mr. Snow is a certified public accountant in the State of California. i E E 1 1 C] i 1 i 1 26 MARK T. THOMAS - Engagement Senior Manager Firm Position Mark Thomas is a Senior Manager. He has been with the Firm over nine years. His ' engagement responsibilities have included in- charge and manager responsibilities for audit engagements of governmental institutions, school districts, insurance companies, and banking and trust companies. Mark is a Computer Controls Specialist and a Computer ' Processing Specialist, as well as being a National Instructor for the Firmwide courses. Most recently, Mark participated in the re- writing of the Firm's Government In- charge course with the specific responsibility of writing the Single Audit section. Mark is the ' author of the "Advanced Governmental Accounting and Auditing - Update" course written for the California Society of CPA's. Client Experience Mr. Thomas has provided audit services to the following public sector clients: F7 L 1 27 • City of Anaheim • City of Brea • City of Colton City of Commerce ' • City of Corona • City of Dana Point • City of Garden Grove City of Huntington Beach ' • City of Indian Wells • City of Irvine ' • City of Lake Elsinore • City of Orange • City of San Clemente City of Santa Barbara ' • City of Westminster • Anaheim Union High School District • El Monte City School District • Fountain Valley School District ' • Irvine Unified School District • Savanna School District ' Saddleback Community College District Professional Activities and Education ' Mr. Thomas is a certified public accountant and a member of the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants. He holds a Bachelor of Science degree in Business Administration -- Accounting from Biola ' University in La Mirada, California F7 L 1 27 Firm Position JOSEPH H. PARKER - Engagement Manager ' Mr. Parker is a certified public accountant in the State of California. He earned a Master of Arts degree in Economics and Bachelor of Arts degree in Business Economics from the University of California Santa Barbara. He is also a member of the California Society of Certified Public ' Accountants and serves on the Governmental Accounting and Auditing Committee, Orange County/Long Beach Chapter. Mr. Parker serves as an instructor for KPMG Peat Marwick's West Coast Government In- Charge course. I 1 28 Mr. Parker is an audit manager in the Orange County Office of KPMG Peat Marwick who has ' specialized in providing governmental services throughout his more than seven years with the Firm. He is a member of the Orange County Office Quality Service Council. ' Client Experience Mr. Parker specializes in the governmental area, specifically providing accounting and auditing services to counties, cities, redevelopment agencies, housing authorities, financing authorities, ' special districts and not -for - profit entities. His other client experience includes engagements in manufacturing, transportation, high technology and aviation industries. ' Mr. Parker has provided audit services to the following public sector clients: • City of Brea • City of Corona ' • City of Colton • City of Dana Point • City of Garden Grove • City of Irvine • City of Laguna Beach • City of Ontario • City of San Clemente • County of Orange • County of Riverside • County of San Bernardino • Municipal Water District of Orange County • Orange County Water District San Bernardino County Waterworks #8 ' • South Coast Water District Many of the above noted cities and counties have water utilities, redevelopment agencies, and ' financing authorities. Mr. Parker has performed single audits of over ten public sector clients including three local counties. Mr. Parker has provided accounting and auditing services for several pension plans including the Developmental Disabilities Center Defined Contribution Plan, Riverside County Retirement Plan and Pacific Connections Employees Profit Sharing Plan. 1 Professional Activities and Education ' Mr. Parker is a certified public accountant in the State of California. He earned a Master of Arts degree in Economics and Bachelor of Arts degree in Business Economics from the University of California Santa Barbara. He is also a member of the California Society of Certified Public ' Accountants and serves on the Governmental Accounting and Auditing Committee, Orange County/Long Beach Chapter. Mr. Parker serves as an instructor for KPMG Peat Marwick's West Coast Government In- Charge course. I 1 28 u CARLA MILLS - Supervising Senior Accountant Firm Position Carla is a supervising senior accountant with four years of accounting and auditing experience in the Orange County Office of KPMG Peat Marwick. Client Experience ' Carla specializes in the governmental area, specifically providing accounting and auditing services to cities, redevelopment agencies, financing authorities, special districts and not - for -profit entities. Her client experience also includes engagements in the real estate, ' insurance and financial institutions industries. She has in- charged the Cities of Brea, Dana Point and Indian Wells. Her other public sector clients have included the Cities of Westminster andColton. ' Education Carla is a certified public accountant and a graduate of the University of Arizona from ' where she earned her Bachelor of Science degree in Business Administration - Accounting. I J 1] II 1 1 29 [J 1 [1 JOHN R. (JACK) MILLER - Resource Pool Firm Position Mr. Miller is the National Industry Director of the Firm's Government Services Practice and an audit partner in KPMG Peat Marwick's New York Office. He is a member of the Firm's Quality Service Committee and is responsible for ensuring the delivery of quality service and providing firm and industry leadership on emerging and current governmental issues. Client Experience Mr. Miller has extensive experience in auditing governmental entities, having devoted most of his career to this area. A partial list of public sector clients for which Mr. Miller has served are: • City of Boston • City of Detroit • Town of Greenwich • City of New York • City of San Francisco • City of Stamford • County of Los Angeles • County of San Francisco • Commonwealth of Massachusetts • Commonwealth of Pennsylvania • State of New York • State of South Carolina • Municipal Assistance Corporation of the City of New York • New York City Water System • NYC Off -Track Betting Corporation • New York State Housing Finance Agency • New York State Medical Care Facility Finance Corporation • New York City Housing Development Corporation • Board of Education of the City of New York ' Professional Activities ' Mr. Miller is a Certified Public Accountant and a member of the Pennsylvania and America Institutes of Certified Public Accountants and the New York State Society of CPAs. He is the immediate past Chairman of the AICPA's Committee on Government Accounting and Auditing, a member of the Governmental Accounting Standards Advisory Council and Chairman of the AICPA's Task force on Monitoring Quality of Audits of Federal Funds. He is also a member of the United States Comptroller General's Auditing Standards Advisory Council which assists in revising and establishing governmental auditing standards. ' Mr. Miller is considered a leading national authority on governmental accounting, auditing and reporting and serves as instructor and lecturer at numerous seminars sponsored by various ' professional organizations. He is a prolific writer on governmental financial management and has had articles published by Commerce Clearing House, the Association of School Business Officials, the Association of Government Accountants, the Government Financial Officers Association, the Journal of Accountancy, City and State, American City & County and Government Data Systems. 1 30 Mr. Miller is a Trustee of the Citizens Budget Commission, a member of the Advisory Committee of the National Civic League and a member of the Wilkes University Council. He is also a Principal of the Council for Excellence in Government, a member of the Board of Directors of the Rye YMCA, and a member of the International Service Quality Association and the Quality & Productivity Management Associates. He is also a member or associate of various other professional associations, including The American Accounting Association, the International City Manager's Association, the Government Finance Officers Association, the National Association of State Auditors, Comptrollers and Treasurers, the Association of School Business Officials, the International Consortium on Governmental Financial Management, the National League of Cities, the Council of State Governments, and the Conference of Mayors. Education ' Mr. Miller received his Bachelor of Science Degree, cum laude, in Commerce and Finance from Wilkes University. I I� fl r �Ll 1 31 Appendix B: References of Southern California Municipal and County Clients F I 1 1 1 �J C] Alpo CC @C CC CCCCCCCRCE CG- CCCCC CL' Sx xx x x xxxxxx xxxxxxxxxx x -sa 99xxxx xx x xxxxxxxxxxx x xx x JB x x xx x xxx xxxx x x x 3� s xxxx xx xxxxxxx xxxxx xxxxx xx °ylxxxx xx xxxxxxxxxxxxxxxxxxx xx a a m a� 1 32 9� 0 0 'r7� r ;; Jg�Rffi R YT's'/ Hr R For 2 a -C - CC'�"ffi "ffi & 26"ffi"d6 N -6 a a CC .. C C CE CE e xx x xx x xxx x xxxx x x x x xx xxxxxxxxxxxxx x x xxx xx xxxx xx x xxx xxx x x xx xxxxxxxxx xxxx xxx xxxxxx xxxxxxxxxxxxxx B VI � O A A »A�3w �i�F F7a o o e VVUVVV�i�VVV�VU i Appendix C: ' Audit Calendar I I I 7 I I �1 I I I 1] ;1 [1 1 [1 [1 City of Newport Beach (Tentative) 1993 Audit Calendar April 30, 1993 We propose the year -end closing, work schedule and key audit dates for the year ending June 30, 1993 is as follows: June 7 Entrance Conference (Interim) - Initial planning meeting to discuss the June 30, 1993 audit. Discuss and agree on audit timing (dates of this schedule) and audit workpaper schedules. June 12 KPMG commences interim field -work. This includes planning, internal control and single audit testwork. June 16 Progress Meeting - All hands meeting to discuss interim audit results, and finalize the audit assistance list and audit schedule. June 16 KPMG ends interim portion of field -work. June 16 KPMG provides to the City the detailed audit plan, the finalized audit calendar and the finalized audit assistance listing to be prepared by the City. June 25 Interim confirmations as indicated in the audit assistance list to be provided to KPMG for mailing. June 30 Fiscal year -end. July 13 All remaining confirmations provided to KPMG for mailing. August 20 Year -end closing complete. September 13 Entrance Conference (Final) - Meeting with Dan Matusiewicz to discuss final portion of audit field -work. September 13 KPMG commences final portion of field -work. September 13 City provides audit schedules to KPMG. September 24 KPMG provides Single Audit findings to the City. September 30 Progress Meeting - All hands audit progress meeting (9:00 am) to discuss audit differences and audit findings, if necessary. September 30 Cutoff date for final audit differences and adjusting journal entries. October 1 KPMG ends field -work. 33 L 1 1 1 1 C 1 1 L 1 1 1 i 1 1 F 1 1 City of Newport Beach 1993 Audit Calendar Page 2 October 5 City to respond to and Single Audit findings for inclusion in the Single Audit Report October 11 Exit Conference - All hands audit progress meeting (9:00 am) to discuss audit differences and audit findings. October 15 KPMG provides a draft Single Audit Report and the management The dates set forth above are flexible and can be adjusted to meet the City's needs. A similar time schedule will be developed for future audits 34 letter. City to provide draft CAFR to KPMG for review. November 1 KPMG provides comments on CAFR to the City. The City provides comments on draft financial statements, Single Audit Reports and the management letter. November 15 KPMG issues the final CAFR, Single Audit Report and the management letter. December 1 City Council reviews and approves the financial statements and reports December 7 CAFR sent to the GFOA and CSMFO. The dates set forth above are flexible and can be adjusted to meet the City's needs. A similar time schedule will be developed for future audits 34 F I I I 1 I I I I I I I I I I Appendix D: Proposer Guarantees I. The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required of the Request for Proposal. Signature of Official: Name: Margaret J. McBride Tide: Partner Firm: KPMG Peat Marwick Date: April 30, 1993 35 Appendix E: ' Proposer Warranties IF 1 1 I L 1 FJ u LJ iL J 1 1 1 A. Proposer wan-ants that it is willing and able to comply with State of California laws with respect to foreign (non -state of California) corporations. B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents in conjunction with the services to be provided. Coverage limits shall be $2,000,000 or more, per occurrences without reduction for claims paid during the policy period. The carrier should be duly insured and authorized to issue similar insurance policies for this nature in the State of California. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Newport Beach. D. Proposer warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: ID (/ & IGY IAA Name: Margaret I McBride Title: Partner Finn: KPMG Peat Marwick Date: April 30, 1993 W Appendix F: External Quality Control Review Report 125' Avenue Di me Americas TCeonone 212 489 8900 ' New fork. NY !0020 ' Price T thterhouse ' November 19, 1990 ' To the Partners of KPMG Peat Marwick: We have reviewed the system of quality control for the accounting and auditing practice of KPMG Peat Marwick ( "the Firm ") in effect for the year ended March 31, 1990. Our review was conducted in conformity with standards for peer reviews promulgated by the peer review committee of the SEC Practice Section of the AICPA Division for CPA Firms ( "the Section "). We tested compliance with the Firm's quality control policies and procedures and with the membership requirements of the Section to the extent we considered appropriate at the Firm's Executive Office and at selected practice offices in the United States. These tests included the application of the Firm's policies and procedures on selected accounting and auditing engagements. We also tested the supervision and control of portions of engagements performed outside the United States. In performing our review, we have given consideration to the general characteristics of a system of quality control as described in quality control standards issued by the AICPA. Such a system should be appropriately comprehensive and suitably designed in relation to ' the firm's organizational structure, its policies, and the nature of its practice. Variance in individual performance can affect the degree of compliance with a firm's prescribed quality control policies and procedures. Therefore, adherence to all policies and procedures in every case may not be possible. As is customary in a peer review, we are issuing a letter under this daze that sets forth comments relating to certain policies and procedures or compliance with them. None of these matters were considered to be of sufficient ' significance to affect the opinion expressed in this report. In our opinion, the system of quality control for the accounting and auditing practice of KPMG Peat Marwick in effect for the year ended March 31, 1990, met the objectives of ' quality control standards established by the AICPA and was being complied with during the year then ended to provide the Firm with reasonable assurance of conforming with professional standards. Also, in our opinion, the Firm was in conformity with the ' membership requirements of the Section in all material respects. I I I 37