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05-0419_DIEHL, EVANS & COMPANY_D10_Agenda Report4/19/2005 010 AGENDA REPORT TO: Dave Adams, City Manager Of` FROM: Cindy L. Russell, Administrative Services Director SUBJECT: Consideration of Agreement for Annual Audit Services for Fiscal Years Ending June 30, 2005 through June 30, 2009 (Diehl, Evans & Company). RECOMMENDATION: By motion, approve the five-year agreement for Audit Services for the fiscal years ending June 30, 2005 through June 30, 2009 (Diehl, Evans & Company). SITUATION: The City's agreement for audit services with Moreland & Associates expired at the conclusion of the FY 2003/04 audit. It has been the City's practice in the past to issue a Request for Proposal every five years for audit services. This is based on the theory that periodic changes in auditing firms assure a fresh look at the City's policies and procedures. Additionally, the RFP process allows the City to obtain the most cost effective provider for these services. Staff received proposals from Caporicci & Larson, Moreland & Associates, Diehl, Evans & Company, and Vavrinek, Trine, Day & Company. The City conducted interviews with all four firms; references were checked. All four firms were found to be technically qualified to perform the required services. Diehl, Evans & Company submitted the most cost effective proposal to the City and Community Redevelopment Agency. Additionally, in the past, Diehl, Evans & Company provided services to the City and completed the City audits in a professional and timely manner. Staff recommends awarding the contract for audit services for the fiscal years ending June 30, 2005 through June 30, 2009 to Diehl, Evans & Company. FINANCIAL CONSIDERATIONS: The cost of providing audit services for the fiscal years ending June 30, 2005 through June 30, 2009 is $130,747. The cost for these services will be provided for in the City's annual budget. Additionally, Diehl, Evans & Company's proposal is $39,753 less over the five-year period than what the City is currently paying for the same services provided by our current auditors. PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made and entered into this _ day of 2005, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and Diehl, Evans & Company, LLP, (hereinafter referred to as "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal to Conduct Annual Auditing Services; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by Consultant shall consist of those tasks as set forth in Exhibit 'A" attached and incorporated herein by reference, as they relate to the City's CAFR and Single Audit. Consultant warrants that all of its services shall be performed in a competent, professional and satisfactory manner and in accordance with the prevalent standards of its profession. Section 2. Tenn. This Agreement shall commence on the effective date of this Agreement and services required hereunder shall be completed by no later June 30, 2010. Section 3. Compensation. 3.1 Amount. Total compensation for the scope of services for this Project shall not exceed One Hundred Thirty Thousand Seven Hundred Forty Seven Dollars ($130,747), as set forth in Exhibit "B," attached and incorporated herein by reference. psa.docll/3/2005 ATTACHMENT 3.2 Rate Schedule. The services shall be billed to the City at the hourly rate set forth in Exhibit "B," attached and incorporated herein by reference, as they relate to the City's CAFR and Single Audit. Included within the compensation are all the Consultant's ordinary office and overhead expenses incurred by it, its agents and employees, including meetings with the City representatives and incidental costs to perform the stipulated services. Submittals shall be in accordance with Consultant's proposal. 3.3 Method of Payment. Consultant shall submit monthly invoices based on total services which have been satisfactorily completed and specifying a percentage of projected completion for approval by the City. The City will pay monthly progress payments based on approved invoices in accordance with this Section. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. 3.4 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to City. Section 4. Independent Contractor. It is agreed that Consultant shall act and be an independent contractor and not an agent or employee of City, and shall obtain no rights to any benefits which accrue to City's employees. Section 5. Limitations Upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. psa.doc11/3/2005 Section 6. Changes to Scope of Work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; and (2) it understands the difficulties and restrictions of the work under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and local government. Section 10. Conflicts of interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. At the completion of the contract period, Consultant shall have delivered to City at least one (1) copy of any final reports containing Consultant's findings, conclusions, and recommendations with any support documentation. All reports submitted to the City shall be in reproducible format. All services to be rendered hereunder shall be subject to the direction and approval of the City. psa.docll/3/2005 Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be made available to any individual or organization without prior written consent of the City. All such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemni . Consultant agrees to protect, defend and hold harmless City, its elected and appointed officials and employees from any and all claims, liabilities, expenses or damages of any nature, including attorneys' fees, for injury or death of any person or damage to property or interference with use of property and for errors and omissions committed by Consultant arising out of or in connection with the work, operation or activities of Consultant, its agents, employees and subcontractors in carrying out its obligations under this Agreement. Section 14. Insurance. Insurance required herein shall be provided by Admitted Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A - Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in the following minimum amounts: $500,000 property damage; $500,000 injury to one person/any one occurrence/not limited to contractual period; $1,000,000 injury to more than one person/any one occurrence/not limited to contractual period. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including owned, hired and non -owned vehicles in the following minimum amounts: psa.docl 1/3/2005 $500,000 property damage; $500,000 injury to one person/any one occurrence/not limited to contractual period; $1,000,000 injury to more than one person/any one occurrence/not limited to contractual period 14.3 Worker's Compensation If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Worker's Compensation Employer's Liability Insurance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self -retention amount, and an additional insured endorsement to the Consultant's general liability and umbrella liability policies to the City Clerk's office for certification that the insurance requirements of this Agreement have been satisfied. 14.5 Errors and Omissions Coverage Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than One Million Dollars ($1,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the Clerk of the Board's office for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of CancellationfTermination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terns of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. psa.docl 1/3/2005 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City and Consultant shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to the other party In addition, this Agreement may be terminated for cause by providing ten (10) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Director of Administrative Services To Consultant: Diehl, Evans & Company, LLP 2121 Alton Parkway, Suite 100 Irvine, California 92606-0610 Section 17. Attomevs Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, the dispute shall be resolved by binding arbitration under the auspices of the Judicial Arbitration and Mediation Service ("JAMS"). psa.docll/3/2005 Section 19. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CITY OF SAN JUAN CAPISTRANO M CONSULTANT ATTEST: Margaret R. Monahan, City Clerk APPROVED AS TO FORM: C)4�(� John R. I , City Attorney psa.docll/3/2005 I SEALED DOLLAR COST BID FOR CITY OF SAN JUAN CAPISTRANO FOR THE YEAR ENDING JUNE 30, 2005 (WITH AN OPTION FOR THE FOUR YEARS ENDING JUNE 30, 2009) EXHIBIT A DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 2121 ALTON PARKWAY, SUITE 100 IRVINE, CALIFORNIA 92606-4956 (949) 399-0600 • FAX (949) 399-0610 www.diehlevnnsxom Ms. Cynthia L. Russell Administrative Services Director City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Dear Ms. Russell: February 16, 2005 MICHAEL. R. LUTAN, CPA CRAIG W. SPRAKER, CPA NITIN P. PATEL, CPA ROBERT I. CALL.ANAN. CPA -PHILIP K HOLTKAMP. CPA `THOMAS M. PERLOWSKI, CPA -HARVEY L SCHROEDER, CPA KENNETH R. AMPS. CPA •APROFF_S KMCOWb UON At your request, we have submitted our statement of qualifications under a separate cover. The following information is included herein: 1. Maximum fees for the audits. 2. Schedules of Professional Fees and Expenses. 3. Hourly Rates for Special Services. Please contact us if there are any questions regarding the fees or hourly rates quoted herein. Very truly yours, DIEHL, EVANS & COMPANY, LLP By: K rI • I' � Nitin P. Patel, CPA Engagement Partner -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SURE 330 CARLSBAD. CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890 MAXRMUM FEES Our maximum fees for the five years ending June 30, 2009 will be as follows: 2005 2006 2007 2008 2009 City of San Juan Capistrano $ 24,470 $ 25,201 $ 25,931 $ 27,027 $ 28,118 City of San Juan Capitstrano - RDA City of San Juan Capistrano - CHC TOTALS 6,060 6,240 6,420 6,692 6,964 1,970 2,084 2,094 2,186 2,278 $ 32,500 $ 33,525 $ 34,445 $ 35,905 $ 37,360 -2- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2004-05 FINANCIAL STATEMENTS (SUMMARY OF CATEGORIES FOR ALL AGENCIES) Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2004-05 audit - Summary HOURS 30.00 48.00 152.00 172.00 44.00 446.00 -3- STANDARD QUOTED HOURLY HOURLY RATES RATES TOTAL $ 200 $ 140 $ 4,200 125 100 4,800 85 70 10,640 75 60 10,320 55 45 1,980 31,940 560 $ 32,500 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2004-05 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO -4- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 24.00 $ 200 $ 140 $ 3,360 Managers 36.00 125 100 3,600 Supervisory Staff 120.00 85 70 8,400 Staff 120.00 75 60 7,200 Clerical 30.00 55 45 1,350 Subtotal 330.00 23,910 Out - of - pocket expenses: Transportation 560 Total all - inclusive maximum price for 2004-05 audit - City $ 24,470 -4- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2004-05 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CRA Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2004-05 audit - CRA -5- $ 6,060 STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 4.00 $ 200 $ 140 $ 560 Managers 8.00 125 100 800 Supervisory Staff 32.00 85 70 2,240 Staff 32.00 75 60 1,920 Clerical 12.00 55 45 540 Subtotal 88.00 1 6,060 Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2004-05 audit - CRA -5- $ 6,060 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDrr OF THE 2004-05 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CHC Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2004-05 audit - CHC STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL 2.00 $ 200 $ 140 $ 280 4.00 125 100 400 20.00 2.00 28.00 85 70 - 75 60 1,200 55 45 90 1,970 $ 1,970 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDTr OF THE 2005-06 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO -7- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 24.00 $ 206 $ 144 $ 3,456 Managers 36.00 129 103 3,708 Supervisory Staff 120.00 88 72 8,640 Staff 120.00 77 62 7,440 Clerical 30.00 57 46 1,380 Subtotal 330.00 24,624 Out - of - pocket expenses: Transportation 577 Total all - inclusive maximum price for 2005-06 audit - City $ 25,201 -7- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2005-06 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CRA Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2005-06 audit - CRA STANDARD HOURLY HOURS RATES 4.00 $ 8.00 32.00 32.00 12.00 88.00 QUOTED HOURLY RATES TOTAL 206 $ 144 $ 576 129 103 824 88 72 2,304 77 62 1,984 57 46 552 6,240 $ 6,240 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2005-06 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CHC Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2005-06 audit - CHC STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL 2.00 $ 206 $ 144 $ 288 4.00 129 106 424 20.00 2.00 28.00 88 74 - 77 64 1,280 57 46 92 2,084 $ 2,084 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2006-07 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO Out - of - pocket expenses: Transportation 593 Total all - inclusive maximum price for 2006-07 audit - City $ 25,931 -10- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 24.00 $ 212 $ 148 $ 3,552 Managers 36.00 133 106 3,816 Supervisory Staff 120.00 91 74 8,880 Staff 120.00 79 64 7,680 Clerical 30.00 59 47 1,410 Subtotal 330.00 25,338 Out - of - pocket expenses: Transportation 593 Total all - inclusive maximum price for 2006-07 audit - City $ 25,931 -10- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2006-07 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CRA -11- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 4.00 $ 212 $ 148 $ 592 Managers 8.00 133 106 848 Supervisory Staff 32.00 91 74 2,368 Staff 32.00 79 64 2,048 Clerical 12.00 59 47 564 Subtotal 88.00 6,420 Out - of - pocket expenses: Transportation - Total all - inclusive maximum price for 2006-07 audit - CRA $ 6,420 -11- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2006-07 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CHC Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2006-07 audit - CHC HOURS 2.00 4.00 20.00 2.00 28.00 12- STANDARD QUOTED HOURLY HOURLY RATES RATES TOTAL $ 212 $ 148 $ 296 133 106 424 91 74 - 79 64 1,280 59 47 94 2,094 $ 2,094 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDrr OF THE 2007-08 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO Out - of - pocket expenses: Transportation 621 Total all - inclusive maximum price for 2007-08 audit - City $ 27,027 -13- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 24.00 $ 220 $ 154 $ 3,696 Managers 36.00 138 110 3,960 Supervisory Staff 120.00 95 77 9,240 Staff 120.00 82 67 8,040 Clerical 30.00 61 49 1,470 Subtotal 330.00 26,406 Out - of - pocket expenses: Transportation 621 Total all - inclusive maximum price for 2007-08 audit - City $ 27,027 -13- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2007-08 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CRA -14- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 4.00 $ 220 $ 154 $ 616 Managers 8.00 138 110 880 Supervisory Staff 32.00 95 77 2,464 Staff 32.00 82 67 2,144 Clerical 12.00 61 49 588 Subtotal 88.00 6,692 Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2007-08 audit - CRA $ 6,692 -14- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2007-08 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CHC -15- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 2.00 $ 220 $ 154 $ 308 Managers 4.00 138 110 440 Supervisory Staff - 95 77 - Staff 20.00 82 67 1,340 Clerical 2.00 61 49 98 Subtotal 28.00 2,186 Out - of - pocket expenses: Transportation - Total all - inclusive maximum price for 2007-08 audit - CHC $ 2,186 -15- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2008-09 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO -16- STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL Partners 24.00 $ 229 $ 160 $ 3,840 Managers 36.00 143 114 4,104 Supervisory Staff 120.00 99 80 9,600 Staff 120.00 85 70 8,400 Clerical 30.00 63 51 1,530 Subtotal 330.00 27,474 Out - of - pocket expenses: Transportation 644 Total all - inclusive maximum price for 2008-09 audit - City $ 28,118 -16- CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2008-09 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CRA Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2008-09 audit - CRA STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES 4.00 $ 229 $ 160 8.00 143 114 32.00 99 80 32.00 85 70 12.00 63 51 88.00 -17- TOTAL $ 640 912 2,560 2,240 612 6,964 $ 6,964 CITY OF SAN JUAN CAPISTRANO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE 2008-09 FINANCIAL STATEMENTS SUPPORTING SCHEDULE FOR CITY OF SAN JUAN CAPISTRANO - CHC Partners Managers Supervisory Staff Staff Clerical Subtotal Out - of - pocket expenses: Transportation Total all - inclusive maximum price for 2008-09 audit - CHC STANDARD QUOTED HOURLY HOURLY HOURS RATES RATES TOTAL 2.00 $ 229 $ 160 $ 320 4.00 143 114 456 20.00 2.00 28.00 -18- 99 80 - 85 70 1,400 63 51 102 2,278 $ 2,278 HOURLY RATES FOR SPECIAL SERVICES If the City wishes us to perform consulting or other services outside the scope of the services described herein, a separate written request from the City will be required. Our hourly rates for these services during each year under the basic contract will be as follows: 2005 2006 2007 2008 2009 Nitin Patel, CPA - Engagement Partner $ 150 $ 155 $ 159 $ 166 $ 172 Michael Ludin, CPA - Partner 150 155 159 166 172 Robert J. Callanan, CPA - Partner 150 155 159 166 172 Bill Morgan, CPA - Director of Consulting Services 150 155 159 166 172 Managers 105 108 111 116 120 Supervisory Staff 75 77 80 83 86 Staff 65 67 69 72 75 Clerical 50 52 53 55 57 -19- CITY OF SAN TUAN CAPISTRANO TECHNICALAUDIT PROPOSAL FOR THE YEAR ENDING JUNE 30, 2005 (WITH AN OPTION FOR THE FOUR YEARS ENDING JUNE 30, 2009) 1IMgoI113180. TITLE PAGE RFP Subject: Certified Audits on the City of San Juan Capistrano for the Year Ending June 30, 2005 nth an Option for the Four Years Ending June 30, 2009) Name of Proposer: Diehl, Evans & Company, LLP Certified Public Accountants and Consultants Local Address: 2121 Alton Parkway, Suite 100 Irvine, CA 92606-4906 Telephone: (949) 399-0600 Fax: (949)399-0610 Website: www.dieblevans.com Email: nitinp@diehlevans.com Contact Persons: Nitin P. Patel, CPA Engagement Partner Michael R. Ludin, CPA Concurring Review Partner Date: February 16, 2005 CITY OF SAN JUAN CAPISTRANO TABLE OF CONTENTS February 16, 2005 Page Number Letter of Transmittal 1 - 2 Licensing and Independence Firm Qualifications and Experience: Size and Location of Firm 4 Range of Activities 4 Participation in "Quality Review" Programs 4 Education Programs 5 Participation in Professional Organizations 5 - 6 GFOA and CSMFO Award Programs 6 Experience with Preparation of State -Mandated Reports 6 Experience with Government Bond Offerings 7 Computer Auditing Capabilities 8 Partner, Supervisory and Staff Qualifications and Experience: Audit Team 9 Commitment Related To Personnel 9 Nondiscrimination Policy 9 Similar Engagements with Other Governmental Entities: Similar Engagements with Other Municipal Entities 10 City Client References 11 City Client List 12 Redevelopment Agency and Enterprise Fund Experience 13 Water Districts and Special Districts 14 Nonprofit Corporations and Joint Power Authorities 14 Specific Audit Approach: Entities to Be Included In Audit 15 Reports To Be Issued and Due Dates 15 Commitment to Deliver Reports on a Timely Basis 15 Audits To Be In Accordance With GARS and Other Requirements 16 Audit Approach 16-17 Single Audit Approach 17- 18 Approach In Determining Laws and Regulations Subject to Audit 18 Potential Audit Problems 19 Method of Sampling 19 Management Letters 19 CITY OF SAN JUAN CAPISTRANO TABLE OF CONTENTS (CONTINUED) February 16, 2005 Specific Audit Approach (Continued) Page Number Other Professional Services 19 Retention Of and Access to Audit Workpapers 19 Audit Timing 20 Segmentation of the Audit Hours, By Partner and Staff Level 21 Discussion of Relevant Accounting Issues GASB Statement No. 40 22 GASB Statement No. 44 22 GASB Statement No. 45 22 GASB Statement No. 46 22 Work Required by City Staff 23 Special Services 24 Consulting Services Department Overview of Services Provided 25 Governmental Tax Consulting 26 Performance and Operational Studies 27 Redevelopment Consulting Services 28-29 Reviews of City Treasurer Operations 30 Cable Television and Broadband Consulting Services 31 Reviews of Solid Waste Haulers and Assistance With Trash Rate Negotiations 32-34 Litigation Support and Dispute Resolution Services 35-36 Fraud Investigations 37 Hotel/Motel Transient Occupancy Tax Reviews 38 Business License Operation Reviews 38 Attachment I - Resumes of Partners and Personnel Assigned to Audit Attachment H - Results of Outside Quality Review Attachment III - Sample Reports Proposer Guarantees Proposer Warranties DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS MICHAEL IL LUDIN, CPA A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKER CPA NITIN P. PATEL, CPA ROBERT J. CALL-ANAN, CPA 2121 ALTON PARKWAY, SUITE 100 'PHH4PR HOLTKAMP, CPA IRVINE, CALIFORNIA 92606-0956 'THOMAS M PERLOWSKI, CPA 'HARVEY I. SCHROEDER, CPA (949) 399-0600. FAX (949) 399-0610 _ KENNETH,. ALES, CPA www.diehlevms.c m •w PROPessIORu. culroRwnox February 16, 2005 Ms. Cynthia L. Russell Administrative Services Director City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Dear Ms. Russell: We are pleased to present our proposal to serve as independent auditors for the City of San Juan Capistrano. We have prepared this information in accordance with the guidelines set forth in your request for proposal. Why We Are The Best Qualified Firm We consider ourselves to be the best qualified firm to perform auditing and accounting services for the City of San Juan Capistrano. Please consider these qualifications: • We believe that partner involvement is an important aspect of the audit process. Partner involvement in.all phases of the audit planning, detailed audit testing and report preparation will ensure that the audit will be conducted in an efficient and effective manner. The partner's involvement with the fieldwork will result in timely resolution of any accounting or auditing issues and timely response to client or staff questions. • Our firm has devoted a substantial amount of time and resources to provide governmental agencies with quality audits and additional services. We feel this is demonstrated by our high client retention, which is directly related to our commitment to provide quality services, consistency in staff and our expertise in governmental audits. The staff assigned to the audit of the City are all experienced governmental auditors. Their experience will minimize disruption to your staff during the audit. • Our firm has extensive experience in auditing governmental entities. We currently audit twenty cities, nineteen redevelopment agencies, sixteen special districts, and over thirty nonprofit corporations and joint power authorities. -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SLATE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890 Why We Are The Best Qualified Firm (Continued) • The City may require a single audit of its federal grants, in accordance with Government Auditing Standards and OMB Circular A-133. We perform single audits on substantially all city clients. You have expressed a desire to submit your reports for the national and California award programs. We have extensive experience in assisting our city clients in obtaining the GFOA "Certificate of Achievement for Excellence in Financial Reporting" and the CSMFO "Outstanding Award". We have worked closely with GFOA reviewers to resolve questions on reports, and three members of our audit team are "reviewers" for the CSMFO award program. All our clients that have received the GFOA and CSMFO awards are listed on page 6. We will assist you to ensure that the City's financial statements continue to meet all appropriate reporting standards. • We are a full service CPA firm. Our Consulting Services Department can provide the City with a wide variety of services, including governmental tax consulting, redevelopment services, performance and operational studies, reviews of City Treasurer operations, cable television and broadband consulting, reviews of solid waste haulers and assistance with trash rate negotiations, litigation support services, fraud investigations, hotel/motel transient occupancy tax reviews and business license operation reviews. We make a commitment to deliver all necessary reports based on the timetable presented herein on page 15. Also, our understanding of the work to be performed is set forth on pages 16 through 19. Our goal is to provide the City with the highest quality of service, including a CAFR which meets all required reporting standards and a comprehensive management letter which is practical and helpful to management in improving operations. Throughout the year, you should feel comfortable in calling us for advise, as we are never to busy to meet the needs of our clients. We encourage you to verify our level of service, as well as the availability of Daphnie Fuertez, the audit manager, and myself with references provided in this proposal. We respectfully request that we be selected as the independent auditors for the City for the year ending June 30, 2005. We look forward to personally meeting with you to discuss our qualifications. We thank the City for the opportunity to present our proposal. Please feel free to contact me, or Mr. Ludin, at (949) 399-0600 if you have any questions. This proposal constitutes a firm and irrevocable offer for 60 days from the date of this letter. Mr. Ludin and I are authorized to represent our firm, and bind the firm to a contract. Very truly yours, DIEHL, EVANS & COMPANY, LLP By: /,"� �— L. iia� Nitin P. Patel, CPA Engagement Partner -2- LICENSING AND INDEPENDENCE Our firm, and all of our certified personnel, are properly licensed to practice public accounting in California. Also, we meet the independence requirements of "Governmental Auditing Standards" (2003 Edition), as published by the U.S. General Accounting Office. Our firm is independent of the City and its component units as defined by the 2003 Governmental Auditing Standards, as amended. Over the past five years, the firm has completed consulting work for cable franchise fee review under the supervision of the Director of Management Consulting. The cable franchise fee review should not affect our independence, as the scope of the work involved the review of information submitted to the City by a third party. -3- FIRM QUALIFICATIONS AND EXPERIENCE SIZE AND LOCATION OF THE FIRM Diehl, Evans & Company, LLP is a Southern California accounting firm with offices in Irvine, Carlsbad and Escondido. We are one of the oldest CPA firms in Southern California, with over 75 years of public practice experience. Diehl, Evans & Company, LLP has extensive experience in governmental auditing and accounting. Over twenty thousand hours per year are devoted to this area of our practice for nearly 100 governmental units including cities, redevelopment agencies, water districts, special districts, nonprofit corporations and joint power authorities. Our firm has 45 employees which includes 40 professional staff members. Your City would be served from our Irvine office, which has 20 professional staff members. RANGE OF ACTIVITIES Diehl, Evans & Company, LLP is a full service CPA firm. We offer a broad range of services, including: Certified Audits Compilations and Reviews Limited Procedure Reviews Financial Services Tax Planning Income Tax Preparation Consulting Services Our specific services for governmental agencies are more fully set forth in this proposal. PARTICIPATION IN "QUALITY REVIEW'PROGRAMS PROGRAMS In 1986, our firm began an annual internal quality review program, whereby all three offices are reviewed for compliance with all current accounting and auditing requirements. Formal reports of these reviews are presented to the partners, and adjustments in our auditing and reporting procedures are made as necessary. In January 2003, our firm underwent a quality review by a group of outside CPAs, under provisions of the AICPA Quality Review Program. These reviews are required every three years and covered our audits of governmental agencies. On January 31, 2003 we received a final report with an unqualified opinion on our systems and procedures. A copy of the outside CPA's report is included herein at Attachment H. Accordingly, we are confident that our current auditing standards and techniques meet all existing requirements. No regulatory action has ever been taken against any office of our firm due to substandard work We had no significant deficiencies noted in any federal or state desk reviews over the past three years. EDUCATION PROGRAMS Diehl, Evans & Company, LLP has a formal continuing education program. All firm auditors are required to obtain 80 hours of continuing education every two years in the accounting and auditing area, as required by Government Auditing Standards, and at least 24 hours of government related continuing education courses. Our staff is continually expanding their knowledge of the governmental industry through our in-house training programs, programs offered by the AICPA, the California Society of Certified Public Accountants and other professional organizations, and through on-the-job training. We also publish an Auditing Manual For Governmental Entities for use by our staff. The manual is updated at least annually. Noted below is a description of certain in-house education courses taken by our partners and staff to meet the governmental continuing education requirements. All personnel involved with governmental auditing are required to attend these courses. • Implementation of GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments • Understanding, and Auditing, Deposits and Investments of California Governmental Units • Reviews of Internal Controls in Accordance With Statements on Auditing Standards 55 and 78 • Assessing Audit Risk and Materiality in Conducting An Audit • Understanding Statement on Auditing Standards No. 99 - Consideration of Fraud in a Financial Statement Audit • Redevelopment Agency Compliance Audits - Interpreting the Health and Safety Code • Computer Auditing in the Governmental Environment • The Single Audit - New Provisions under OMB Circular A-133 • Laws and Regulations in the Government Sector PARTICIPATION IN PROFESSIONAL ORGANIZATIONS Our partners and staff are actively involved in professional organizations in the governmental accounting Feld. Noted below is a summary of our participation in various national and California governmental organizations. GFOA, GASB and FASB Our firm is an associate member of the Government Finance Officers Association of the United States and Canada (GFOA). Also, we have subscriptions with the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standard Board (FASB). We receive all GASB and FASB Statements, Interpretations, Technical Pronouncements and Newsletters. We regularly analyze these pronouncements and advise our governmental clients of changes in accounting rules. -5- PARTICIPATION IN PROFESSIONAL ORGANIZATIONS (CONTINUED) CSMFO and CRA Three of our Irvine office partners (Mr. Michael Ludin, Mr. Nitin Patel and Mr. Robert Callanan) and our Director of Consulting Services (Mr. William S. Morgan) are associate members of the California Society of Municipal Finance Officers (CSMFO). Our personnel regularly attend local CSMFO chapter meetings throughout Southern California, and the annual statewide conference. We often provide public speakers for these meetings. Our firm is also an active member in the California Redevelopment Association (CRA). We receive monthly newsletters from CRA to keep us up to date on legal developments affecting redevelopment agencies. Mr. Morgan periodically serves as a public speaker for seminars and workshops sponsored by CRA. CSCPA All partners, Mr. Morgan and several of our managers are all members of the Governmental Accounting and Auditing (GAA) Committee of the Orange County Chapter, California Society of Certified Public Accountants (CSCPA). Mr. Patel, Mr. Ludin and Mr. Morgan have each served as chairman of this committee. Mr. Ludin and Mr. Morgan have been involved over the years in preparing position papers issued on governmental accounting matters. Mr. Patel is a member of the State Governmental Accounting and Auditing Committee. GFOAAND CSMFO AWARD PROGRAMS The partner and manager will be involved in all phases of report preparation or review, including the drafting of footnotes. Reporting checklists will be used to assure compliance with all reporting requirements. Based on the high quality of our review process, we have been able to assist various cities in obtaining the GFOA "Certificate of Achievement for Excellence in Financial Reporting" and the "Outstanding Award" for financial reporting from CSMFO. During the past five years, the following clients received awards: Cerritos Garden Grove Lakewood Signal Hill Chino Healdsburg Los Alamitos Simi Valley Commerce Hesperia Montebello Temecula Coronado Huntington Beach Norwalk Thousand Oaks Del Mar Indian Wells Palm Desert Tustin Irvine Santa Clarita Westminster EXPERIENCE WITH PREPARATION OF STATE -MANDATED REPORTS We have experience with the preparation of various state -mandated reports, such as the State Controller's Report and the Annual Street Report. Specifically, with regards to cities, we have prepared the state mandated reports for the Cities of Coronado, Santa Clarita, Healdsburg, Indian Wells, Temecula, Hesperia and Commerce. EXPERIENCE WITH GOVERNMENT BOND OFFERINGS Most of our governmental clients regularly issue bonds and other financing vehicles. Our firm is often involved with the following types of financing: Tax Anticipation Notes Tax Allocation Bonds Revenue Bonds Certificates of Participation Special Assessment District Bonds Residential Mortgage Revenue Bonds Industrial Development Bonds Municipal Sale/Leaseback Arrangements Lease Purchases Bank Notes The Firm provides a variety of services in connection with these financing arrangements, depending on the extent of our association with the offering. Under guidelines provided by the AICPA, we are "associated with" an offering if we provide any of the following services: 1. Manually sign the auditors' report included in the offering document. 2. Provide a "consent letter" or "comfort letter" in connection with the official statement. 3. Review drafts of the official statement at the City's request. 4. Assist in the preparation of supplemental financial information included in the official statement. Under these circumstances, we perform a "subsequent events' review of the City's financial condition immediately prior to the effective date of the offering. Such reviews are not part of our standard fee arrangements, and would be subject to a separate fee quotation. Finally, we have issued separate certified audit reports on individual bond issues, such as mortgage revenue bonds and industrial development bonds. -7- COMPUTER AUDITING CAPABILITIES In connection with our initial evaluation of internal controls, we will perform a review of your EDP systems. The review will include the following areas: • Organizational controls. • Physical controls over the hardware and peripheral equipment. • Operational controls (input, processing and output controls). More specifically, our auditors verify to what extent the City is utilizing: • Terminal controls (password restrictions, etc.) • Program access restrictions • Master file change controls • On-line editing • Batch and hash total controls • Back-up procedures • Management review of documents and reports provided by the computer system Each of our audit staff members is equipped with portable computers that are used to assist in workpaper preparation and preparation of financial statements. Utilizing Microsoft Excel or other spreadsheet programs, we will transfer the trial balance data through direct input or through downloading from the client's accounting system. This will allow us to perform analytical reviews of accounts and preparation of financial statements. This process will reduce the time included in preparation of lead schedules and the financial statements. PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE AUDIT TEAM The audit team will consist of the engagement partner, concurring review partner, audit manager, senior and one staff accountant. The engagement partner will be Mr. Nitin P. Patel, CPA. He will be the primary contact for all matters involving the City audit and will be responsible for assuring that all work for the City is performed in a complete and timely manner. Mr. Michael R. Ludin, CPA, will act as Concurring Review Partner on any unusual accounting or auditing issues. Ms. Daphnie Fuertez, CPA, will serve as the audit manager. She will coordinate the engagement, supervise the senior accountant, schedule all field work, monitor time budgets, review all workpapers and resolve any accounting or auditing problems prior to submission of final reports. The audit senior will be Mr. Frank Villanueva, CPA. He will assume responsibility for all field work, prepare the audit plan and audit programs, review and analyze internal controls, research accounting and auditing problems, prepare the City's financial statements, prepare management letters and supervise staff assistants. Resumes for the above partners and personnel are included at Attachment I. COMMITMENT RELATED TO PERSONNEL We make a commitment to retain the same personnel on the City from year to year, except where such personnel leave the firm, or where the change is approved by the City. If a staff member is replaced, we make a commitment to replace that person with staff of at least equal experience. NONDISCRB41NATION POLICY Our firm has a policy to provide equal employment opportunities to all qualified persons without regard to race, color, age, sex, religion, national origin or handicap. SINULAR ENGAGEMENTS WITH OTHER GOVERNMENTAL ENTITIES SIMILAR ENGAGEMENTS WITH OTHER MUNICIPAL ENTITIES Your request for proposal called for a maximum of five similar engagements, ranked by total staff hours. These are set forth below: Certified audits were performed on the financial statements of all of these cities and their component units for the year ended June 30, 2004. Client references for these cities are included on the following page. -10- Engagement Total Staff City Partner Hours Fullerton Patel 500 Healdsburg Patel 500 Thousand Oaks Patel 750 Tustin Patel 450 Westminster Patel 550 Certified audits were performed on the financial statements of all of these cities and their component units for the year ended June 30, 2004. Client references for these cities are included on the following page. -10- CITY CLIENT REFERENCES One means of judging the high quality of our auditing and accounting services would be contact with some of our existing clients. We are including the names and phone numbers of the city clients mentioned above. We encourage you to contact any of these individuals. City of Fullerton Mr. Glenn Steinbrink Director of Administrative Services (714)738-6523 City of Thousand Oaks Ms. Candis L. Hong Director of Administrative Services (805)449-2200 City ofHealdsburQ Ms. Tamera Haas Finance Director (707) 431-3311 City of Tustin Mr. Ron Nault Director of Finance (714) 573-3060 -11- City of Westminster Ms. Sherry Johnson Accounting Manager (714)898-3311 CITY CLIENT LIST We have listed below the cities which were under contract with us during the past five fiscal years. For your information, we are including the approximate population and the period of service. Substantially all of the above engagements were performed through the firm's Irvine Office. -12- Period of Service City Population From To Buena Park 80,600 2004 Present Burbank 98,700 1996 1999 Cathedral City 36,000 1997 2001 Cerritos 59,400 1969 Present Chino 64,000 1995 Present Commerce 16,000 1999 Present Coronado 26,500 1970 Present Del Mar 4,860 1994 Present Downey 87,200 1987 Present 1960 1984 Fullerton 126,000 2004 Present Garden Grove 151,376 1994 2003 Healdsburg 9,900 2003 Present 1991 1997 Hesperia 67,000 1997 Present Huntington Beach 159,600 1997 2001 1984 1990 1963 1972 Indian Wells 4,400 2003 Present Irvine 127,220 2000 Present 1993 1997 Lakewood 76,700 1974 Present 1963 1971 Los Alamitos 12,307 1996 2000 1988 1991 1978 1981 1971 1974 Montebello 65,000 2002 Present Norwalk 104,473 2001 Present Palm Desert 25,000 1992 2001 Pico Rivera 65,000 2004 Present Placentia 45,003 1986 1998 1973 1983 1964 1969 Rancho Palos Verdes 44,000 1993 1999 Redondo Beach 64,000 1996 1998 San Juan Capistrano 28,948 1993 1998 Santa Clarita 155,000 2002 Present 1991 1996 Signal Hill 10,284 1962 Present Simi Valley 110,000 1997 2003 Temecula 67,000 2002 2004 Thousand Oaks 118,000 2003 Present 1993 1997 1963 1980 Tustin 50,000 1999 2004 Westminster 79,000 1997 Present Substantially all of the above engagements were performed through the firm's Irvine Office. -12- REDEVELOPMENT AGENCY EXPERIENCE Currently, we audit the following nineteen redevelopment agencies. Buena Park Redevelopment Agency Cerritos Redevelopment Agency Chino Redevelopment Agency Commerce Redevelopment Agency Coronado Redevelopment Agency Downey Redevelopment Agency Fullerton Redevelopment Agency Healdsburg Redevelopment Agency Hesperia Redevelopment agency Indian Wells Redevelopment Agency Lakewood Redevelopment Agency Marin County Redevelopment Agency Montebello Redevelopment Agency Norwalk Redevelopment Agency Pico Rivera Redevelopment Agency Santa Clarita Redevelopment Agency Signal Hill Redevelopment Agency Thousand Oaks Redevelopment Agency Westminster Redevelopment Agency ENTERPRISE FUND EXPERIENCE Most cities audited by our firm have a water utility enterprise fund. Noted below is a partial listing of other enterprise funds audited by our firm over the past five years: City Buena Park Burbank Cerritos Chino Coronado Del Mar Downey Fullerton Garden Grove Healdsburg Huntington Beach Lakewood Montebello Norwalk Palm Desert Santa Clarita Signal Hill Simi Valley Thousand Oaks Tustin Westminster Enterprise Water Water, Electric, Refuse, Golf Reclaimed Water Water, Sewer, Sanitation System Golf Course, Sewer Sewer Golf Course, Transit System Water, Refuse Water, Sanitation, Mobile Home Parks Electric, Water, Sewer, Transit Water, Golf, Housing, Refuse Water Water, Golf, Transit Transit Golf, Building Transit Water Water, Sanitation, Transit Water, Sewer, Golf Water Water -13- WATER DISTRICTS AND SPECIAL DISTRICTS Noted below is a listing of water and special districts audited by our firm over the past year. Water Districts Borrego Water District Laguna Beach County Water District Cucamonga Valley Water District Pomona -Walnut -Rowland Joint Devil's Den Water District Water Line Commission Jurupa Community Services District Rancho California Water District La Habra Heights County Water District Santa Fe Irrigation District La Puente Valley County Water District Walnut Valley Water District Downey Cemetery District Orange County Cemetery District Special Districts Orange County Vector Control District Sunset Beach Sanitary District Valley Wide Recreation and Park District NONPROFIT CORPORATIONS AND JOINT POWER AUTHORITIES Noted below is a partial listing of nonprofit corporations and joint power authorities audited by our firm over the past year. A substantial number of these entities are "component units" which are combined into the basic financial statements of cities or other organizations which exercise oversight responsibility. AIDS Foundation Orange County Buena Park Foundation Conejo Open Space Conservation Agency Coronado Financing Authority Coronado Improvement Corporation Cove Community Public Safety Commission Del Mar Public Facilities Corporation Downey Civic Center Corporation Downey Recreational Area Authority Downey Water Facilities Corporation Healdsburg Public Improvement Corporation Human Options, Inc. Irvine Child Development Center Operating Corporation Norwalk Financing Authority Pico Rivera Water Authority Public Cable Television Authority Redwood Empire Financing Authority South County Senior Services Southeast Area Animal Control Authority United Cerebral Palsy Association of Orange County Walnut Valley Building Corporation -14- SPECIFIC AUDIT APPROACH ENTITIES TO BE INCLUDED IN AUDIT City of San Juan Capistrano City of San Juan Capistrano Community Redevelopment Agency City of San Juan Capistrano Community Housing Corporation REPORTS TO BE ISSUED AND DUE DATES City of San Juan Capistrano - Comprehensive Annual Financial Report City of San Juan Capistrano Community Redevelopment Agency - Annual Report, Including Report on Compliance City of San Juan Capistrano Community Housing Corporation - Annual Report Management Letter Report on Compliance with Article XMB Appropriation Limit Single Audit Reports (If Applicable): Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 and Supplementary Schedule of Expenditures of Federal Awards. Week of November 30, 2005 December 1. 2005 December 30, 2005 November 30, 2005 November 30, 2005 January 30, 2006 COMMITMENT TO DELIVER REPORTS ON A TIMELY BASIS If all books and records, schedules and documents are made available to us by the week beginning October 3, we make a commitment to have audit team members available and to provide all reports by the due dates specified above. -15- AUDITS TO BE IN ACCORDANCE WITH GAAS AND OTHER REQUIREMENTS We will audit the financial statements of the City and the component units noted on the preceding page. The financial statements of all entities where the City exercises oversight will be combined with the City's financial statements, in accordance with GASB Statement 14. Our audits will be in accordance with auditing standards generally accepted in the United States of America as set forth by the AICPA, and will include such auditing procedures as we consider necessary under the circumstances. The supplemental financial statements will be subjected to auditing procedures as we consider necessary in relation to the financial statements taken as a whole. The scope of our audits will not include any statistical information, and we will not express an opinion concerning it. Our audits will conform with the guidelines set forth in the AICPA s Industry Audit Guide, Audits of State and Local Governmental Units. Also, each examination will comply with the standards for financial and compliance audits contained in the Government Auditing Standards (2003 Edition), issued by the U.S. General Accounting Office, and the requirements of OMB Circular A-133. Our audit of the Redevelopment Agency will include an audit on compliance in accordance with Health and Safety Code Section 33080.1 and Sections I through V of the "Guidelines for Compliance Audits of California Redevelopment Agencies" issued by the State Controller's Office. Also,. we will perform a limited procedures review of the City's Gann Spending Limitation Computation as required by Section 1.5 of Article XM of the California Constitution. Our review will be performed in conformance with the provision of the "League of California Cities Uniform Guidelines". AUDIT APPROACH 1. Planning and Initial Work: In the preaudit conference, an important objective will be to establish a process of communication between our audit team and City staff to minimize disruption to City staff. At this meeting we will discuss the scope and timing of the audits, documents needed for our permanent files and the list of schedules that the City normally prepares in conjunction with the year end closing. We will schedule about two weeks of interim audit work during May or June each year. During our initial audit, we will prepare narratives or other documentation of the major internal accounting control systems, such as revenue and cash receipts, cash disbursements, purchasing and accounts payable, payroll, inventory, property and equipment, grant administration and the budget process. These are used to evaluate the systems of internal control and to revise our standard audit programs as needed. As part of our planning and interim work, we will also gather information necessary to identify risks of material misstatements due to fraud by (a) inquiring of management and others within the City about the risks of fraud, (b) considering the results of analytical procedures, (c) considering fraud risk factors and (d) other information. During the audit work in subsequent years, we will note changes in the systems, if any. Each year we will select a random sample of transactions from throughout the year to determine that the systems are functioning as described to us. We will identify the strengths of the systems upon which we can rely in planning our substantive tests and in setting materiality limits. Our internal control review will meet all the requirements of AICPA Statement on Auditing Standards No. 55, "Consideration of the Internal Control Structure in a Financial Statement Audit", as amended by Statements on Auditing Standards No. 78 and 94. -16- AUDIT APPROACH (CONTINUED) 2. Final Audit Work: During the final audit work, we will concentrate on auditing the final amounts that appear in the City's CAFR. Our work may include: • Confirmation of cash and investments, major receivables, long-term debt and major revenues if appropriate. • Detailed audit of significant balance sheet and revenue and expenditure/expense accounts for each major fund and other governmental funds. • Analytical procedures on balance sheet and revenue and expenditure accounts, to evaluate and explain unusual fluctuations from prior year balances or current year budgeted amounts. Our firm uses comprehensive audit programs for Cities, Redevelopment Agencies and Single Audits. The programs are amended, as necessary, for each audit. The audit workpapers will be reviewed by our management team in the field so that at the conclusion of the fieldwork we are able to report any adjustments or findings. An exit conference will be held at the end of the fieldwork to review any significant adjustments or findings. SINGLE AUDIT APPROACH The single audit will be performed in accordance with all the requirements of the Single Audit Act Amendments of 1996, OMB Circular A-133, Government Auditing Standards issued by the GOA (the "Yellow Book") and AICPA Statement on Auditing Standards No. 68, "Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance". Our audit will include tests of transactions related to major federal award programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements or noncompliance may exist and not be detected by use. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements or major programs. However, we will inform you of any material errors and any fraudulent financial reporting or misappropriation of assets that comes to our attention. We will also inform you of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. We will include such matters in the reports required for a Single Audit. We will perform tests of controls to evaluate the effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material noncompliance with compliance requirements applicable to each major federal award program. However, our tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to OMB Circular A-133. -17- SINGLE AUDIT APPROACH (CONTINUED) We will plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of the applicable procedures described in the OMB Circular A-133 "Compliance Supplement" for the types of compliance requirements that could have a direct and material effect on each of the City's major programs. The purpose of those procedures will be to express an opinion on the City's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. When we begin the single audit, we will identify the Major and Nonmajor Federal Financial Assistance Programs of the City. Each Major and Nonmajor program will be identified as either a low risk or high risk program. Programs to be tested will be selected based on our assessment of risk for each program. We will identify the types of activities that are either specifically allowed or prohibited by the laws, regulations, and contract or grant agreements pertaining to the programs and document an understanding of the internal controls the City has to provide reasonable assurance that federal awards are expensed only for allowable activities or costs. We will select a sufficient number of transactions to support a low level of assessed control risk. If no exceptions in the function of key controls are noted, we will conclude that a low level of control risk was achieved. If weaknesses in the internal controls are noted, we will modify our audit program as needed. As part of our single audit, we will request that the City complete the "Data Collection Form" required to be completed by the Single Audit Act Amendments of 1996. The form will assist us in identifying the federal programs which will be required to be tested. APPROACH IN DETERMINING LAWS AND REGULATIONS SUBJECT TO AUDIT Under provisions of AICPA Statement on Auditing Procedures No. 74, Management of the City is responsible for identifying to its outside auditors any laws and regulations which would have a significant effect on the audit. This would include federal laws (such as federal grant regulations), State laws (such as permitted investments under the California Government Code) and local laws (such as restrictions on special revenues levied by the City). After our selection as auditors, we will consult with City officials regarding these matters, to determine what laws and regulations need to be evaluated in connection with our audit. If a City is not able to identify specific laws and regulations that effect it, we have references (California Government Code and Health and Safety Code) to the more common laws, rules and regulations in our standard audit programs for the usual activities of a California City or Redevelopment Agency which will assist us in identifying laws and regulations to review in the audit. POTENTIAL AUDIT PROBLEMS We do not anticipate any unusual audit problems. METHOD OF SAMPLING AICPA Statement on Auditing Standards No. 39 allows an auditor to utilize either judgment sampling or statistical sampling techniques, based on the auditor's professional evaluation. We anticipate using judgment sampling techniques. We will not determine our sample sizes for substantive testing of year- end balances until our preliminary evaluation of internal controls. MANAGEMENT LETTERS In connection with each audit, a complete review of internal controls will be made of all significant accounting procedures. Our firm uses an internal control questionnaire and a computer systems questionnaire to develop information for the management letter. Upon the completion of each audit and discussion with appropriate City staff, our firm will submit a management letter which shall identify weaknesses observed during these reviews and throughout the audit, assess their effects on financial management and recommend steps toward eliminating the weaknesses. OTHER PROFESSIONAL SERVICES We will be available for any other professional assistance you require to research and answer accounting and reporting problems raised by the City, regardless of the time of year. Such assistance may include, but is not limited to, tax questions, the review of bond documents, cost allocation programs and employee benefit programs. We also will keep the City informed of new developments affecting municipal finance and reporting, changes in grant rules and regulations, etc. We will be available for training sessions on any accounting matters, and we will be available to attend City Council meetings as needed. RETENTION OF AND ACCESS TO AUDIT WORKPAPERS In accordance with provisions of OMB Circular A-133, GAO requirements, and the California Board of Accountancy, our audit workpapers will be maintained for at least seven years after the date of the report. These workpapers will be made available as necessary to your cognizant audit agency (or its designee), to GAO representatives, or to any other federal or state agency needing access to the workpapers. Also, our firm will respond to any reasonable inquiries of successor auditors and we will allow any successor auditors to review our workpapers. -19- AUDIT TIMING Assuming that the City's books are closed and ready for examination and that all necessary schedules and documents are available for our use by the beginning of October each year, the suggested time schedule for the various phases of the audit would be approximately as follows: Entrance conference with Director of Administrative Services and Accounting Manager Interim audit fieldwork completion Detailed audit plan and list of schedules to be prepared by the City Entrance conference with Director of Administrative Services to commence year-end work Final audit fieldwork completion Exit conference to summarize the results of the fieldwork and to review significant findings Deliver draft copies of reports Deliver Final Reports -20- Week of April 25, 2005 June 16, 2005 June 16, 2005 October 3, 2005 October 24, 2005 November 7, 2005 November 18, 2005 See Due Dates on Page 15 SEGMENTATION OF THE AUDIT HOURS BY PARTNER AND STAFF LEVEL City Audit: Audit planning and interim fieldwork Final fieldwork Report preparation and review Subtotal City Audit Redevelopment Agency Community Housing Commission Subtotal - Other TOTAL HOURS -21- Staff Supervisory and Partner Manager Staff Clerical Total 4 8 24 24 60 12 16 80 106 214 8 12 16 20 56 24 36 120 150 330 4 8 32 44 88 2 4 22 28 6 12 32 66 116 30 48 152 216 446 -21- DISCUSSION OF RELEVANT ACCOUNTING ISSUES GASB STATEMENT NO. 40 GASB Statement No. 40 on Deposits and Investment Risk Disclosures will become effective for financial statements for periods beginning after June 15, 2004. This Statement addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. Deposit and investment policies related to these risks will need to be disclosed. This Statement also modifies or eliminates portions of GASB Statement No. 3 on Deposits with Financial Institutions Investments (including Repurchase Agreements) and Reverse Repurchase Agreements. For instance, category 1 and 2 deposit and investment disclosures are eliminated. However, this Statement does not change the required disclosure of authorized investments or the requirements for reporting certain repurchase and reverse repurchase agreements. GASB STATEMENT NO. 44 GASB Statement No. 44 on Economic Condition Reporting: The Statistical Section - an amendment of NCGA Statement 1 - is effective for statistical sections prepared for periods beginning after June 15, 2005. This Statement improves the understanding and usefulness of statistical information by addressing the comparability problems that have developed in practice and by adding information from the new financial reporting model for state and local governments required by GASB Statement No. 34. GASB STATEMENT NO. 45 GASB Statement No. 45 on Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions is effective based on a government's total annual revenues in the first fiscal year ending after June 15, 1999. For governments with total annual revenues of $100 million or more, the Statement is effective for periods beginning after December 16, 2006. This Statement improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual -basis measurement and recognition of OPEB cost (expense) over a period of time that approximates employees' years of service and (b) providing information about accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan. GASB STATEMENT NO. 46 GASB Statement No. 46 on Net Assets Restricted by Enabling Legislation is effective for periods beginning after June 15, 2005. This Statement will help governments determine when net assets have been restricted to a particular use by passage of enabling legislation and to specify how those net assets should be reported in financial statements when there are changes in the circumstances surrounding such legislation. -22- WORK REQUIRED BY CM STAFF Our fixed annual fees contemplate that conditions satisfactory to the normal progress and completion of the examination will be encountered and that City accounting personnel will furnish the agreed- upon assistance in connection with the audit. However, if unusual circumstances are encountered which make it necessary for us to do additional work; we shall report such conditions to the responsible City officials and provide the City with an estimate of the additional accounting fees involved. Noted below is a listing of work required by City staff to assist in the audit. 1. Technical assistance in familiarizing our staff with: • The flow of information through the various departments and accounting systems. • Reports generated by your accounting system. • The system of internal controls. • Controls established to monitor compliance with federal grants. 2. Preparation of trial balances for all funds, after posting of all year end journal entries. 3. Preparation of schedules supporting 411 major balance sheet accounts, and selected revenue and expenditure accounts. 4. Typing of all confirmation requests. 5. Pulling and refiling of all supporting documents required for audit verification. 6. Assistance with the preparation of the CAFR and footnotes, including: a. Determination of major funds. b. Determination of general and program revenues and allocation of program revenues to: 1. charges for services, 2. operating grants and contributions, and 3. capital grants and contributions. c. Determining components of net assets into capital assets net of related debt, restricted and unrestricted assets. d. Assistance in determining the amounts to be reported (1) in the Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities and (2) the Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets. e. Consolidation of internal service fund activity into governmental activities or business -type activities in the government -wide financial statements. 7. Preparation of the management's discussion and analysis, transmittal letter and all statistical tables for the CAFR. -23- SPECIAL SERVICES The City may request certain special services, such as transient occupancy tax reviews or reviews of compliance with provisions of franchise agreements. With regard to these engagements, we intend to perform limited procedures reviews in connection with each assignment, in accordance with the AICPA s attestation standards. Under the provisions of the attestation standards, the City will designate what specific procedures it wishes to have performed. We will then perform those procedures and report on our findings. This type of engagement will not constitute a certified audit in accordance with auditing standards generally accepted in the United States of America. Such special services are not part of our standard fee arrangements and would be subject to a separate fee quotation. -24- CONSULTING SERVICES DEPARTMENT OVERVIEW OF SERVICES PROVIDED Diehl, Evans & Company, LLP offers a wide range of consulting services to governmental agencies. This section of our proposal summarizes the primary types of services provided by the firm. The firm's Director of Consulting Services is Mr. William S. Morgan, CPA. Mr. Morgan has over thirty years of experience in providing accounting, auditing and consulting services to California cities, counties, redevelopment agencies, water districts, special districts, joint power authorities and nonprofit corporations. Many of the firm's consulting projects are planned, supervised and reviewed by Mr. Morgan. On the following pages of this proposal, we have summarized our qualifications to provide the following types of services: • Governmental Tax Consulting • Performance and Operational Studies •. Redevelopment Consulting Services • Reviews of City Treasurer Operations • Cable Television and Broadband Consulting Services • Reviews of Solid Waste Haulers and Assistance With Trash Rate Negotiations • Litigation Support and Dispute Resolution Services • Fraud Investigations • Hotel/Motel Transient Occupancy Tax Reviews • Business License Operation Reviews -25- GOVERNMENTAL TAX CONSULTING Over the years, Diehl, Evans & Company, LLP has developed a wide knowledge of tax issues related to governmental entities and their employees. Our Tax Department regularly issues tax opinions to governmental agencies setting forth the tax consequences of various proposed transactions. We also assist our governmental clients with tax reporting and compliance requirements. Each year our firm publishes a "Government Tax Manual". This manual is distributed to both client and nonclient governmental units at a series of tax workshops which are normally presented in December each year. Noted below are areas where we have extensive experience in assisting clients with their tax questions: Taxation of Employee Fringe Benefits • Expense Reimbursement Plans • Fringe Benefit Rules Related to Automobiles and Other Vehicles • Accident and Health Plans • Cafeteria Plans • 457 Deferred Compensation Plans • Group Term Life Insurance Plans Tax Reporting and Compliance • Employee vs. Independent Contractor Issues • Form W-2 and Form 1099 Reporting • Payroll Tax Reporting • Workers' Compensation Tax Issues Other Areas of Emphasis • Formation of Government -Related Nonprofit Corporations • Selection of Retirement Plans • Social Security and Medicare Issues -26- PERFORMANCE AND OPERATIONAL STUDIES Noted below are examples of performance and operational studies conducted by our firm. County of San Bernardino • Comprehensive review of County's cash management system • Review of billing and collection procedures in over 30 County departments (included surveys and interviews of department personnel) • Cost benefit analysis for implementing centralized remittance processing • Analysis of procedures for the collection of slow pay and delinquent accounts • Report of findings and recommendations to San Bernardino Grand Jury Note: Work performed as a subcontractor of Arroyo Associates, Inc. Coachella Valley Association of Governments (CVAG) • Performance and operational review of regional street sweeping operation for all desert cities in the Coachella Valley • Analysis of capital equipment and personnel requirements for street sweeping operations • Computation of cost per curb mile • Mailing of surveys to other municipal agencies that operate street sweeping operations • Benchmark comparison of street sweeping operations with other Western U.S. cities • Recommended changes in operating procedures Note: Arroyo Associates, Inc. acted as a subcontractor of DE&Co on this engagement. City of Carson • Performance and operational review of City's "Neighborhood Pride Program" (affordable housing rehabilitation program) • Review or systems and procedures for monitoring compliance with program guidelines and Federal and California regulations • Review of competitive bidding procedures for residential rehabilitation projects • Preparation and mailing of surveys to housing rehabilitation program participants, to assess citizen satisfaction with program • Recommendations for changes in program operations and procedures _27_ REDEVELOPMENT CONSULTING SERVICES Overview Our firm has extensive experience in providing consulting services to California redevelopment agencies. We regularly consult with redevelopment officials - including executive directors, finance officers, community development directors, project managers, housing administrators and redevelopment attorneys - on various redevelopment issues. Noted below are examples of services provided in the redevelopment field. Redevelopment Handbook Annually, the firm publishes a Redevelopment Handbook covering subjects of interest to California redevelopment agencies. The Handbook discusses current legislative developments, California court cases, health and safety code requirements, suggestions for the planning and financing of economic development activities, accounting and reporting principles applicable to redevelopment agencies and reporting requirements of the State of California. This Handbook is widely distributed to redevelopment officials throughout California. Redevelopment Seminars Our firm is actively involved in providing continuing education to California redevelopment agencies. We conduct redevelopment seminars and workshops on topics of current interest. Also, our firm is a member of the California Redevelopment Association (CRA) and we participate in presenting education seminars for the CRA. Management Studies for Redevelopment Agencies In prior years, we have performed management studies for three California redevelopment agencies - the Burbank Redevelopment Agency, the Marin County Redevelopment Agency and the South Gate Redevelopment Agency. These studies included the following services: • Review of operational policies and procedures • Review for compliance with provisions of the Health & Safety Code • Updating of chart of accounts to comply with state law • Mailing of surveys to other redevelopment agencies, to establish benchmark comparisons for staffing and expenditure levels 0 Analysis of Disposition and Development Agreements (DDAs) REDEVELOPMENT CONSULTING SERVICES (CONTINUED) Redevelopment -Related Dispute Resolution and Litigation Support Services Noted below are examples of dispute resolution and/or litigation support services provided by our firm arising out of disputes between California redevelopment agencies and their developers. In one situation, a Southern California redevelopment agency entered into a development agreement with a local company to construct commercial office buildings on land owned by the agency. Management of the agency suspected that the developer had overcharged the agency for construction costs on the buildings. Our firm was retained to do an investigation of building construction costs. As a result of our review, the redevelopment agency filed a claim with the developer to recover improperly charged construction costs. Our firm then was retained by the redevelopment agency's attorneys to assist in preparing for litigation and in negotiating a settlement with the developer. Also, another Southern California redevelopment agency entered into a Disposition and Development Agreement (DDA) with an outside developer to construct and operate a commercial shopping center. Under terms of the DDA, the agency was to share in the distribution of net rental income from the operation of the shopping center. However, the shopping center never produced net distributable income, in part, because of excessive charges against the project by the developer. Our firm was retained by the redevelopment agency to analyze the propriety of costs and expenses charged to the project, and to assist the agency in negotiating a settlement in its dispute with the developer. In another instance, a Southern California redevelopment agency entered into an agreement with a developer to construct a low and moderate income housing project for the agency. The developer experienced a significant cost overrun on the project, and then submitted a claim to the agency for reimbursement of the excess costs. The redevelopment agency's attorney retained our firm to analyze the cost overruns and assist the agency in settlement negotiations with the developer. Finally, a Southern California redevelopment agency entered into an agreement with a developer to reimburse the developer for certain project costs based on the agency reaching certain levels of tax increment revenue. The agency and developer has a dispute over the amount of the reimbursement. Our firm was hired to analyze the reimbursement claim and assist the parties in resolving the dispute. -29- REVIEWS OF CITY TREASURER OPERATIONS Examples of reviews of City Treasurer Operations are included below. City of Huntington Beach • Review of cash management procedures and internal controls in City Treasurer's office and offsite locations, including City libraries, beach and campground parking facilities, community centers and the Police Department jail • Review of City's investment policy and monthly investment reports for compliance with the California Government Code • Recommendations for improvements in cash management system City of Mission V eio • Review of investment policies of City, redevelopment agency and financing authority • Testing of all monthly investment reports for compliance with California Government .Code • Review of internal controls over City Treasurer's operation • Review of 3rd party safekeeping arrangements and deposit collateral agreements • Analysis of wire transfer controls, mutual fund investments and system for selecting and monitoring broker/dealers City of Palm Desert • Review of internal controls over City Treasurer's operation • Analysis of investment policy and monthly investment reports • Review of internal controls at outside firm used to process City's parking tickets -30- CABLE TELEVISION AND BROADBAND CONSULTING SERVICES Our Consulting Services Department offers a wide range of services to California cities and counties with respect to the cable television and broadband industries. Our cable work for governmental agencies can be grouped into four broad categories of service: • Cable TV Franchise Fee Compliance Reviews - We have reviewed the cable franchise agreements of numerous cities and counties, and then have written programs to review compliance with various key financial provisions of the agreements. Our concentration has been on verifying the proper reporting of "gross revenues" (including advertising revenues) and the proper and timely payment of franchise fees. • Franchise Compliance Reviews - We have worked closely with certain cities on the transfer of their franchise from one cable operator to another. We have participated in negotiations between the City and its cable operators, have assisted in drafting transfer resolutions, settlement agreements, City staff reports, etc. Also, we have performed comprehensive "due diligence" reviews of cable and open video system (OVS) operators for our city clients. • Expert Witness Testimony - Mr. William Morgan has acted as an "expert witness" for the City and County of San Francisco and the County of Santa Cruz in cable television litigations. • Cable TV Rate Regulation Reviews - This work involves compliance reviews of FCC Forms 1205, 1210, 1220 and/or 1240, with reports to the cities on the propriety of cable rates and equipment and installation charges. In prior years, we reviewed three "cost -of -service" filings on Form 1220. Since 1991, we have provided cable TV consulting services to over fifty California cities and counties, including: City of Alhambra City of Berkeley City of Burbank City of Camarillo City of Carlsbad City of Chico City of Concord City of Costa Mesa City of Cypress City of Dana Point City of Del Mar City of Desert Hot Springs City of El Cerrito City of Encinitas City of Escondido City of Fontana City of Fremont City of Fountain Valley City of Garden Grove City Of Glendale City of Ontario City of Glendora City of Orange City of Grand Terrace City of Perris City of Hemet City of Rancho Cucamonga City of Hermosa Beach City of Rancho Santa Margarita City of Huntington Beach City of Richmond City of Irvine City of San Clemente City of Laguna Beach City and County of San Francisco City of Laguna Niguel City of San Juan Capistrano City of Lake Forest City of San Marcos City of Lakewood City of Solana Beach City of La Palma City of Stanton City of Lomita City of Temecula City of Los Angeles City of Vista City of Manhattan Beach City of West Covina City of Milpitas City of Westminster City of Montclair Butte County City of Moorpark Contra Costa County City of Oceanside Marin County -31- REVIEWS OF SOLID WASTE HAULERS AND ASSISTANCE WITH TRASH RATE NEGOTIATIONS Noted below are examples of cities and counties for which we have reviewed the solid waste hauler and/or assisted with trash rate negotiations. City of Irvine In 1995, 1997, 2002 and 2003, our firm was retained by the City of Irvine to perform an agreed-upon procedures review of its waste hauler, Waste Management of Orange County. The City has been primarily concerned with customer service issues and the waste hauler's compliance with various provisions of the franchise agreement. These engagements have included a: • Review of the franchise agreement • Review of the waste hauler's accounting systems and procedures • Physical inventories of commercial and residential trash containers • Review of the propriety of disposal charges from the landfill site • Survey of residential users regarding customer service issues • Trash rate surveys of all Orange County cities City of Garden Grove In 2003, our firm was retained by the City of Garden Grove to perform an agreed-upon procedures review of the propriety of franchise fee payments made by its solid waste hauler, Taormina Industries, for the two and one-half years ended June 30, 2002. This engagement has involved a review of the solid waste franchise agreement, tracing of reported revenues to the waste hauler's books and records and testing of the mathematical accuracy of periodic franchise fee reports. The City also retained our firm to review the methodology and propriety of proposed trash rate increases. City of Signal Hill In 1997 our firm was retained by the City of Signal Hill to perform an agreed-upon procedures review of its waste hauler, EDCO Disposal Corporation. The purpose of the review was to accumulate financial data to assist the City in trash rate negotiations. In connection with this engagement, we performed a: • Review of the organizational structure of the waste hauler • Determination of how the waste hauler's accounting system allocated revenues to Signal Hill with regard to residential, commercial, industrial and roll off bins, and recycling revenues • Examination of the disposal (tipping) fees for appropriateness to Signal Hill • Review of the allocation methodology used by the waste hauler to distribute costs between cost centers, including the allocation methodology for driver labor costs • Review ofEDCO Disposal's rate setting methodology -32- REVIEWS OF SOLID WASTE HAULERS AND ASSISTANCE WITH TRASH RATE NEGOTIATIONS (CONTINUED) Regional Waste Management Authority The Regional Waste Management Authority (the "RWMA" or the "Authority") consists of the following Northern California governmental agencies: City of Yuba City City of Marysville City of Live Oak City of Wheatland City of Gridley Sutter County Yuba County In 1998, the RWMA retained our firm to assist the Authority in verifying and analyzing certain financial data submitted by Yuba -Sutter Disposal, Inc. (a subsidiary of Norcal Waste Systems, Inc., San Francisco) in connection with a proposed trash rate increase. As part of this engagement, we performed the following services: • Review of the rate setting methodology used by the waste hauler • Review of the waste hauler's financial statements for expenses not allowable in the rate setting process • Comparison of "dump fees" charged to Authority members with other California dump sites • Review of expenses for non "arms length" related -parry transactions • Assistance to the Authority members in negotiating new trash rates with the waste hauler Our work on this engagement was completed in 1999. Cities of Dana Point, San Clemente and San Juan Capistrano. and the County of Orange In 1991, the above Orange County cities, along with the County of Orange, entered into certain agreements with Solag Disposal Company to conduct a "pilot" recycling program over a six month period. Our firm was retained to determine the actual cost of the pilot recycling program and to determine the amount of recycling revenue generated from the sale of recycled materials. Because of the condition of the waste hauler's accounting records at that time, it was necessary for us to reconstruct all cost data for the pilot program. -33- REVIEWS OF SOLID WASTE HAULERS AND ASSISTANCE WITH TRASH RATE NEGOTIATIONS (CONTINUED) City of Lakewood In 1989, our firm was retained to do an agreed-upon procedures review of the City's waste hauler, B -Z Disposal. The City was primarily concerned about excessive losses incurred by the waste hauler, and possible non "arms -length" transactions with affiliated persons or entities. The engagement involved a: • Review of the City's franchise agreement • Investigation of the waste hauler's revenues and expenses for unusual items • Recalculation of the waste hauler's profit after deducting questioned expenses • Analysis of dump fees for both residential and commercial routes • Review of the waste hauler's tax returns • Comparison of the refuse rates with other cities in the area • Fiscal impact study on the reduction of refuse collection from biweekly to weekly • Cost study on the effects of using the SERRF project dumpsite in Long Beach vs. the County landfill in Puente Hills -34- LITIGATION SUPPORT AND DISPUTE RESOLUTION SERVICES Examples of litigation support services provided by our firm are presented below. County of Santa Cruz vs. Charter Communications. Inc. and Mr. Paul Allen Deposition and Expert Witness Testimony In December 1998, Mr. Paul Allen (billionaire co-founder of Microsoft) acquired Charter Communications, Inc., a St. Louis, MO -based cable television company. The County denied Charter's request for a change of control of the cable franchise. In April 1999 Charter and Mr. Allen filed a Complaint for Declaratory Relief in United States District Court, Northern District of California, seeking to overturn the County's actions. Mr. William Morgan was retained by the County to prepare a Declaration In Support of Summary Judgment and other litigation support services. Mr. Morgan provided a deposition in this case in November 2000 and expert witness testimony in Federal Court in February 2001. In March 2001, the District Court rendered a decision in favor of Charter. In September 2002, the Ninth Circuit reversed the decision and ruled in favor of the County. During 2003 Charter filed a petition for a writ of certiorari with the U.S. Supreme Court. In January 2004, the U.S. Supreme Court denied certiorari. Accordingly, the County of Santa Cruz ultimately prevailed in this action. City and County of San Francisco vs. Viacom Cable Expert Witness Testimony In 1996, Viacom Cable sued the City and County of San Francisco (the City) for a refund of $33 million in previously paid possessory interest taxes. In May 1997, Mr. Morgan was retained by the City to prepare a special report on certain financial aspects of the litigation and then testify as an expert witness before the Assessment Appeals Board. This assignment required over two years of advance research and hearing preparation. In May 2000, Mr. Morgan presented four days of expert witness testimony before the Assessment Appeals Board, and was then retained to represent the City in a mediation of this case. (See below.) Mediation Services In June 2000, the parties to this litigation agreed to suspend hearings before the Assessment Appeals Board and submit to nonbinding mediation through a retired judge employed by JAMS. Mr. Morgan was retained by the City to prepare mediation exhibits and assist the City in presenting its case before the Mediator. The mediation concluded in August 2000. In September 2000, the mediation settlement agreement was submitted to the Assessment Appeals Board for approval, resulting in a favorable settlement for the City. -35- LITIGATION SUPPORT AND DISPUTE RESOLUTION SERVICES (CONTINUED) City of Garden Grove vs. Adult Bookstores Expert Witness Testimony In early 1999, seven adult bookstores located within the City of Garden Grove, CA (the Plaintiffs) filed an action for injunctive relief in United States District Court, Central District of California, against the City. The Plaintiffs alleged violations of their civil rights resulting from enforcement of the City's adult use ordinances. In June 1999, the case was stayed pending resolution of one financial -related issue before an Arbitrator with American Arbitration Association(AAA). In July 1999, Mr. Morgan was retained by the City Attorney to perform a special study on the financial consequences of relocating these adult bookstores to other geographical areas of the City. Mr. Morgan testified as an expert witness on behalf of the City at four AAA administrative hearings. The City received a favorable ruling from all four hearings. In March 2000, the case was again stayed pending a decision by the Ninth Circuit Court of Appeals in a related matter. -36- FRAUD INVESTIGATIONS Our firm has conducted numerous fraud investigations for California governmental agencies. Examples of such investigations are noted below. City of National City. CA In May 2001 the San Diego County District Attorney's Office filed a felony complaint against a City of National City Finance Department employee, alleging various counts of embezzlement and fraudulent misappropriation of public funds. In June 2001, Diehl, Evans & Company, LLP was retained to conduct a follow-up fraud investigation of the suspect, and to provide internal control and fraud prevention recommendations to the City. The investigation was completed in November 2001. Phoenix, AZ Police Department In 1998, a Diehl, Evans & Company, LLP private industry client with offices in California and Arizona experienced a management employee fraud at one of its Arizona facilities. Our firm was retained by the Company's attorney to perform a criminal fraud investigation. Work was coordinated with, and submitted to, the Phoenix Police Department. The report to the Phoenix Police Department included a chronological narrative of the alleged crime, personal data about the suspect and victims, witness statements, financial spreadsheets of the alleged fraudulent transactions and original copies of documentary evidence supporting the findings. City of Burbank Police Department and L.A. District Attomey's Office In 1996, Diehl, Evans & Company, LLP was retained by the Burbank Police Department, Criminal Investigations Division, to conduct a fraud investigation of a public accountant operating within the City of Burbank. The work was coordinated with, and submitted to, the Los Angeles District Attorney's Office. The services included an analysis of business records confiscated through search warrants and subpoenaed bank records, a review of case files prepared by police detectives, the tracing of cash receipts and cash disbursements related to embezzled funds and the preparation of reports to be used at trial by the District Attorney's Office. The suspect was subsequently convicted and incarcerated. -37- HOTELA40TEL TRANSIENT OCCUPANCY TAX REVIEWS Over the past fifteen years, our firm has developed extensive experience in performing limited procedures reviews on various hotels and motels for compliance with City Transient Occupancy Tax (TOT) Ordinances. In many instances, our work has uncovered substantial noncompliance by hotel operators and the underreporting of transient occupancy taxes to the City. These engagements normally include the following procedures: • A review of the City's TOT Ordinance to identify all major areas requiring compliance by the hotel, and a review of the City's internal policies and procedures for monitoring the receipt of TOT. • Documentation of each hotel's internal controls over the accounting for, and reporting of, room rents. • Verification of "exemptions" taken by the hotel for government employees and "non -transient" guests. • Testing of the mathematical accuracy of annual, quarterly or monthly TOT reports; computation of late payment penalties and interest due to the City. Noted below are seven cities for which we have performed TOT reviews, together with the number of hotels reviewed. Big Bear Lake 25 Burbank 15 Coronado 2 Irvine 12 Manhattan Beach 8 Mission Viejo 2 Palm Desert 8 72 BUSINESS LICENSE OPERATION REVIEWS During the calendar years 2000 and 2001, our firm conducted an extensive review of the business license operation of the City of El Segundo. This review included the following procedures: • Review of business license tax ordinances, with recommended revisions • Preparation of business license internal program, for use by City staff • Preparation of standard audit program for use in review of individual businesses • Preparation of business license renewal checklist and various "action notices" to be mailed to City businesses • On-site reviews of approximately 35 El Segundo -based businesses, for compliance with City's business license tax ordinance so ATTACHMENT I RESUMES OF PARTNERS AND PERSONNEL ASSIGNED TO AUDIT Engagement Partner Concurring Review Partner Manager Staff NITIN P. PATEL, CPA Position Engagement Partner Education University of California at Irvine Bachelor of Arts in Economics Califnmia State University at Long Beach Masters of Accounting Program - Licensing Certified Public Accountant in California since 1988 Professional Organizations American Institute of Certified Public Accountants California Society of Certified Public Accountants California Society of Municipal Finance Officers (CSMFO) - Associate Member CSMFO Professional and Technical Standards Review Committee - Report Reviewer for Award Program Governmental Accounting and Auditing Committee of Orange County - Committee Chairman (2001-2002) California Accounting and Auditing Committee Member Range of Experience Has been with Diehl, Evans & Company, LLP since 1986 with emphasis in governmental accounting and financial reporting. Responsible for firm's in-house governmental accounting and auditing training programs. Experience includes supervision of over one hundred audits of governmental agencies including cities, redevelopment agencies, non-profit corporations, joint powers authorities and special districts. Other experience includes providing consulting services for governmental agencies including special internal control reviews, cost allocation plans, cable television rate reviews, reviews of City Treasurer operations and transient occupancy tax reviews of city hotels/motels. Continuing Professional Education For the period of January 1, 2001 through December 31, 2004: Total Government Hours: 101.00 MICHAEL R LUDIN, CPA Position Concurring Review Partner Education California State University, Fullerton Bachelor of Arts in Business Administration, with concentration in Accounting, 1975 Licensing Certified Public Accountant in California since 1980 Professional Oreanizations American Institute of Certified Public Accountants (AICPA) California Society of Certified Public Accountants (CSCPA) Governmental Accounting and Auditing Committee of the Orange County Chapter, California Society of CPAs, Past Chairman Associate Member of Government Finance Officers Association (GFOA) Associate Member of California Society of Municipal Finance Officers (CSMFO) CSMFO Professional and Technical Standards Committee - Report Reviewer for Award Program Range of Eanerience Has been with Diehl, Evans & Company, LLP since 1978 with emphasis in governmental auditing and financial reporting. Experience includes supervision of over one hundred audits of governmental agencies including cities, redevelopment agencies, nonprofit corporations, and joint power authorities. Public speaker on municipal accounting and instructor at firm's in-house governmental accounting and auditing seminars. Managing Director of firm's hvine office. Continuing Professional Education For the period of January 1, 2001 through December 31, 2004: Total Government Hours: 59.00 Position Education Licensing Range of Experience Prior Experience Continuing Professional Education DAPHNIE FUERTEZ, CPA Audit Manager De La Salle University, Philippines Bachelor of Science in Accounting, 1995 Certified Public Accountant in California since 2001 Has been with Diehl, Evans & Company, LLP since September 1998. She has audited and prepared financial reports on cities, redevelopment agencies and nonprofit corporations. Experience includes auditing for the following clients: Cities and Other Entities: City of Downey City of Indian Wells City of Montebello City of Palm Desert City of Rancho Palos Verdes City of San Juan Capistrano City of Santa Clarita City of Thousand Oaks City of Tustin City of Westminster Southeast Area Animal Control Authority United Cerebral Palsy Association Water Districts: Castaic Lake Water Agency El Toro Water District Laguna Beach County Water District Rancho California Water District Santa Clarita Water Company Trabuco Canyon Water District Special Districts: Downey Cemetery District Prior to working for Diehl, Evans & Company, LLP, she worked for Union Incorporated in Irvine, CA for two years as a staff accountant. Her routine duties as staff accountant included verifying daily cash receipts, sales reports and processing weekly payroll. Other duties included preparing month-end journal entries, assisting in the annual closing process and account reconciliation reports. For the period of January 1, 2001 through December 31, 2004: Total Government Hours 142.00 FRANK VILLANUEVA, CPA Position Audit Senior Education National University Masters in Business Administration California State University, Fullerton Bachelor of Arts in Business Administration Licensin¢ Certified Public Accountant in California since 2004 Professional Organizations American Institute of Certified Public Accounts Range of Experience Joined Diehl, Evans & Company, LLP in September 2003, concentrating on audits and the preparation of financial reports for governmental agencies. Other experience includes transient occupancy tax reviews of city hotels and cable franchise fee reviews. Prior audit engagements with Diehl, Evans & Company, LLP include: Continuing Professional Education Cities: City of Lakewood City of Irvine City of Fullerton City of Signal Hill Pension Plans: City of Irvine Cable TV Franchise Fee Engagements: Public Cable Television Authority City of Moreno Valley City of Carlsbad City of Garden Grove Transient Occupancy Tax Review: City of Mission Viejo For the period of September 30, 2003 through December 31, 2004: Total Government Hours 20.00 SAMPLE REPORTS TABLE OF CONTENTS Independent Auditors' Report Report On Compliance And On Internal Control Over Financial Reporting Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards - Redevelopment Agency Report On Compliance And On Internal Control Over Financial Reporting Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards - Single Audit Report On Compliance With Requirements Applicable To Each Major Program And Internal Control Over Compliance And The Schedule Of Expenditures Of Federal Awards In Accordance With OMB Circular A-133 - Single Audit Communication With Audit Committee Independent Accountants' Report On Applying Agreed -Upon Procedures To Appropriations Limit Worksheet No. 6 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. Signature of Official: !\J U --e2— Y?_ irk Name: Nitin P. Patel, CPA Title: Engagement Partner Firm: Diehl, Evans & Company, LLP Date: February 16, 2005 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 thereof. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of San Juan Capistrano. D. Propose warrants that all information provided by it in connection with this proposal is true and accurate. Signature of Official: l0. ��t� Name: Nitin P. Patel CPA Title: Engagement Partner Firm: Diehl, Evans & Company, LLP Date: February 16, 2005