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HomeMy WebLinkAboutCC RESO 12,275RESOLUTION NO. 12,275 RESOLUTION EMPLOYING PEAT, MARWICK, MITCHELL & CO. AS AUDITORS FOR SEWER CONSTRUCTION PROJECT NO. 07-51-00721 BE IT RESOLVED that Peat, Marwick, Mitchell & Co. are employed as auditors for the Sewer Construc- tion Project No. 07-51-00721 (EDA Project) pursuant to the terms and conditions of their employment letter of February 11, 1977. PASSED AND ADOPTED this 1st day of March, 1977. ATTEST: CITY C ERK PEAT, MAAWICK, MITCHELL & CO. CERTIFIED PUBLIC ACCOUNTANTS 1850 FIFTH AVENUE SAN DIEGO CALIFORNIA 92101 February 11, 1977 Mrs. Ida M. H. Kerr City Treasurer City of National City 1243 National Avenue National City, California 92050 Dear Mrs. Kerr: In response to your request for proposal and in light of further information given to Messrs. Collings and Cleary of our office, we are pleased to submit this proposal to provide auditing and consulting services to the City of National City specifically as they relate to your Sewer Reconstruction Project (EDA Project Number 07-51-00721). In this proposal we present our interpretation of the engagement objectives and approach, and we outline our commitments relative to auditor independence, compliance with Federal regulations, staffing, and fees. As has been dis- cussed, independent auditors may not assume responsibilities for the day-to- day accounting nor for preparing the final grant report. Such responsibilities belong to the City as grantee. Accordingly, we are proposing on the initial review of procedures and controls, implementation assistance, and the audit of your final grant report. BACKGROUND As stated in your letter of January 24, 1977, the City of National City has been awarded a public grant from the U. S. Department of Commerce Economic Development Administration (EDA) for the reconstruction of National City sewer lines. This project is being undertaken as part of the Federal government's Local Public Works Capital Development and Investment Program (LPW). One of the requirements of this grant is that an audit be conducted. It is to this requirement that this proposal is directed. We believe Peat, Marwick, Mitchell & Co. (PMM&Co.) should be selected as the independent certified public accounting firm for auditing the LPW Sewer Re- construction Project grant because our Firm can demonstrate the following expertise: P. M.M.Ek CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 2 Well -qualified staff in San Diego which can respond quickly and decisively to the needs of the City. Extensive experience in governmental accounting and auditing not only in San Diego but also in California and the United States. (See Appendix A). Expertise in dealing with the U. S. Department of Commerce and specific knowledge of the Federal grant administration procedures as promulgated by the Economic Development Admini- stration. Efficient and effective audit approaches embodying the latest techniques, which result in maximum service on an economic basis. ABOUT PEAT, MARWICK, MITCHELL & CO. PMM&Co. is a large, diversified, independent international consulting and public accounting firm. Founded in 1896, the Firm has provided more than 50,000 clients with financial counsel and management consulting services. PMM&Co. maintains over 250 offices in the United States and abroad, and employs over 10,000 people in a professional staff and service support capability in the United States. An example of the scope of the Firm's overall consulting practice is illustrated by the fact that, since 1945, more than 10,000 engagements have been performed in the United States alone. An indication of PMM&Co.'s size and growth is the Firm's annual new engage- ment rate, which exceeds 1,000 new client assignments per year. For many years, PMM&Co. has performed audit, accounting, and management con- sulting services for all levels of government, ranging from small political subdivisions to major Federal departments and agencies. The size of our practice in the governmental field enables us to provide the services of individuals with extensive experience in all facets of govern- mental accounting and consulting. PMM&Co.'s chief asset is the skilled services of our people. In addition, our continuous contact with various governmental units has also provided us with a sufficient degree of know- ledge and understanding of the laws and regulations under which governmental units operate in order to recognize legal problems which should be brought to the attention of the appropriate officials. Appendix A includes a synopsis of related experience which demonstrates a broad involvement in governmental accounting and consulting, and demonstrates that the San Diego office of PMM&Co. has been serving San Diego public sector P. M. M. 8I CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 3 clients for many years. Accordingly, we have obtained not only general governmental knowledge and expertise but also understanding with respect to the specific problems and opportunities in the San Diego region. More information about our Firm in included in Appendix B. OBJECTIVES The objectives of this engagement will be to: 1. Assist the City in establishing accounting procedures which will permit the accumulation of data needed for the prepara- tion of mandatory reports as promulgated by EDA for this LPW sewer reconstruction project. 2. Perform the financial and compliance audit of the LPW Project grant in accordance with the EDA Audit Guide and submit an appropriate audit report asrequired by EDA. APPROACH In order to meet these objectives, we will undertake the engagement in two phases: I (A) - I (B) II Phase I(A) To satisfy Accounting Procedure and Internal Control Review Implementation Assistance - Audit of EDA LPW Grant - Accounting Procedures and Internal Control Review the first objective, we will perform the following tasks: 1. Identify the financial and statistical EDA and other Federal reporting requirements. 2. Review the procedures used by the City of National City to accumulate and generate financial data for meeting EDA re- porting requirements, and recommend modifications or addi- tional procedures where necessary. 3. Review existing internal controls and make recommendations for strengthening financial controls as they relate to accounting for the LPW Sewer Project receipts and disburse- ments. 4. Prepare a letter on our findings and recommendations relating to procedure and internal control improvements. P. M. M. e. CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 4 Phase I(B) - Implementation Assistance 5. Assist in the implementation of any recommended changes in internal control or in systems and procedures. (We would anticipate a minimum of two person -days assistance.) 6. Monitor the project controls, systems, and procedures on an interim audit work basis during the course of the project. (We would anticipate a minimum of three one -day reviews at appropriate times during the project.) Phase II - Audit of EDA LPW Grant Upon completion of the sewer project, we will perform an examination of the final report submitted to EDA. Our independent audit will include tests of National City records that relate to the LPW Sewer Reconstruction Project as we consider necessary in the circumstances. This audit will be conducted in accordance with (a) generally accepted auditing standards, (b) the "Standards for Audit of Governmental Organizations, Programs, Activities, and Functions" as promulgated by the U. S. Comptroller General of the General Accounting Office, and (c) the Audit Requirements for Approved Programs of the U. S. Department of Couwierce - Economic Development Agency. Our audit and opinion on the City's final grant report will be prepared in accordance with American Institute of Certified Public Accountants (AICPA) pronouncements including those on the examination and reporting on audits of government grants. The audit report will be submitted to the City immediately upon completion of the audit. Audit workpapers will be retained for a period of six years and will be made available for examination by duly authorized representatives of EDA or others as the City may direct. Audits of Contractors National City's contracts with the LPW Sewer Reconstruction Project contractors include a provision which states that "When requested, the Contractor shall provide an audit to the Owner or Project Coordinator." In performing our audit of this grant, we are anticipating that we can rely on these audits to meet EDA requirements. If we cannot, then we shall bring this fact to your attention so that remedial action may be taken. P. M. M. &. CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 5 FEES Our fees are based upon the amount of time spent, the qualifications and experience of the personnel required to perform the type of services re- quested, and the 1977 special governmental rates as listed below. Partners Managers and Consultants Supervisors Senior Accountants Staff Accountants Based upon engagements of a similar nature and ing EDA grants, we estimate the fees will be: Phase I(A) (tasks 1 through 4) Phase I(B) (tasks 5 and 6) $ 65 per 50 per 40 per 25 per 20 per hour hour hour hour hour the unique aspects of review- $ 5,900 dependent upon needs of client and number of hours at our special governmental rates listed above. Phase II* $ 4,000 *If it is necessary to go beyond the normal scope of the audit to include audits of contractors or if EDA imposes new and/or unexpected audit requirements, additional fees may be incurred. These fees will be billed at special governmental rates in effect at that time. In addition, we are reimbursed for out-of-pocket expenses such as report re- production and travel. These expenses generally would not exceed 10% of our fee. We are prepared to begin work on Phase I within two weeks after receiving approval of our contract. STAFFING As you know, the success of this project is directly related to the experience and skills of the personnel assigned and the efficient management of their effort. Accordingly, we plan to assign personnel who have demonstrated their ability in governmental consulting and auditing. P. M. M. & CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 6 In summary, the key individuals who will be working on this project are: Client Partner Management Consulting Audit Supervisor Paul Schedler David Cleary Leonard Collings Mr. Schedler will have overall responsibility for the conduct of the engage- ment and will coordinate all consulting and audit work. He will provide a major input on matters concerning generally accepted accounting principles, guide the work of auditors and consultants, and review their progress to insure that the final product of the work efforts meets all contractual re- quirements. Mr. Cleary will direct the analysis of the present procedures and evaluation of internal control (Phase I) and Mr. Collings will perform the audit (Phase II). Brief resumes of key individuals are included below: Paul E. Schedler Mr. Schedler is partner in charge of our services to the public sector clients of the San Diego office. As such, he has been involved in providing audit, accounting and consulting services to many San Diego governmental agencies and non-profit corporations. He is responsible for directing the annual audits and consulting services for the County of San Diego, the City of Vista, the Zoological Society of San Diego, the San Diego Unified Port District, the San Diego Community College District, the San Diego Unified School District, and numerous special district and insti- tutional audits. To support the audit and accounting services performed in connection with the annual audit of the County of San Diego, Mr. Schedler has supervised many special studies and analyses of County functions and operations. Mr. Schedler is a certified public accountant and a member of the California CPA Society State Committee on Governmental Accounting and Auditing. He is a Director of the San Diego CPA Society Chapter, chairman of the Chapter's Governmental Committee, a member of the Municipal Finance Officers Associa- tion, and the American Institute of Certified Public Accountants. He has also attended a number of workshops and seminars on the General Accounting Office's "Standards for Audit of Governmental Organizations, Programs, -Acti- vities and Functions." P. M. M. 8c CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 7 David T. Cleary Mr. Cleary, a senior management consultant in the San Diego office, is a con- sulting generalist who is heavily involved in operations analysis. He has performed many studies of public sector and commercial enterprises. He has recently performed a zero based budgeting review for the City of Vista and is currently involved in evaluating the fiscal services division of the San Diego County Department of Public Welfare. Mr. Cleary is familiar with public works management having reviewed the financial management of the San Diego County Public Works Agency and having examined the management controls in the Public Works Real Property Division of San Diego County. In addition, other specific engagements for the County of San Diego Grand Jury have included examinations of the County Public Administrator, Department of Medical Insti- tutions, the Probation Department, and the Secured Property Tax System. Mr. Cleary played a major role in the review of CPO's local transportation fund administration and the completion of a report on the status of LTF monies in the San Diego region. As a by-product of this review, PMM&Cp. prepared a management letter making suggestions for the improvement of certain LTF administrative procedures. Mr. Cleary was also the lead consultant in our development of the performance audit guide for transit ,operators adopted by MTDB. and CPO. Mr. Cleary has a degree in engineering from Northwestern University and is an honors graduate of San Diego State University where he recieved a master's degree in business administration. Leonard B. Collings Mr. Collings, an audit supervisor in the San Diego office, is responsible for managing a number of governmental audits including the County of San Diego, Poway Municipal Water District, Vista Irrigation District, San Diego County Water Authority, City of Vista and the San Diego Unified Port District. In addition, he has participated in several of the operations reviews for the County of San Diego Grand Jury. In the private sector, Mr. Collings is responsible for managing many commer- cial audit engagements including some clients in the health care field, manu- facturing, and service industries. Mr. Collings received his bachelor of arts degree in economics from Occidental College and is a member of the California Society of Certified Public Accoun- tants and the Municipal Finance Officers Association. P. M. M. & CO. Mrs. Ida M. H. Kerr City Treasurer City of National City February 11, 1977 8 PROJECT COORDINATION During the engagement, it will undoubtedly be necessary to work closely with the City. The success of the engagement will depend largely on the level of coordination and, to this end, we recommend that one individual at the City be designated as a project liaison person who will provide assistance to the consultants and auditors. CONTRACT REVISIONS As previously discussed with representatives of the City, we feel that the sample contract as forwarded to us needs revision. Therefore, before com- mencing any work, we would like to work with the City to develop a contract which will recognize the scope of work as outlined in this letter and which would delineate the responsibilities of the City (as grantee), the sewer project contractors, and PMM&Co. as the independent auditors and consultants. We appreciate the opportunity to present this proposal to National City. We feel that we are highly qualified to render the caliber of professional services the City will need for this special project. Should you have any questions about our Firm or any portion of this proposal, please do not hesitate to call us. Very truly yours, PEAT, MARWICK, MITCHELL & CO. Paul E. Schedler, Partner PES :MEB F APPENDIX A PMM&CO. PUBLIC SECTOR EXPERTISE A-1 PMM&CO. PUBLIC SECTOR EXPERTISE PMM&Co. has provided audit and management services to a wide variety of public sector, institutional and industrial clients for many years. A partial listing of our San Diego office public sector clients is as follows: San Diego County San Diego Unified Port District San Diego Unified School District San Diego Community College District Comprehensive Planning Organization of the San Diego Region Grossmont Hospital District Zoological Society of San Diego City of Vista, California San Diego County Water Authority Poway Municipal Water District Vista Irrigation District Our experience and skills can be illustrated best through a brief description of a few engagements completed and/or in process that relate to public sector auditing and consulting in Southern California. County of San Diego PMM&Co. has been providing the County of San Diego audit, accounting and con- sulting services for many years. As their contract auditor, we have worked closely with both the Board of Supervisors and the Grand Jury. Under the Specifications for Annual Audit, our services are broken down into two parts. Part A is a full scope audit in accordance with generally accepted auditing standards of the financial statements prepared by the Auditor and Controller. Part B of the Agreement states that we shall annually conduct a special review of one or more County departments, agencies or functional areas to be selected by the County Grand Jury. The purpose of these special reviews is to review the organization and operation of such departments, agencies or functions and the examination of financial -oriented areas. These speical examinations have not only fulfilled the examination requirements of the County Grand Jury, but have also provided the County with consulting expertise in specialized areas and means for the County to have an evaluation performed on the efficiency and effectiveness of certain County activities. The County of San Diego has recently completed its conversion to a fully auto- mated Accounting Resource Management System (ARMS). PM1&Co. played a signifi- cant role in the design, development and implementation of this system. In addition to this large project, there are other projects on which PMM&Co. has assisted the County. Many of these fall outside the traditional accounting services in which the County has availed itself of PMM&Co.'s expertise in our New York and Washington, D.C. offices. San Diego Unified Port District We have been the and as such have formed the basic tract Procedures, A-2 independent auditors for the Port District since its inception reviewed many_ functional areas for management as well as per - financial audit. Areas of special review have included Con - Purchasing, Data Processing, and Treasurer Investments. County of Orange PMM&Co. as contract auditor for the Grand Jury and Board of Supervisors of the County of Orange has performed examinations and'reviews of County departments with primary emphasis being placed on management audits. This work resulted in comprehensive evaluation of County operations,.identification of deficient controls or procedures, and the development of constructive recommendations for solving indicated problems. The District Attorney's family support section, the overlapping duties of the Marshal and Sheriff, and the operations of the County Clerk's office were singled out for special scrutiny. PMM&Co. has assisted the County of Orange in developing and validating a metho- dology to identify and establish goals, objectives, and output and effectiveness measures as a step in the continuing development of the County's Planning, Programming, Budgeting System. County of Los Angeles As contract auditor for the Grand Jury of the County of Los Angeles for many years, we have performed examinations and reviews of many County departments and functions on behalf of the Audit Committee. In the past, special studies were conducted of (1) rates charged to cities for law enforcement services supplied by the Sheriff, (2) the procedures utilized by the County to acquire and develop real estate, (3) the organization of the Auditor -Controller's Audit Division, and (4) procedure for ordering, receiving, storing and paying for goods through the Purchasing and Stores Department. Advisory Commission on School Budgeting and Accounting State of California PMM&Co. developed a Planning, Programming, Budgeting System (PPBS) for the Commission. PPBS is a modern management tool for identifying the goals of an organization, determining alternative methods of achieving these goals and for allocating resources to the alternative on a rational basis. This system, of course, has a significant impact on schools in San Diego. Southern California Association of Governments PMM&Co. assisted the Southern California Association of Governments in develop- ing an accounting system and preparing an accounting manual. The manual in- cluded accounting policies, accounting procedures including design of the required forms and document flow, budgetary procedures and repprting procedures including report formats and frequency of preparation. A-3 City of Los Angeles PMM&Co. established the policies, procedures and standards for the City Data Service Bureau, centralizing the ADP complex. The complete consolidation of several departmental data processing centers serves all councils controlled in the City of Los Angeles. A manual documenting the results was prepared by PMM&Co. for distribution to service center and user department personnel. PMM&Co. also conducted an extensive operations review in order to design and implement an effective planning and control system for the City of Los Angeles - Community Redevelopment Agency (CRA). The review encompassed the goals and objectives of top management, the project management techniques that the Agency employs in operating simultaneous ongoing activities, and the technical ser- vices functions and their capacity to meet the demands of project management and to train and supply manpower resources adequately. The review also examined the constraints placed on operations by management techniques and personnel policies, the management information and reporting system and its usefulness in meeting CRA management needs, and the scheduling and budgeting techniques used to measure performance against plans. City of Pasadena PMM&Co. completed a review of the property tax assessing and collection function of the City of Pasadena. This study included an analysis of the factors affect- ing the retention or transfer of the City of Pasadena's property 'tax assessment and collection powers and related functions to the County of Los Angeles. The major analyses focused on (1) the tangible effects on the operating costs of the City as a municipal corporation, (2) tax burden shift between classes of taxpayers, and (3) the intangible factors concerned with political considera- tions, community service and unresolved legal questions. PMM&Co. identified the alternatives open to the City and the consequences of each alternative, as well as structuring the issues to facilitate management decision making in this complex situation. APPENDIX B INFORMATION ABOUT OUR FIRM B-1 INFORMATION ABOUT OUR FIRM In order to provide our clients with outstanding capabilities and to insure they receive the highest quality of service, our practice is divided into three major departments: accounting and auditing, management consulting, and tax services. Personnel in each of these three major departments further specialize along industry lines or types of services in order to deal more effectively with the problems peculiar to specific industries. This results in an acute aware- n ess of the operating, accounting and auditing problems within industries. As a result, we have developed the competence that enables us to serve in a more creative and constructive manner in dealing with problems. The public sector is a key area of specialization. The size of our practice in these fields enables us to provide the services of individuals with exten- sive experience in all facets of public sector accounting and consulting. Professional Training Our chief asset is the skilled services of our people. To insure the highest level of professional performance, PMM&Co. engages graduates with records of high academic achievement and demonstrated leadership experience. To keep all members of the Firm current with advanced techniques, the Firm conducts many general and specialized training programs. Accordingly, we conduct many training programs dealing with the public sector. These efforts are extensive and utilize to a great degree modern training facilities. Training hours in fiscal 1976 came to an average of 84 hours for each pro- fessional in our Firm, at a total cost of $13.8 million. The overall num- ber of training hours was 598,000 with 330 sessions of 66 national courses attended by 8,500 participants. Quality Control PMM&Co. has been a leader in the development and utilization of quality con- trol procedures for our professional practice. We were the first of the major certified public accounting firms to voluntarily subject ourselves to review by one of our peers. The results of that review indicate that the quality of our work meets all professional requirements. Equal Opportunity Employer PMM&Co., in recognition of its social, moral and economic obligations to all minority groups, has for many years followed the policy that there shall be no discrimination with respect to economic opportunity within the Firm. It B-2 has been the intention and desire of the Firm that race, color, religion, age, sex or national origin shall not be a factor in consideration of employment, promotion, transfer, recruitment, rates of pay or other forms of compensa- tion, selection for training, demotion or separation. All decisions in these matters have been made without regard to the aforementioned enumerated factors. To reaffirm our Firm's continued commitment to this program of equal employment opportunity, the managing partner of each office has the responsibility to assure that equal employment opportunity is extended to all minority group members. To insure the fullest understanding, of the positive position of PMM&Co. re- garding equal employment opportunity, we have widely and effectively communi- cated our Firm's and office's policies and programs to all employees as well as to individuals, organizations, and companies with which we have contact. Copies of the affirmative action programs and semiannual updates thereto are available for inspection upon request. Computer Audit Specialists In recognition of the technical complexities of auditing computerized records and data processing centers, PMM&Co. commenced the Computer Audit Specialist Program in 1972. Candidates for this program are selected on the basis of their outstanding performance as auditors and their aptitude for computer operations. These individuals attend a concentrated three-week course which emphasizes internal control in the EDP environment, operating systems, pro- gramming and operating languages, System 2170 applications,, and integration of computer audit techniques with overall audit objectives. Computer audit specialists are resident in each of our offices and are integral members of audit teams where computer operations affect our clients. These individuals: Review controls and procedures on engagements with computer - based accounting systems. Install and operate System 2170 on a client or service bureau computer. Write and review computer audit programs. In San Diego, we have a total of 6 computer audit specialists of whom 3 have been further trained to instruct S/2170 courses to our staff and clients.