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HomeMy WebLinkAboutProposalour -MA1; NFL Iry imItailpEn. n deep Prepared excEusively for: CITY OF NATIONAL CITY & COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY (Proposal for Audit Services) PROPOSAL OF INDEPENDENT AUDIT SERVICES TO THE CITY OF NATIONAL CITY, CALIFORNIA and the COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Submitted by: MAYER HOFFMAN McCANN P.C. 2301 DUPONT DR., SUITE 200 IRVINE, CALIFORNIA 92612 MARCH 24, 2011 CONTACT PERSON — MATTHEW LENTON, SHAREHOLDER PHONE NO: (949) 474-2020, EXT. 300 FACSIMILE NO: (949) 263-5520 EMAIL- mlenton@cbiz.com WEBSITE: www.mhm-pc.com MAYER HOFFMAN McCANN P.C. CALIFORNIA LICENSE NO. CORP 5091 MAYER HOFFMAN McCANN P.C. FEDERAL IDENTIFICATION NO. 43-1947695 PROPOSAL OF AUDIT SERVICES TO THE CITY OF NATIONAL CITY and the COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY TABLE OF CONTENTS Section Page Letter of Transmittal PROFILE OF THE PROPOSER A About Mayer Hoffman McCann P.C. SUMMARY OF PROPOSER'S QUALIFICATIONS B Qualifications and Related Experience of the Personnel who will Service the City of National City and the Community Development Commission of the City of Natioal City 5 C Our Prior Experience Auditing Cities, Redevelopment Agencies Special Districts and Other Local Governments 7 D Capabilities in General Consulting and Compliance Auditing 12 E References of Local Government Clients 13 SCOPE SECTION F Our Firm's Understanding of the Objectives and Scope of the Engagement 14 G Approach, Timing and Work Program of Our Engagement Team 16 H Our Fees and Hourly Rates 26 BIOGRAPHIES Resumes of Audit Personnel Assigned APPENDIX Mayer Hoffman McCann P.C. Peer Review Report — Local Government Practice Mayer Hoffman McCann P.C. Peer Review Report Mayer Hoffman McCann P.C. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com March 24, 2011 City of National City City Manager 1243 National City Blvd. National City, CA 91950 Mayer Hoffman McCann P.C. is pleased to respond to your request to serve as the independent auditors for the City of National City and the Community Development Commission of the City of National City for the fiscal year ending June 30, 2011. Mayer Hoffman McCann P.C. (MHM) would be your best selection for the following reasons which are set forth in greater detail in our proposal: • Mayer Hoffman McCann P.C. is a national CPA firm. In California, Mayer Hoffman McCann P.C. has offices in Los Angeles, Oxnard, Bakersfield, Irvine, San Diego and San Jose. More than 400 accounting and audit professionals serve clients from the California offices. • The government services practice of Mayer Hoffman McCann P.C. is headquartered in Irvine, California. • The Irvine office of MHM currently serves approximately 90 California municipal clients, including serving as independent auditors for 51 California cities. We also serve the redevelopment agencies and housing authorities of those cities. • MHM.'s audit team of Matthew Lenton, Engagement Shareholder, Jennifer Fan, Technical Review Shareholder, and Felix Inga, Engagement Manager have a proven track record in serving California cities, redevelopment agencies, special districts and authorities. • In addition to providing extensive local government and other audit and information technology training for our staff, Mayer Hoffman McCann provides an annual Governmental Accounting Standards Board (GASB) Technical Update each spring for our clients. • MHM has previously served as the City's independent auditors, which gives MHM the detailed knowledge and experience of dealing with and understanding the City's complicated and technical accounting issues. MHM will also provide a key change in personnel from past engagement. teams. Matthew Lenton, CPA, will serve as the engagement Shareholder and Felix Inga, CPA, will serve as the engagement manager which will provide a fresh set of eyes and a new perspective on audit approaches in addition to providing a highly technical and experienced individuals performing the audit on a day to day basis. • With our electronic audit software, we have the capability to upload the City's trial balance and create our own workpaper lead sheets and financial statement tie -out workpapers, which can reduce finance staff time. City of National City Page Two • We believe that our fee estimate and structure will assure the City of National City and the Community Development Commission of the City of National City of a fair and reasonable cost (based upon the experience of our audit team) to perform the annual audit examination for the City. The fee break out for each of the services is as follows: City Financial Audit - $32,500; Community Development Commission - $8,000; Single Audit - $8,500; Morgan Towers Audit - $7,500; REAC Submission - $1,250; and GANN Limit - $800. The total fees for 2011 represent a 5.6% reduction from our 2009 fees and over the last three years, we have reduced our fees to the City over $12,000 or 17%. • We believe that our fee estimate and structure will assure the City of National City and the Community Development Commission of the City of National City of a fair and reasonable cost (based upon the experience of our audit team) to perform the annual audit examination for the City and CDC. • Mayer Hoffman McCann P.C. adheres to the strict quality control measures and high professional standards of the Public Company Accounting Oversight Board (PCAOB), the American Institute of Certified Public Accountants (AICPA) and California State Board of Accountancy. MHM is a member of the AICPA' s Center for Public Company Audit Firms, Employee Benefit Plan Audit Quality Center, Governmental Audit Quality Center and the AICPA's Private Company Practice Section (PCPS). • Mr. Matthew Lenton, Shareholder, and Ms. Jennifer Fan, Shareholder, are authorized shareholders of Mayer Hoffman and are authorized to bind our Firm in contractual matters with the City of National City and the Community Development Commission of the City of National City. Mr. Lenton and Ms. Farr are also authorized to make representations for the Firm to the City of National City and the Community Development Commission of the City of National City. • Mayer Hoffman McCann P.C. and all key personnel are licensed and in good standing with the California State Board of Accountancy to practice as independent certified public accountants. Additionally, Mayer Hoffman McCann P.C. is independent with respect to the City of National City within the Government Auditing Standards. Mayer Hoffman McCann P.C. is an Equal Opportunity Employer. We are committed to providing outstanding service to the City and in meeting the requested time deadlines. Mayer Hoffman McCann P.C. thanks the City of National City and the Community Development Commission of the City of National City for the opportunity to present our proposal qualifications and for the opportunity to be appointed as your independent auditors. Our proposal remains a firm and irrevocable offer for 90 days. I look forward to you contacting me so that I may answer further any questions which you may have. You may contact me at (949) 474-2020, Ext. 300. Very truly yours, MAYER HOFFMAN McCANN P.C. de Matthew Lenton, C.P.A. Shareholder SECTION A ABOUT MAYER HOFFMAN MCCANN P.C. Mayer Hoffman McCann P.C. is a National CPA Firm. The firm is independently owned and operated through its 270 shareholders. The firm is committed to equal opportunity and affirmative action employment. The firm began in Kansas City, Missouri in 1954. After years of steady growth the Firm expanded into a National Practice. Mayer Hoffman McCann P.C. currently operates from 35 offices throughout the United States and is licensed in all 50 States. Mayer Hoffman McCann P.C. is closely aligned with CBIZ (NYSE:CBZ). The 270 shareholders in 35 Mayer Hoffman McCann P.C. offices direct the resources of approximately 2,000 Accounting and Audit professionals who services the attest clients of Mayer Hoffman McCann P.C. The Western Region Office of Mayer Hoffman McCann P.C. work closely together in servicing clients and sharing professional resources among offices. Those offices locations are as follows: • Irvine California (Government services headquarters) • Irvine, California (SEC services headquarters) • Los Angeles, California • Bakersfield, California • Oxnard, California • San Diego, California • San Jose, California • Salt Lake City, Utah oenix, tinzona • Denver, Colorado The Western Region offices have more than 550 professional accounting and audit personnel available to the 56 shareholders of Mayer Hoffman McCann P.C. in the ten Western Region offices. MHM plans to provide the audit services to the City of National City and the Community Development Commission of the City of National City from full-time staff located in our Irvine office. The Irvine office is the technical and practice unit designated within MHM for governmental expertise and training for MHM on a national level. A breakdown of the Irvine Office's governmental personnel by classification is as follows: Classification Shareholders Number of Employees 8 Managers 18 Seniors 10 Staff 10 Administrative support 6 Total personnel 52 Seven of the eight Shareholders in the Irvine office focus their efforts on Government auditing. Approximately 80% of all work performed out of the Irvine office is Government auditing. SECTION A, (CONTINUED) Computer and Special Equipment Capabilities Each audit team in our firm is assigned and utilizes a portable personal computer at the job site. We extensively use the computer in the conduct of our audit and in the preparation of the financial statements. Additionally, each of our audit Managers and Seniors are knowledgeable of controls surrounding the EDP environment and assessing the effectiveness of those controls within the audit of the local government. Mayer Hoffman McCann P.C. utilizes CaseWare, a paperless auditing software that organizes audit documentation. We have the ability to accept audit documentation in either electronic or hard copy format. Quality Control Mayer Hoffman McCann P.C. is a National CPA Firm and ranked among the top 10 Accounting Service Providers in the country. MHM adheres to the strict quality control measures and high professional standards of the Public Company Accounting Oversight Board (PCAOB), the American Institute of Certified Public Accountants (AICPA), and the California State Board of Accountancy (as well as other states when applicable). Our Firm is a member of the AICPA's Center for Public Company's Audit firms, Employee Benefit Plan Audit Quality Center, Governmental Audit Quality Center and the AICPA's Private Company Practice Section (PCPS). As a member of the Private Companies Practice Section and PCAOB our audit procedures and working papers are regularly examined by another CPA firm in the firm -on -firm peer review program. The most recent Peer Review performed did cover the governmental auditing practice of this office. In addition, all aspects of the firm's quality control practices have been reviewed, including the firm's commitment to extensive training programs. In every member firm, each member of the professional staff must enroll in continuous professional education courses. Each is required to take at least 120 hours of classes over a three-year period. Courses cover a wide spectrum of professional and technical subjects, and include Fraud Auditing, Professional Ethics and Governmental Accounting and Auditing topics to help the practitioner maintain his/her professional expertise. A copy of Mayer Hoffman McCann P.C.'s most recent Quality Control Review report is included in this proposal. The following policies and procedures are evaluated during the peer review: 1. Independence, integrity and objectivity requirements of the AICPA and the Governmental Accounting Office (GAO), per the "Yellow Book", Government Auditing Standards; 2. Personnel management, including hiring practices, supervision of staff, training, advancement and Continuing Professional Education requirements; 3. Acceptance and continuance of clients and engagements (Management's Integrity); and 4. Engagement Performance (Internal inspection and monitoring of the firms auditing and accounting practice). This means that when the City of National City and the Community Development Commission of the City of National City engages our firm to perform services for you, you will know that our firm has agreed to comply with the strict membership requirements of the section to which we belong and has agreed to have our compliance with those requirements reviewed by others. Thus, there is greater assurance that our personnel are adequately trained and up-to-date on professional developments relating to governmental as well as commercial auditing. Accordingly, membership in this Division provides additional assurance that our firm will comply with professional accounting and auditing standards. 2 SECTION A, (CONTINUED) The first step in our approach to assuring quality control is the preparation of standardized working papers that contain sufficient, competent, and relevant evidential matter as required by Government Auditing Standards. These working papers, being the permanent record of the work performed and methods followed, serve as the basis for the report. Therefore, we understand that these working papers must substantiate and explain in detail the opinions and findings included in the report. In addition, we have developed a standardized indexing system for all working papers that will be used by the engagement team. This provides a consistent, quality product that can be easily and thoroughly reviewed. Independent review of all working papers is an essential and constant element of our firm's attestation procedures and quality control program. Review is the means by which we ensure that each level and step of audit work is properly performed and completed. It also serves as a valuable training device for all levels of professional staff, since staff members are alerted to areas in which they need improvement, gain confidence in their own abilities in areas of the audit successfully completed without assistance, and benefit from the knowledge and experience of the reviewer. It is by this process that each member of our professional staff becomes a more knowledgeable auditor and a more valuable asset to our firm, while at the same time assuring that our firm's high standards of professional and diligent work are being met. The results of field audits and desk reviews by Government Agencies and other Regulatory Agencies of the audit work conducted by our California government audit practice indicate that our audit work substantially met the requirements of the auditing standards, except for one review conducted by the California State Controller with respect to Mayer Hoffman McCann P.C.'s financial statement audit that was performed for the City of Bell for the year ended June 30, 2009. We documented our disagreement with the conclusions of that review in our response to the State Controller's report. The firm's response to the State Controller's report can be found at http://www.mhm-pc.com/citvofbell. As a result of this report, the California Board of Accountancy is following up on a referral from the State Controller with respect to our financial statement audit performed for the City of Bell in 2009. In response to the issues related to the City of Bell, MHM engaged an independent CPA firm (Carr, Riggs & Ingram, LLC) to evaluate the quality of the audit work performed by MHM with respect to its local government audit practice in California. Harold Monk served as the engagement partner for this review. Mr. Monk is a Certified Fraud Examiner and a nationally - known expert on government accounting and auditing standards. Mr. Monk recently served as the Chairman of the Auditing Standards Board for the American Institute of Certified Public Accountants (AICPA). He is a former member of the Board of Directors of the AICPA and served as chairman of the Private Companies Practice Section of the AICPA. In 2002 he was appointed to the U.S. Government Accountability Office's Advisory Committee on Auditing Standards by U.S. Comptroller General David Walker, where he continues to serve. On March 3, 2011, Carr, Riggs & Ingram, LLC issued its report. Can, Riggs &Ingram, LLC concluded that the audit work performed by MHM with respect to its local government audit practice in California conformed to professional auditing standards and the firm's own system of quality control. This report has been included in the Appendix section of this proposal. SECTION A, (CONTINUED) Independence With respect to the City of National City and the Community Development Commission of the City of National City, Mayer Hoffman McCann P.C. meets the independence requirements of generally accepted accounting standards and the Government Auditing Standards (2007 revision) published by the U.S. General Accounting Office. We are independent with respect to the City of National City and the Community Development Commission of the City of National City. No conflicts of interest exist relative to our firm performing the audit. License to Practice in California Mayer Hoffman McCann P.C. and all key personnel are licensed and in good standing with the California State Board of Accountancy to practice as independent certified public accountants. 4 SECTION B PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE The successful outcome of any audit requires personnel with the managerial and technical skills to perform the work required. The engagement team who will serve the City of National City and the Community Development Commission of the City of National City have served together as a team of professionals on numerous financial audit examinations of local government entities, including complex governmental agencies. We believe that efficient administrative management and supervision of the audits is an extremely critical factor in achieving the desired results for the City Council and Commissioners of the City of National City and the Community Development Commission of the City of National City. In that regard, we propose to establish the following procedures. Mr. Matthew Lenton, CPA, Engagement Shareholder, will be responsible for the coordination of the audit of the City of National City and the Community Development Commission of the City of National City and fulfillment of the requirements of the City Council and Commissioners. Mr. Lenton, as the Engagement Shareholder, will be in the field to plan and coordinate the management of the audit examination of the City of National City and the Community Development Commission of the City of National City. He will work closely with Finance Department staff and be responsible to the City Council and Commissioners. Mr. Lenton serves as a reviewer for the CSMFO award program for CAFR's and has been a speaker on matters pertaining to technical issues and new GASB pronouncements. Ms. Jennifer Farr, CPA will serve as Technical Review Shareholder. She has over 14 years of local governmental auditing experience. Ms. Fan will act as a Technical and Consulting Shareholder to Mr. Lenton and the City's and CDC's Finance Department staff. As a second shareholder reviewer, she will perform quality control reviews of audit reports issued by our firm and will be involved in the audit planning of the audit, including the engagement team risk assessment, brainstorming meeting and planning meeting with Finance staff. Ms. Fan has been a speaker on matters pertaining to technical issues and new GASB pronouncements. Ms. Fan is also responsible for the firm -wide training for the Government Services Division of MHM in the area of local governmental accounting and auditing. Mr. Felix Inga, CPA, will serve as Engagement Manager of the audit of the City of National City and the Community Development Commission of the City of National City. He will work closely with Mr. Lenton, Shareholder and the Finance Department personnel. He will plan and review all audit work. Mr. Inga has 5 years of local government auditing experience, including performing as Engagement Manager on numerous city, redevelopment agency, special district and authority audits. Mr. Inga is also a presenter at the firm -wide training for the local governmental accounting and auditing area. Please refer to Biographies section for specific client experience for each audit team member. SECTION B, (CONTINUED) TRAINING OF PARTNER, SUPERVISORY AND STAFF All individuals assigned to the City of National City and the Community Development Commission of the City of National City audit will have 40 hours of government specific CPE every year, which is in excess of the required 24 hours for audits of governmental agencies. All members of the engagement team are current on their CPE requirements. The following is a listing of continuing professional education for the past three years for the proposed engagement team: Attended by Dates CPE Class Lenton Fair Ines In -charge Staff Jan 2008 Risk assessment audit training X X X X Jan 2008 Internal controls and fraud protection X X X X Jan 2008 Accounting and auditing issues of nonprofits X X X X March 2008 CSMFO annual conference X X April 2008 Local government audit training I X X X X May 2008 2008 GASB update X X X X June 2008 MHM accounting & audit national conference X X July 2008 Local government audit training II X X X X Jan 2009 2009 Local government audit training I X X X X Feb 2009 CSMFO annual conference X X May 2009 2009 GASB update X X X X July 2009 2009 Local government audit training II X X X X Jan 2010 Fraud training X X X X Jan 2010 Accounting and auditing issues of nonprofits X X X X Jan 2010 2010 Local government audit training I X X X X Feb 2010 CSMFO annual conference X X X June 2010 GASB Update X X X X July 2010 2010 Local government audit training II X X X X X Jan 2011 Accounting and audit update X X X X X 6 SECTION C OUR PRIOR EXPERIENCE AUDITING CALIFORNIA CITIES, REDEVELOPMENT AGENCIES, SPECIAL DISTRICTS AND OTHER LOCAL GOVERNMENTS Mayer Hoffman McCann P.C. has over thirty years of experience in the audits of local government units (all funds audit examinations of cities including single audits performed under OMB Circular A-133, financial and compliance audits of California Redevelopment Agencies, audit examinations of public housing authorities, joint powers authorities and special districts). Among the local government entities which the Irvine office of MFIM has served during the past fiscal year are the following: All Los Angeles County City of Burbank*+ City of Beverly Hills+ City of Carson* City of Commerce*+ City of Compton City of Culver City*+ City of El Segundo+ City of Inglewood City of La Verne* Funds Examinations of California Cities (by County) City of Palos Verdes Estates+ City of Pasadenat+ City of Rosemead*+ City of San Gabriel* City of Santa Monica*+ City of Temple City* City of Torrance*+ City of West Covina*+ City of Whittier*+ Orange County City of Aliso Viejo+ City of Costa Mesa* + City of Fountain Valley*+ City of Laguna Beach City of Laguna Woods City of Lake Forest*+ Riverside County City of Hemet* + City of Indian Wells* City of Indio* City of Moreno Valley* City of Rancho Mirage* San Diego County City of Carlsbad*+ City of Del Mar+ City of Escondido* City of National City* City of Santee* * = Includes audit of Redevelopment Agency + = Award CAFR 7 City of Mission Viejo+ City of Newport Beach *+ City of Orange* City of Rancho Santa Margarita+ City of Seal Beach+ City of Villa Park San Bernardino County City of Highland*+ City of Redlands*+ City of Uplandt+ City of Riverside*+ Other Counties City of Campbell *+ City of Gilroy City of Hayward*+ City of San Bruno*+ City of Solana Beach* SECTION C, (CONTINUED) Audits of Special Districts (by County) MHM provides annual financial audit services to the following California special districts: Orange County California Joint Powers Insurance Authority Irvine Ranch Water District Moulton Niguel Water District Orange County Fire Authority Riverside County Beaumont Cherry Valley Water District Coachella Valley Association of Governments Coachella Valley Mosquito and Vector Control District Coachella Valley Recreation and Parks District Coachella Valley Water District San Bernardino County Big Bear Area Regional Wastewater Agency Big Bear Community Services District Bighorn Desert Water Agency Chino Basin Desalter Chino Bain Watermaster Inland Empire Utilities Agency Los Angeles County San Gabriel Valley Mosquito District Southern California Association of Governments Southern California Regional Rail Authority West Basin Municipal Water District Orange County Sanitation District Orange County Transportation Authority Santa Margarita Water District South Coast Water District Eastern Municipal Water District Elsinore Valley Municipal Water District Riverside County Flood Control and Water Conservation Salton Sea Authority Cucamonga Valley Water District Lake Arrowhead Community Services District Mojave Water Agency Municipal Water Department of the City of San Bernardino Omnitrans San Diego County Rancho California Water District San Diego Unified Port District Vista Irrigation District SECTION C (CONTINUED) Experience Performing Audits Under the Federal Single Audit Act. The Single Audit Act of 1984 requires that Government Auditing Standards be followed in audits of state and local governments which receive federal financial assistance. Other federal policies and regulations, such as OMB Circular A-133, require that Government Auditing Standards be followed in audits of institutions of higher education and other nonprofits organizations that receive federal financial assistance. We have extensive experience performing audits in accordance with Government Auditing Standards. The Irvine office of MHM has performed more than 1,500 Single Audits under OMB Circular A- 133 since the issuance of the Circular. Below is a listing of the more significant Single Audits that the Irvine office of Mayer Hoffman McCann P.C. performed over the last two years: Audited Entity Public Housing Authority: 1. Housing Authority of the City Los Angeles, California Annual Federal Audit Periods Expenditures of 12/31/08, 12/31/09 2. City of Oxnard Housing Authority, California 3. Housing Authority of the County of Ventura, California 4. Imperial Valley Housing Authority, California Local Governments: 5. City of Burbank, California 6. City of Culver City, California 7. City of Escondido, California 8. City of Hayward, California 9. City of Laguna Beach, California 10. City of National City, California 11. City of Pasadena, California 12. City of Riverside, California 13. City of Rosemead, California 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 6/30/09, 6/30/10 > $500 million $10 million < $25 million $25 million < $50 million $10 million < $25 million $10 million < $25 million $5 million < $10 million $5 million < $10 million $10 million < $25 million $5 million < $10 million $10 million < $25 million $25 million < $50 million $25 million < $50 million $5 million < $10 million SECTION C, (CONTINUED) 14. City of Santa Monica, California 15. City of Torrance, California Public Transit Authority: 16. Antelope Valley Transit Authority 17. Omnitrans 18. Orange County Transit Authority (OCTA) 19. Ventura County Transit Commission 6/30/09, 6/30/10 $25 million < $50 million 6/30/09, 6/30/10 $5 million < $10 million 6/30/09 6/30/09, 6/30/10 6/30/08, 6/30/10 $5 million < $10 million $5 million < $10 million $75 million <$100 million 6/30/09 $5 million < $10 million Non -Profit Entities: 20. National Childhood Cancer 2/28/09, 2/29/10 $25 million < $50 million Foundation The Irvine office of MHM also performed Single Audits during the periods listed above for approximately 40 other entities that had annual Federal expenditures of less than $5 million. CAFR Award Program The Irvine Office of MHM has a proven track record in assisting cities in the upgrading of their financial reporting. A number of our clients have received the "Certificate of Achievement for Excellence in Financial Reporting" issued by the Government Finance Officers Association (GFOA) or the "Certificate of Award for Outstanding Financial Reporting" issued by the California Society of Municipal Finance Officers (CSMFO). Those Cities are identified at the beginning of this section. In addition, both Mr. Lenton and Ms. Farr and several of our engagement managers had previously served as technical reviewers in the CSMFO award program. Ability to Rotate Partners, Managers or Supervisors, if Desired by City Should the City of National City and the Community Development Commission of the City of National City desire to rotate the Engagement Partner, or any other member of the engagement team, we have the capacity to fulfill that request. Of the shareholders in our Irvine Office, five have extensive local government experience. Also, of the 18 Managers in the Irvine Office, nine have extensive local government experience. Rotating audit team members would not be an issue. 10 SECTION C, (CONTINUED) Expertise and Assistance Regarding the Implementation of GASB Statement 54 We have extensive experience with respect to the implementation of GASB Statement No. 54. We have already implemented it for a number of our clients. For the past two years, we have provided training regarding this new standard at our annual GASB Update. Last year, for every client, we analyzed their fund structure and made recommendations with respect to how this new pronouncement will affect the client's fund structure and actions that should be taken to get ready for the implementation of this new standard. In our GASB Update this year and during the planning phase of each audit, we will go over new implementation guidance that was just released by the GASB regarding this year's implementation. Professional Activities Mayer Hoffman McCann P.C. a member of the following AICPA Audit Quality Centers: 0 Center for Audit Quality (CAQ) m Employee Benefit Plan Audit Quality Center m Governmental Audit Quality Center MHM is also a member of the Government Finance Officers Association (GFOA) and the California Society of Municipal Finance Officers (CSMFO). SECTION D CAPABILITIES IN GENERAL CONSULTING AND COMPLIANCE AUDITING In addition to our annual auditing services, we have assisted our clients by performing both attest services and various management advisory and other accounting services, including: • Audits of transient occupancy taxes • Reviews of cash receipting and water billing systems • Special fraud audits • Audits of waste management contracts • Other gross receipts audits (cable television franchise fees, excavation tax, etc.) • Contractual agreement compliance audits • Review of central purchasing systems • Review of warehouse controls and inventory systems • Reviews of cash controls in parks and recreation departments • Review of investment policies and investment compliance • Special EDP reviews • Review of permitting process within city building departments • Analysis of investment yields • Assistance in presentations to city councils • Assistance in setting up special accounting systems for redevelopment agencies • Assistance to Bond underwriters in providing "comfort letters" on debt issues of municipalities • Consultations regarding the maximizing of tax increment revenue for redevelopment agencies • Organizational review of finance departments • Tax advice regarding deferred compensation, employee benefits, use of city vehicles, etc. • Preparation of State Controller's Reports • Preparation of California Street Report • Assistance in cash reconciliation problems • Determination of the cost of excess sewer capacity for a developer/city contractual arrangement • Assistance in the selection of qualified finance personnel for employment by the City • Assistance in computation of Proposition 111 Gann Limitations • Management reviews of finance and Finance Director's office 12 SECTION E REFERENCES OF LOCAL GOVERNMENT CLIENTS For your convenience, we have listed below references with regard to audit work currently being performed by Mayer Hoffman McCann P.C. for several local governments in Southern California. For each of the references, we currently serve as independent auditors for the year ended June 30, 2010 and have served these cities for a number of years. Name of Client City of Costa Mesa City of Fountain Valley City of Beverly Hills Dates Engagement Scope of Work Performed Partner Annual Audit 2000-2010 Al -Imam & Single Audit Annual Audit 2009-2010 Farr & Single Audit Annual Audit 2007-2010 Lemon & Single Audit CAFR Total Award Hours Program Principal Client Contact 500 GFOA Colleen O'Donoghue Asst. Finance Director (714) 754-5219 500 GFOA Sherri Holman Finance Director (714) 593-4418 500 GFOA Scott Miller Admin Services Director (310)285-2411 City of Highland Annual Audit 1998-2010 & Single Audit 13 Lenton 400 GFOA Chuck Dantuono Admin Services Director (909) 864-6861 SECTION F OUR FIRM's UNDERSTANDING OF THE OBJECTIVES AND SCOPE Our understanding of the objectives and scope of the work to be performed is based upon your request for proposal. Based upon the foregoing we understand the objectives and scope of work to be as follows: 1. We will perform an audit examination of the governmental activities, business type activities, each major fund and the aggregate remaining fund information of the City of National City for the fiscal year ending June 30, 2011. Our examinations will be conducted in accordance with auditing standards generally accepted in the United States of America, Government Auditing Standards as set forth by the GAO, and the requirements of the American Institute of Certified Public Accountants' Industry audit Guide entitled "Audits of State and Local Governmental Units." MHM will draft and word process the Comprehensive Annual Financial Report (CAFR) of the City of National City. We will review the report for conformity with the reporting standards set forth by GFOA and CSMFO for their CAFR award programs. The Auditors will provide their auditors' report thereon. We will conform to the time line set forth by the City. We will apply to management's discussion and analysis those procedures required by the auditing standards to be applied to required supplementary information (understanding the method of preparation, the source and basis for the information presented, comparing for consistency to the audited data pertaining to the City, and ascertaining that the management's discussion and analysis contains all of the information required by GASB Statement No. 34 and does not contain information prohibited to be presented in the management's discussion and analysis). 2. We will perform a Single Audit of the City of National City in accordance with the Single Audit Act Amendments of 1996 (Public Law 104-156) and OMB Circular A-133 entitled Audits of States, Local Governments, and Non -Profits Organizations. Our single audit will cover all federal grants received by the City and its component units either as a primary or secondary recipient for fiscal year ended June 30, 2011. The City will provide to the Auditors the Schedule of Federal Financial Assistance encompassing all direct and pass -through federal funds received by the City and component units. We will render our reports on the single audit in accordance with the single audit requirements as described in Section G of this proposal. 3. We will perform a financial and compliance audit of the Community Development Commission of the City of National City for the fiscal year ending June 30, 2011. Our compliance procedures will meet the State Controller's guidelines for compliance audits of the redevelopment agencies. We will issue our separate auditors' reports on the Community Development Commission. MHM will draft and word process the financial statements of the Commission. We will issue our report on compliance (including the provisions contained in the guidelines for compliance audits of redevelopment agencies) and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards. 4. We will perform agreed -upon audit procedures to test and report on the City's Gann Limit for the fiscal year ending June 30, 2011. 14 SECTION F, (CONTINUED) 5. We will provide the Audit Committee Communications required by the auditing standards: the auditor's responsibility under generally accepted auditing standards, significant accounting policies, management judgment and accounting estimates, significant audit adjustments, other information in documents containing audited financial statements, disagreements with management, management consultation with other accountants, major issues discussed with management prior to retention, difficulties encountered in performing the audit, and errors, irregularities, and illegal acts detected in the course of the audit. 6. We will immediately report in writing any irregularities or illegal acts that come to our attention to the City Council, City Attorney, and the City Manager as required by the auditing standards. 7. For each year of our engagement, we will prepare a letter to the City Council reporting matters dealing with internal control that meet the threshold of being reportable conditions, as defined by professional auditing standards. 8. We will prepare a management letter that will provide other recommendations to the City ensuing from our review of the City's internal control procedures. This letter will address nonreportable conditions (those constructive comments not required to be included in the letter of reportable conditions to City Council or in the single audit report). We will discuss those comments with the City Manager and Finance Director as appropriate prior to its finalization. 9. Mayer Hoffman McCann P.C. desires to keep its local government clients abreast of new developments affecting local government finance. We will advise City staff of new accounting developments during the interim/planning stage of each year's audit. We will also provide formal client training to our clients in our Annual GASB Update that we provide for our clients in May of each year to provide valuable information concerning new governmental accounting pronouncements (including training with respect to new requirements for fund balances). 10. Finally, we perceive the scope of our work as being advisors to the City of National City. Throughout the year, City personnel will have access to the Engagement Shareholder, Matthew Lenton, Technical Review Shareholder, Jennifer Farr, and Engagement Manager, Felix Inga, to seek advice in the application of accounting principles, financial statement preparation and content and other matters relating to the City, including matters of taxation and policy relating to City fringe benefits. We are independent with respect to the City of National City and the Community Development Commission of the City of National City and related entities. Mayer Hoffman McCann P.C. meets the independence requirements of generally accepted accounting standards and the Government Auditing Standards published by the U.S. General Accounting Office. Our firm has never had a record of substandard audit work. The Irvine Office of MHM does not intend to use subcontractors for this engagement. No conflicts of interest exist relative to our firm performing the audit. 15 SECTION G APPROACH, TIMING AND WORK PROGRAM The audit approach of Mayer Hoffman McCann P.C. is unique with regard to the following: • Our firm is sensitive to the priorities and work requirements of our clients. We work around the schedules of our clients when scheduling segments of the audit or requesting documentation in order to minimize disruption in the Finance Department. • Whenever possible, we use accounting support already prepared by the Finance Department in order to avoid duplication or unnecessary requests for audit supporting schedules. • Because of our firm's expertise in local governmental auditing, our staff are trained and familiar with local government accounting. You will spend no time in training our personnel. • When formulating internal control recommendations, we obtain a thorough understanding of the specific circumstances at the City and CDC in order to provide a tailored, practical recommendation. • Throughout the year we are a resource to our clients in providing accounting advice, researching technical questions, dealing with tax problems, and helping with other problems as they arise. BENEFITS OF MHM AUDIT SOFTWARE Mayer Hoffman McCann P.C. utilizes Caseware audit software for the electronic organization of workpapers. We have the ability to accept audit documentation in either hard copy or electronic format. Caseware allows us the ability to import trial balances that can be provided in either excel or a text document. Some of the benefits of using Caseware trial balance software are as follows: • We can create our own lead sheets (for example, a schedule Due to/Due from other funds). This limits the amount of time City and CDC staff spends creating audit schedules. • We can link CAFR schedules directly to the Caseware trial balances. As a result, we can provide the City and the CDC with fund financial statements almost immediately after receiving the trial balance from the City and CDC. Additionally, journal entries are easy to post to the CAFR schedules and the risk of data entry error is minimized. • We can provide the City and CDC with reports showing the coding of the CAFR schedules for ease of review by City and CDC staff. These reports show each account coded to a specific CAFR line item as well as journal entries that are posted during the audit. • Our software automatically generates analytical review reports by account number for ease of analyzing significant fluxuations between fiscal years. • Creating color PDF's of final reports is a seamless process for our audit staff. 16 SECTION G, (CONTINUED) INTERNAL CONTROLS AND MANAGEMENT LETTER COMMENTS During the interim audit for each year, we plan to evaluate internal controls over the following primary transaction areas: • Cash Receipting at City Hall locations • Investment Management • Infrastructure and Capitalization of Assets • Purchasing • Accounts Payable and Cash Disbursements Cycle • Payroll Cycle/Human Resources • Federal Grant Management • Information Systems • Debt compliance monitoring procedures • Internal service fund allocations and overhead cost reimbursements If specific risks are identified by City Finance Staff, the City Manager, and/or City Council, or as deemed necessary based on our MHM's engagement team risk assessment and brainstorming meeting, we may also evaluate additional internal control areas. Some examples of additional areas we may review are as follows: • Cash receipting at offsite locations: o Parks and recreation locations o Police department o Parking o Library o Senior center o Community center o Other offsite locations • Petty cash • Credit card or Purchasing cards • Administration of loan programs There are three categories of internal control recommendations. We work carefully with City and CDC staff to ensure our classification of indentified weaknesses is correct. The categories are as follows: Control deficiency — these are minor internal control weaknesses that can be communicated either verbally to City Finance management or in writing, if preferred. Significant deficiency — these internal control weaknesses must be communicated in writing. Material weakness — these internal control weaknesses must be communicated in writing. When formulating internal control recommendations, we obtain a thorough understanding of the specific circumstances at your City and CDC in order to provide a tailored, practical recommendation. We understand that there is commonly more than one acceptable way to correct an internal control weakness. We work with City staff to ensure the recommendation is practical to implement. 17 SECTION G, (CONTINUED) AUDIT PLANNING PROCEDURES Following our appointment as auditors of the City and CDC, Mr. Lenton, Engagement Shareholder, Ms. Jennifer Fan, Engagement Technical Review Shareholder, and Mr. Felix Inga, Engagement Manager will meet with the Finance Director and other key Finance Department staff for the purpose of planning the audit of the City and CDC. Mr. Lenton will also communicate with City Council/Audit Committee during the planning stages of the audit in accordance with SAS 114. In addition to establishing an effective and efficient communication link with City and CDC personnel, the following will be accomplished: - Dates for audit field work of the various audit examinations will be finalized. Arrangements will be made with City and CDC personnel for the typing of confirmation requests. - We will determine a materiality level for the financial statements taken as a whole for the purpose of: a) Determining the extent and nature of risk assessment procedures b) Identifying and assessing the risks of material misstatement c) Determining the nature, timing, and extent of further audit procedures; and d) Evaluating whether the financial statements are presented fairly in conformity with generally accepted accounting principles - We will perform a risk assessment of the City of National City and the Community Development Commission of the City of National City to comply with the newly issued suite of auditing standards. Our risk assessment will include the following: Understanding the City of National City and Community Development Commission of the City of National City and Its Environment We will gather information about the City of National City and the Community Development Commission of the City of National City and each of its related entities. This will include prior audit reports and current year budgets. Our understanding will include: • External Factors - affecting the City, CDC and its related entities including the State and Federal regulatory environment and environmental requirements that affect the City, CDC, and other related entities. • Nature of City of National City Community Development Commission of the City of National City - its operations, governance, types of investments it makes and plans to make, bonded indebtedness it has or plans to finance. • Strategies and Business Risks - which may result in material misstatement of the financial statements as a whole, or individual assertions • Measurement and Review of Financial Performance - we will determine with management those indictors which City and CDC management believes to be important. 18 SECTION G, (CONTINUED) • Internal Controls - which consists of five components (as identified by SAS #109) a. The Control Environment b. Risk Assessment c. Information and Communication d. Control Activities and e. Monitoring We will focus on the following accounting cycles of the City and CDC: • Cash Receipting at City Hall locations; • Investment Management; • Infrastructure and Capitalization of Assets; • Purchasing; • Accounts Payable and Cash Disbursements Cycle; • Payroll Cycle/Human Resources; • Federal Grant Management; • Information Systems ; • Debt compliance monitoring procedures; and • Internal service fund allocations and overhead cost reimbursements These components may operate at the entity level or the component unit business process activity level. Obtaining an appropriate understanding of internal control will require MHM Auditors to understand and evaluate the design of all five components of internal control and determine whether the controls are in use of the City of National City and the Community Development Commission of the City of National City and its related entities. Performing Risk Assessment and Other Procedures The audit procedures MHM will perform to obtain an understanding of the City of National City and the Community Development Commission of the City of National City and its internal control are referred to as risk assessment procedures. MHM will use the information we obtain by performing risk assessment procedures to support our assessments of the risks of material misstatement. Our risk assessment procedures will include: • Inquiries of management • Analytical procedures • Observation • Inspection of documents Assessing Versus Testing Controls If we have assessed controls as effective based upon our review of their design and an observation that they have been implemented (that is placed in operation) based solely on that assessment, MHM would not necessarily have an adequate basis for considering that control risk if low (or event moderate). As part of our audit strategy MHM would consider further evidence of the effective operation of controls through sufficient tests of controls to reach that conclusion. Financial Statement Level and the Assertion Level Risks MHM will identify and assess the risks of material misstatement at both the financial statement level and relevant assertion level (Reference SAS #109) 19 SECTION G, (CONTINUED) Responding to Assessed Risks The risk assessment process culminates with MHM's articulation of the account balances, classes of transactions or disclosures where material misstatements are most likely to occur given the unique circumstances of the City of National City and the Community Development Commission of the City of National City. This assessment of the risk of misstatement, which relates identified risks to what can go wrong at the assertion level, provides a basis for designing and performing further audit procedures Further audit procedures are defined as tests of controls and substantive tests. Often a combined approach using both tests of controls and substantive procedures (SAS #110) is an effective approach. Identification and Communication of Internal Control Matters The objective of our audit is to form an opinion on the City of National City and the Community Development Commission of the City of National City's financial statements taken as a whole. Our objective is not to identify deficiencies in internal; however when control deficiencies are identified in the course of our audit and if they constitute significant deficiencies or material weaknesses, we will communicate in writing those deficiencies to management and the City Council or Commission of the City of National City and the Community Development Commission of the City of National City. This communication will be in the form stipulated by Statement on Auditing Standards No.115. INTERIM AUDIT PROCEDURES In conjunction with our planning of the engagement, we will perform our interim audit work which will be conducted starting in May 2011. Additional procedures that will be accomplished during our interim audit procedures include the following: 1. Meet with finance staff to inform them of new accounting or auditing standards that will impact the year end close. 2. Reviewing of minutes of the City Council and Community Development Commission 3. Following up on unusual items noted from analytical procedures. (We will perform significant comparison and inquiry regarding fluctuations of revenues and expenditures by fund budgets versus actual). 4. Reviewing the City's and CDC's investments and procedures and performing tests of investment compliance. 5. Reviewing of important contracts, debt issues, leases and joint power agreements. 6. Performing testing of cash disbursements to determine adherence to policies and internal controls. 7. Reviewing the City's appropriations limit calculation worksheets to ensure the limit was computed in accordance with Proposition 111, Article XIIIB. 8. Performing required compliance and internal control testing relating to the federal grant programs of the City and CDC. 9. Providing the City and CDC with suggestions regarding the close of the City's and CDC's books after year end. Our assistance and communication in the closing of the City's and CDC's books is expected to minimize the number of audit adjustments required after the close of the City's and CDC's books. 20 SECTION G, (CONTINUED) YEAR-END SUBSTANTIVE PROCEDURES In mid October ( or after the final closing of the books and preparation of final trial balances by City and CDC personnel for the year ended June 30), we will commence performing our year- end substantive audit. Our final examination will include tests which we deem necessary, including: 1. Confirmation of cash and investment balances. 2. Testing of bank reconciliations. 3. Testing of GASB 40 investment disclosures. 4. Testing of allocations of interest income to the various funds. 5. Examination of support and subsequent receipt (if any) of significant receivable balances. 6. Analytical review of receivable balances 7. Testing of interfund borrowings. 8. Examination of interfund transfers and testing of transfers out of restricted funds. 9. Performing a search for unrecorded liabilities. 10. Testing of significant accrued liability accounts. 11. Testing of long term debt balances and debt covenants. 12. External verifications of bond compliance through the Electronic Municipal Market Access (EMMA) database. 13. Analytical review of interest expense. 14. Consideration of support for compensated absences. 15. Examination of the valuation of claims and judgments. 16. Testing of additions and deletions to capital assets, including infrastructure. 17. Analysis of construction in process balances. 18. Testing of support for other significant assets and liabilities of the City and CDC. 19. Testing for the proper establishment of reserves and designations. 20. Review of significant events after year end (through the completion of our audit). 21. Review of attorney letters for significant legal matters affecting the City's and CDC's financial position. 22. Testing of revenues and expenditures and lesser significant asset and liability balances through analytical procedures and other substantive procedures as necessary. 23. In cases where there are sensitive public policy issues, we modify planning materiality in those areas to perform more extensive auditing procedures. 21 SECTION G, (CONTINUED) The aforementioned tests are only a few of the tests performed during the examination and by no means is it meant to be all inclusive. At the completion of the audits each year, Mr. Lenton and Mr. Inga will meet with the City Manager and Finance Director to review our audit findings and any adjusting journal entries. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS Over the term of the contract, the City and CDC will be required to implement the following accounting standards. The impact and approach to implementing those standards are as follows: GASB Statement No. 54 — Fund Balance Reporting and Governmental Fund Type Definitions During the planning stage of the audit for the year ended June 30, 2011, we will evaluate the City's and CDC's current fund structure and make recommendations for compliance with the new GASB. We will inform the City and CDC of their options and rely on management to determine which changes will be made to either the internal or external reporting of fund balances and fund types. GASB Statement No. 57 — OPEB Measurements by Agent Employers and Agent Multiple - Employer Plans During the planning stage of the audit for the year ended June 30, 2011, we will evaluate the implications of this new standard on the City's OPEB accounting. GASB Statement No. 58 — Accounting and Financial Reporting for Chapter 9 Bankruptcies We do not believe this standard will have any impact on the City or CDC. GASB Statement No. 59 — Financial Instruments Omnibus For the year ended June 30, 2011, we will ensure the City and CDC has proper disclosures related to certain financial instruments and external investment pools. GASB Statement No. 60 — Accounting and Financial Reporting for Service Concession Arrangements For the year ended June 30, 2011, we will evaluate whether or not the City or CDC has any service concession arrangements applicable to this standard. GASB Statement No. 61 — The Financial Reporting Entity For the year ended June 30, 2013, we will evaluate the City's and CDC's potential component units to determine if they should be included in the City's or CDC's reporting entity. GASB Statement No. 62 — Codification of Accounting and Financial Reporting Guidance Contained in Pre -November 30, 1989 FASB and AICPA Pronouncements For the year ended June 30, 2013, we will review the applicability of this standard to the City's and CDC's enterprise funds. 22 SECTION G, (CONTINUED) Data Processing Experience and Capabilities Each audit team in our firm is assigned and utilizes a portable personal computer at the job site. We extensively use the computer in the conduct of our audit and in the preparation of the financial statements. Additionally, each of our audit Seniors are knowledgeable of controls surrounding the EDP environment and assessing the effectiveness of those controls within the audit of the local government. Mayer Hoffman McCann P.C. utilizes CaseWare, a paperless auditing software that organizes audit documentation. We have the ability to accept audit documentation in either electronic or hard copy format. Audit Sampling In accordance with SAS No. 111, Audit Sampling, we will consider the tolerable misstatement and the expected misstatement, the audit risk, the characteristics of the population, the assessed risk of material misstatement, and the assessed risk for other substantive procedures when determining the number of items to be selected in a sample. Analytical Procedures to Improve Understanding of Client Analytical procedures may be used in both general planning and audit program planning. SAS No. 56 describes the two broad uses of analytical procedures in audit planning as follows: • Enhancing the auditor's understanding of the client's business and the transactions and events that have occurred since the last audit date; and • Identifying areas that may represent specific risks relevant to the audit. Comparisons of account balances between accounting periods and ratio and trend analysis usually improve the auditor's understanding of the client and its operations and may identify critical audit areas, e.g., comparing general and special revenue fund expenditures by functions and revenue by source for the past two years provides an understanding of the governmental unit's operations and may identify a revenue source that requires increased attention in the current audit. Consideration of Laws and Regulations Our audit approach recognizes the importance of laws and regulations in planning the audit of a local governmental entity. As a part of the audit, our firm obtains an understanding of those laws and regulations that have a direct and material effect on the determination of financial statement amounts. We then design the audit to provide reasonable assurance of detecting material instances of noncompliance that will have a direct and material effect on the determination of financial statement amounts. 23 SECTION G, (CONTINUED) OMB A-133 SINGLE AUDIT PROCEDURES As a part of our Single Audit for the years in which the entity expends greater than $500,000 in federal funding, we would supplement our approach with the following procedures in performing the single audit. 1. Re -review all pertinent federal and AICPA publications including: • The Single Audit Act Amendments of 1996 (Public Law 104-156) signed into law on July 5, 1996 and effective for the fiscal years ending on or after June 30, 1997. This law amends the Single Audit Act of 1984 (Public Law 98-502) previously applicable to local governments; • OMB Circular A-133 entitled Audits of States, Local Governments, and Non -Profit Organizations; • GAO Government Auditing Standards (Yellow Book), 2007 revision; • AICPA Audit and Accounting Guide Audits of State and Local Government Units and Statement of Position 98-3, Audits of States, Local Governments, and Not -for -Profit Organizations Receiving Federal Awards; • SAS No. 74, Compliance Auditing Considerations in Audits of Governmental Entities and Other Recipients of Federal Financial Assistance; • Revised Compliance Supplement for Single Audits of State and Local Governments; • Catalog of Domestic Assistance Programs; • OMB Circular A-87; and • OMB Circular A-102. 2. Identify the federal programs administered by the City of National City and the Community Development Commission of the City of National City and the amounts expended during the audit period. 3. Apply the risk -based auditing approach mandated by the Single Audit Act Amendments of 1996 (Public Law 104-156) and OMB Circular A-133 entitled Audits of States, Local Governments, and Non -Profits Organizations for the determination of major programs to be selected under the single audit process. As prescribed by the directives of the new single audit requirements, this will involve a consideration of the complexity of the program, prior audit findings, changes in personnel, the competency of personnel, the extent to which sub -recipients are used, the extent of overview and monitoring by granting agencies, the extent of recent changes in program requirements, the newness of the program, the size of the program, and the inherent risk of the program. 4. Identify the oversight audit agency. 5. Identify and list the major compliance supplements and sub recipients of the City and CDC, if any. 6. Review the administrative control systems to ensure compliance. 7. Execute the sampling plan. 24 SECTION G, (CONTINUED) 8. Perform audit procedures for the selected transactions. 9. Test compliance with the applicable 14 compliance areas. 10. Test matching requirements, if any. 11. Test indirect costs, if any. 12. Review reports and claims for advances and reimbursements to the federal government. 13. Review processing of audit reports for state and local government sub recipients. 14. Prepare the independent auditors' reports required by OMB Circular A-133. 15. Prepare the electronic submission of the data collection form required to be filed with the Single Audit Central Clearinghouse. Assistance from City Staff Normal cooperation and assistance from City and CDC staff is expected by the auditors including typing of confirmation requests, and normal year-end PBC ( `prepared by client") schedule preparation (i.e., lead schedules, bank reconciliations, subsidiary support, and other schedules showing the composition of the year end balances of significant assets and liabilities of the City and CDC). We normally use whatever year end supporting schedules the Finance Department is accustomed to preparing for year end. We are extremely flexible in this regard. We would also expect reasonable assistance from City and CDC staff in reproducing permanent files or other documents and refiling requested documentation during the audit examination. Segmentation of the Audit The following is our estimate of the hours by professional staff classification required for the audit and single audit: Professional Hours and Segmentation of Audit Interim Final Total Percentage Shareholders 20 48 68 10% Engagement Manager 24 102 126 19% Field Manager/In-Charge 68 188 252 39% Staff Auditors 68 140 204 31% Total 172 478 650 100% 25 SECTION H OUR FEES AND HOURLY RATES The following is a summary of the estimated hours and fees associated with conducting the audit of the City of National City. Description of Services 2011 1. City audit including Word Processing of Comprehensive Annual Financial Report, GANN Limit Review Procedures, and SAS #114 Communication $32,500 2. Financial and Compliance Audit of the CDC including Kimball Towers 8,000 3. Separate HUD Required A-133 Single Audit of Morgan Towers 7,500 4. GANN Limit Review Procedures 800 5. Citywide A-133 Single Audit of Federal Grants allocable to a. Housing Choice 4,500 b. Other major programs as needed (considers testing of 2 major programs) 4,000 6. REAC electronic Submission to HUD and related attestations 1,250 58 550 We will progress bill the City for the above services as the engagement hours are expended. Final billing will be made upon delivery of the final audit reports. Any special projects, extra work, accounting assistance, or additional assignments will be performed at the standard hourly rates indicated in the accompanying fee schedules. Our fees contemplate conditions satisfactory for the performance of the audit, including the City providing at the start of the audit, trial balances reflecting all year end adjustments, necessary subsidiary schedules supporting asset and liability balances, all necessary reconciliations in agreement with general ledger balances, and customary supporting analyses and schedules. If assistance is needed in preparing year end journal entries or resolving reconciliation issues, we would perform the same at the hourly rates indicated in this cost proposal. If there are changes in the scope of the audit (additional redevelopment compliance requirements, or an elimination of redevelopment agencies based on State legislative actions, added enterprise activity, additional component units, new audit or accounting requirements, etc.), we would discuss these changes with the City Manager and Finance Director and the effect of these changes on the professional audit hours and costs of the engagement. Our fee for the single audit contemplates three major programs. A price adjustment of $2,500 will be made for each additional major program. 26 SECTION H, (CONTINUED) The following is a summary of hourly rates for services that may be required outside the scope of the audit for the 2011: Classification Hourly Rates Shareholders $195 Managers 175 Senior Auditors 135 Staff Auditors 115 The fees applicable to the City are as follows: Description of Services for City of National City 2011 1. City audit including Word Processing of Comprehensive Annual Financial Report, GANN Limit Review Procedures, and SAS #114 Communication $32,500 2. GANN Limit Review Procedures 800 3. Citywide A-133 Single Audit of Federal Grants (considers testing of 2 major programs, but excludes Section 8) 4,000 $37,300 Description of Services for National City CDC 2011 1. Financial and Compliance Audit of the CDC including Kimball Towers 2. Separate HUD Required A-133 Single Audit of Morgan Towers 3. Citywide A-133 Single Audit of Federal Grants allocable to Housing Choice 4. REAC electronic Submission to HUD and related attestations 27 8,000 7,500 4,500 1.250 $21 250 MATTHEW LENTON, CPA ENGAGEMENT SHAREHOLDER California CPA Certificate No. 97111, March 2007 ROLE ON PROJECT Mr. Lenton will serve as the Engagement Shareholder on this project. He will oversee the project to ensure all required deadlines are met, provide technical assistance to the audit teams, and review the final reports before they are released. Mr. Lenton is a Certified Public Accountant with 10 years experience in local government auditing. Mr. Lenton has been a speaker on matters pertaining to technical issues and new GASH pronouncements. PROFESSIONAL EXPERIENCE • 10 years - Mayer Hoffman McCann P.C. (formally Conrad and Associates, LLP) PROFESSIONAL AFFILIATIONS • American Institute of Certified Public Accountants • California Society of Certified Public Accountants • California Society of Municipal Finance Officers EDUCATION • Bachelor of Science - Business Administration/Accounting (California State Polytechnic University, Pomona) AUDITS OF CALIFORNIA CITIES City of Beverly Hills City of Burbank City of Compton City of Highland City of Indian Wells City of Indio City of Inglewood City of Mission Viejo City of Newport Beach City of National City City of Rancho Santa Margarita City of Rancho Mirage City of Upland City of West Covina AUDITS OF SPECIAL DISTRICTS AND HOUSING AUTHORITY'S Desert Recreation District Hass Avocado Board Housing Authority of the City of Los Angeles Lake Arrowhead Community Services District AUDITS OF NONPROFIT ORGANIZATIONS National Childhood Cancer Foundation Beverly Hills Chamber of Commerce Newport Beach Chamber of Commerce Community Service Programs Moulton Niguel Water District San Gabriel Water Quality Authority South Montebello Irrigation District Shelter Partnership California Family Life Center Orange County Conservation Corps New Directions for Women JENNIFER FARR, CPA, MBA TECHNICAL REVIEW SHAREHOLDER California CPA Certificate No. 76292, October 1998 ROLE ON PROJECT Ms. Farr will serve as the Technical Review Shareholder on the engagement. She will provide technical assistance to the audit team and review the final reports before they are released. Ms. Farr is a Certified Public Accountant with 13 years experience in local government auditing. Ms. Fan has been a speaker on matters pertaining to technical issues and new GASB pronouncements. Ms. Fan is also responsible for the firm -wide training for the Government Services Division of MHM in the area of local governmental accounting and auditing. PROFESSIONAL EXPERIENCE • 13 years - Mayer Hoffman McCann P.C. (formally Conrad and Associates, LLP) • 1 h Years - Ronald Blue and Co. PROFESSIONAL AFFILIATIONS • American Institute of Certified Public Accountants • California Society of Certified Public Accountants • California Society of Municipal Finance Officers EDUCATION • Bachelor of Arts - Business Administration/Accounting (California State University, Fullerton) • Bachelor of Arts - English (California State University, Fullerton) • Masters of Business Administration (California State University, Fullerton) AUDITS OF CALIFORNIA CITIES City of Benicia City of Campbell City of Culver City City of Hayward City of Fountain Valley City of Orange City of Pasadena City of San Bruno City of Upland City of Whittier AUDITS OF SPECIAL DISTRICTS Inland Empire Utilities Agency Orange County Sanitation District Moulton Niguel Water District Southern California Assoc of Governments City of Burbank City of Commerce City of Half Moon Bay City of Indian Wells City of Mission Viejo City of Palm Springs City of Rosemead City of Santee City of Walnut Creek City of West Covina Irvine Ranch Water District Orange County Water District Vista Irrigation District Los Angeles Homeless Services Authority FELIZ INGA, CPA MANAGER California CPA Certificate No. 98276, August 2007 ROLE ON PROJECT Mr. Inga will serve as the Manager on the engagement. He will be responsible for the day to day audit field work and review of all audit documentation. Mr. Inga has been assigned responsibility for numerous audits and special assignments. This experience has encompassed financial and compliance audits of governmental and non-profit engagements, which have been performed in accordance with "Government Auditing Standards." Each of these audits has entailed a review of the entity's internal control and financial management system. PROFESSIONAL EXPERIENCE • 5 years - Mayer Hoffman McCann P.C. PROFESSIONAL AFFILIATIONS • American Institute of Certified Public Accountants • California Society of Certified Public Accountants EDUCATION • Bachelor of Arts - Business Economics/Accounting (University of California, Santa Barbara) • AUDITS OF CALIFORNIA CITIES City of Carson City of Compton City of Fountain Valley City of Highland City of Lomita AUDITS OF SPECIAL DISTRICTS City of Laguna Beach City of La Quinta City of Rancho Mirage City of Riverside Inland Empire Utilities Agency West Basin Water District Vista Irrigation District California Joint Powers Insurance Authority Lake Arrowhead Community Services District Public Entity Risk Management Authority Elsinore Valley Municipal Water District Rancho California Water District Cucamonga Valley Water District CARR RIGGS & INGRAM CPAs and Advisors INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors of Mayer Hoffman McCann P.C. Carr. Riggs & Ingram, LLC 4010 N.W. 25th Place Gainesville, Florida 32606 P.G. Box 13494 Gainesville, Florida 32604 (3521372-6300 13521375-1583 (fax) www.cricpa.com We have examined management's assertion regarding the California Municipal Audit Practice of Mayer Hoffman McCann P.C. that: "the system of quality control for the accounting and auditing practice applicable to municipal audits performed by the California offices of Mayer Hoffman McCann P.C. in effect for the year ended October 31, 2010, has been designed to meet the requirements of the quality control standards and requirements set forth in Government Auditing Standards, issued by the Comptroller General of the United States, referred to as generally accepted governmental auditing standards (GAGAS); U.S. generally accepted auditing standards (GAAS); Office of Management and Budget (OMB) Circular.A-133, Audits of States, Local Governments and Non -Profit Organizations, and the California Business and Professional Code. The system of quality control was also complied with during the year ended October 31, 2010, to provide the firm with reasonable assurance of complying with the applicable professional standards" Mayer Hoffman McCann P.C.'s management is responsible for the assertion. Our responsibility is to express an opinion on the assertion based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence supporting management's assertion and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion; however, our examination does not provide a legal determination on compliance with the requirements of specified laws, regulations or rules. In our opinion, management's assertion referred to above is fairly stated, in all material respects, based on the criteria set forth above. (G)vt- Rer n r Gainesville, Florida March 3, 2011 Carr, Riggs & Ingram, LW Harold L. Monk, Jr., CPA, CFE Engagement Partner Experience Harold L. Monk, Jr. is a partner in the firm of Carr, Riggs & Ingram, LLC, in Gainesville, Florida. Born and raised in Gainesville, he graduated from the University of Florida in 1968 majoring in accounting. He worked as an internal auditor for the University of Florida for one year before joining a large local firm in 1969. In 1977, Harold was a founding partner of Davis, Monk & Company which merged with CRI in 2010. Harold is a Certified Public Accountant licensed In Florida and is a Certified Fraud Examiner. Active professionally, Harold is the Immediate past Chair of the Auditing Standards Board of the AICPA. He has served the Florida Institute of Certified Public Accountants as a member of numerous committees, and as a member of the Board of Governors, and as a CPE Discussion Leader. Harold was recognized as an "Outstanding Seminar Leader" for seven years by the FICPA, and was recognized as one of the top twenty instructors nationally for numerous years by the American Institute of CPAs. Harold continues to be an active speaker throughout the country on accounting and auditing issues. He has also served as a technical investigating officer for the Florida State Board of Accountancy. For several years, he chaired the joint task force for the Auditor General's office and the Florida State Board of Accountancy responsible for reviewing governmental audits filed within the State. In 2002 US Comptroller General Davis Walker appointed him the Advisory Council for the GAO. Harold is the 2010 recipient of the AICPA's Gold Medal for Distinguished Service, the highest award the AICPA gives to a member. Numerous articles authored by Harold have been featured in state and national publications and he has authored or co-authored "Advanced Auditing for Partners and Managers" (AICPA), "Compliance Auditing" (AICPA), "Guide to Single Audits" (PPC), "Audits of Local Governments" (PPC), "Preparing Non Profit Financial Statements" (PPC), "Annual Accounting and Auditing Update" (PPC) and "Maximizing Single Audit Efficiency" (PPC). Education BSBA, Accounting, University of Florida Professional Affiliations American Institute of Certified Public Accountants (AICPA) Florida Institute of Certified Public Accountants (FICPA) 1 of 2 Carr, Riggs & Ingram, LLC Continuing. Professional Education FICPA State and Local Government Conferences (2010, 2009) Tennessee Accounting & Auditing Symposium (speaker) AICPA Government Accounting & Auditing Update (2010, 2009) CRI Governmental Update FICPA University of Florida Accounting Conference (speaker) Louisiana Accounting & Auditing Conference (speaker) 2 of 2 Carr, Riggs & Ingrain, LLC Martha Garcia -Baker, CPA Engagement Partner Experience Martha Garcia -Baker is an Audit Partner in the Gainesville office of CRI. Martha graduated from the University of Florida in 1986 with a Master of Accounting and has successfully completed the Governmental Accounting Certificate of Educational Achievement Program awarded by the American Institute of Certified Public Accountants. Since joining Davis, Monk & Company, which merged with CRI in January of 2010, Martha has been primarily involved in all aspects of accounting, auditing and financial reporting of governmental entities. She is a member of the American Institute of Certified Public Accountants, the Florida Institute of Certified Public Accountants, the Government Finance Officers Association, and the Florida Government Finance Officers Association. Martha has served on various committees of FICPA and is currently a member of the FICPA State and Local Government Committee. She is a past - president of the North Central Florida Chapter of the FICPA. Martha has, for the past twenty-two (22) years, supervised and performed numerous governmental audits including Alachua, Putnam, Dixie, Levy, Baker, Sumter, St. Johns and Gilchrist Counties. Her degree of involvement has been from staff to partner levels. She has also provided government consulting services to the Clay, Nassau, Putnam and Suwannee Counties. Martha has been active In providing assistance in the preparation of budgets, solid waste/full cost accounting disclosures and advance refundings. She has performed several agreed -upon procedures engagements regarding compliance issues related to governmental entities. Education BSBA, Accounting, University of Florida MA, Accounting, University of Florida Continuing Professional Education Update on Government Compliance Government Accounting & Auditing Update Single Audit Update Implementation of New Risk Assessment Standards Accounting & Auditing Update Professional Affiliations American Institute of Certified Public Accountants (AICPA) Florida Institute of Certified Public Accountants (FICPA) Florida Government Finance Officers Association (FGFOA) k\JCRI Alan G. Nast., CPA Alan Nast has over 35 years of public, private and governmental accounting and auditing experience. He is also one of only three experts used by the Florida State Board of Accountancy to review governmental audit reports In consultation with the Auditor General's Office. Alan is past -president of the North Central Florida Chapter of the FICPA. He is also a Rotarian and a member of the Gainesville Area Chamber of Commerce. Alan currently serves on the FICPA's State and Local Government Committee. He is a former member of the FICPA's Government Standards Review Committee, the FGFOA's Technical Resources Committee and the AICPA's prestigious Governmental Accounting and Auditing Committee, where he was instrumental in helping to develop the AICPA's Audit and Accounting Guide, Audits of State and Local Governmental Units. Alan teaches accounting and auditing to other Certified Public Accountants throughout the State of Florida and the United States. Of particular relevance is a course entitled "Auditing and Reporting on Local Governments in Florida," for which he was twice recognized as an "Outstanding Discussion Leader" by the Florida Institute of CPAs. He also has made numerous presentations related to governmental auditing and accounting Alan has been with Davis, Monk & Company, which merged with CRI in 2010, for over 29 years. Education BSBA, Accounting, University of Florida Continuing Professional Education Update on Government Compliance Government Accounting & Auditing Update Single Audit Update Implementation of Paperless Audit Software Implementation of New Risk Assessment Standards Accounting & Auditing Update Professional Affiliations American Institute of Certified Public Accountants (AICPA) Florida Institute of Certified Public Accountants (FICPA) Governmental Finance Officers Association (GFOA) Florida Government Finance Officers Association (FGFOA) AICPA PEER REVIEW REPORT Davis, Kinard & Co.. P.C. Certified Public Accnuntaribi September 26, 2008 To the Shareholders of Mayer Hoffman McCann P.C. and the Center for Public Company Audit Firms Peer Review Committee First Financial Bank Building 400 Pine Street, Suite 600 Abilene, Texas 79601-5138 Office (325) 672-4000 FAX (325) 672-7049 1-800-588-2525 We have reviewed the system of quality control for the accounting and auditing practice of Mayer Hoffman McCann P.C. (the firm) applicable to non -SEC issuers in effect for the year ended April 30, 2008. The firm's accounting and auditing practice applicable to SEC issuers was not reviewed by us since the Public Company Accounting Oversight Board (PCAOB) is responsible for inspecting that por- tion of the tinn's accounting and auditing practice in accordance with PCAOB requirements. A system of quality control encompasses the firm's organizational structure and the policies adopted and proce- dures established to provide it with reasonable assurance of complying with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (the AICPA). The design of the system, and compli- ance with it, are the responsibilities of the firm. Our responsibility is to express an opinion on the design of the system, and the firm's compliance with that system based on our review. Our review was conducted in accordance with standards established by the Peer Review Committee of the Center for Public Company Audit Firms and included procedures to plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessar- ily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it since it was based on selective tests. Because there are inherent limitations in the effectiveness of any system of quality control, departures from the system may occur and not be detected. Also, projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or that the degree of compli- ance with the policies or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice applicable to the non -SEC issuers of Mayer Hoffman McCann P.C. in effect for the year ended April 30, 2008, has been designed to meet the requirements of the quality control standards for an accounting and auditing prac- tice established by the AICPA, and was complied with during the year then ended to provide the firm with reasonable assurance of complying with applicable professional standards. As is customary in a system review, we have issued a letter under this date that sets forth comments relat- ing to certain policies and procedures or compliance with them. The matters in the letter were not con- sidered to be of sufficient significance to affect the opinion expressed in this report. f" DAVIS, KINARD & CO., P.C. FOR MORE INFORMATION CONTACT: American Institute of Certified Public Accountants 220 Leigh Farm Road Durham, North Carolina 27707-8110 R The(C PA) Never Underestimate The Value. Attachment to the Peer Review Report of Mayer Hoffman McCann P.C. Description of the Peer Review Process Overview Firms enrolled in the AICPA Center for Public Company Audit Firms (the Center) Peer Review Program have their system of qual- ity control periodically reviewed by independent peers. These reviews are system and compliance oriented with the objective of evaluating whether: The reviewed firm's system of quality control for its accounting and auditing practice applicable to non -SEC issuers has been designed to meet the requirements of the Quality Control Standards established by the AICPA. The reviewed firm's quality control policies and procedures applicable to non -SEC issuers were being complied with to provide the firm with reasonable assurance of complying with professional standards. A peer review is based on selective tests and directed at assessing whether the design of and compliance with the fitm's system of quality control for its accounting and auditing practice applicable to non -SEC issuers provides the firm with reasonable, but not absolute, assurance of complying with professional standards. Consequently a peer review on the firm's system of quality control is not intended to, and does not, provide assurance with respect to any individual engagement conducted by the firm or that none of the financial statements audited by the firm should be restated. The Center's Peer Review Committee (PRC) establishes and maintains peer review standards. At regular meetings and through report evaluation task forces, the PRC considers each peer review, evaluates the reviewer's competence and performance, and. examines every report, letter of comments, and accompanying response from the reviewed firm that states its corrective action plan before the peer review is finalized. The Center's staff plays a key role in overseeing the perfonnance of peer reviews work- ing etec.1y "itb the pre• review tams and the PPC. Once the PRC accepts the peer review reports, letters of comments, and reviewed firms' responses, they are maintained in a file available to the public. In some situations, the public file also includes a signed undertaking by the firm agreeing to specific fol- low-up action requested by the PRC. Firms that perform audits or play a substantial role in the audit of one or more SEC issuers, as defined by the Public Company Accounting Oversight Board (PCAOB), are required to be registered with and have their accounting and auditing practice appli- cable to SEC issuers inspected by the PCAOB. Therefore, we did not review the finn's accounting and auditing practice applica- ble to SEC issuers. Planning the Review of the Firm's Accounting and Auditing Practice Applicable to Non -SEC Issuers To plan the review of Mayer Hoffman McCann P.C., we obtained an understanding of (I) the nature and extent of the firm's accounting and auditing practice, and (2) the design of the finn's system of quality control sufficient to assess the inherent and control risks implicit in its practice. Inherent risks were assessed by obtaining an understanding of the firm's practice, such as the industries of its clients and other factors of complexity in serving those clients, and the organization of the finn's personnel into practice units. Control risks were assessed by obtaining an understanding of the design of the firm's system of quality control, including its audit methodology, and monitoring procedures. Assessing control risk is the process of evaluating the effectiveness of the reviewed firm's system of quality control in preventing the performance of engagements that do not comply with profes- sional standards. Performing the Review of the Firm's Accounting and Auditing Practice Applicable to Non -SEC Issuers Based on our assessment of the combined level of inherent and control risks, we identified practice units and selected engage- ments within those units to test for compliance with the finn's system of quality control. The engagements selected for review included engagements performed under Government Auditing Standards, audits of Employee Benefit Plans and audits of engage- ments subject to the Federal Deposit Insurance Corporation Improvement Act. The engagements selected for review represented a cross-section of the firm's accounting and auditing practice with emphasis on higher -risk engagements. The engagement reviews included examining working paper files and reports and interviewing engagement personnel. The scope of the peer review also included examining selected administrative and personnel files to determine compliance with the firm's policies and procedures for the elements of quality control pertaining to independence, integrity, and objectivity; per- sonnel management; and acceptance and continuance of clients and engagements. Prior to concluding the review, we reassessed the adequacy of scope and conducted an exit conference with firm management to discuss our findings and recommendations. Davis Kinard & Co., P.C. Certified Public Accountants September 26, 2008 First Financial Bank Building 400 Pine Street, Suite 600 Abilene, Texas 79601-5138 Office (325) 672-4000 FAX (325) 672-7049 1-800-588-2525 To the Shareholders of Mayer Hoffman McCann P.C. We have reviewed the system of quality control for the accounting and auditing practice of Mayer Hoffman McCann P.C. (the firm) applicable to non -SEC issuers in effect for the year ended April 30, 2008, and have issued our report thereon dated September 26, 2008. The matters described below were not considered to be of sufficient significance to affect the opinion expressed in that report, which should be read in conjunction with this letter. Engagement Performance Comment — The firm's quality control policies and procedures require the engagement shareholder, among others, to review the firm's reports and engagement documentation for compliance with professional standards prior to report issuance. We noted instances where it was evident that a careful review was not performed. As a result, in several situations (1) the report issued did not contain all of the language required by professional standards and/or the circumstances, and (2) management representation letters were not appropriately tailored to the engagement. None of the deficiencies noted were of such significance, however, to require additional action by the firm. Recommendation — We recommend the firm reemphasize to all professionals, particularly engagement shareholders, the importance of carefully reviewing the firm's reports and engagement documentation, as required by the firm's quality control policies and procedures, to ensure that the reports and documentation comply with professional standards. Further, we recommend this matter be given additional emphasis as a part of the firm's monitoring procedures. to Jac E co, ?,C - DAVIS, KINARD & CO., P.C.