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1987-115-Authorizing Negotiation And Execution Of An Agreement Between The Town And Pannell Kerr ForsterRESOLUTION NO. 1987 -115 A RESOLUTION AUTHORIZING NEGOTIATION A14D EXECUTION OF AN AGREEMENT BETWEEN THE TOWN OF LOS GATOS AND PANNELL KERR FORSTER BE IT RESOLVED by the Town Council of the Town of Los Gatos that the Town Manager is authorized and hereby directed to negotiate and execute an Audit Services Agreement between the Town of Los Gatos and PANNELL KERR FORSTER. PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 17th day of August 1987 by the following vote. AYES: COUNCIL MEMBERS Joanne Benjamin Eric Carlson- Robert Hamilton & Mayor Brent Ventura NOES: COUNCIL MEMBERS None ABSTAIN: COUNCIL MEMBERS None ABSENT: COUNCIL MEMBERS Thomas Ferrito n /9 SIGNED: MAYOR OF THE TOWN OF LOS GATOS ATTEST: LER� E TOWN OF LOS GA AN AGREEMENT BETtlEEN THE TOWN OF LOS GATOS AND PANNELL KERR FORSTER THIS AGREEMENT, r1a"I and entered into this day of 1987, by and between the TOWN OF LOS GATOS, a mum 9 pal corporation o tie tate of California, hereinafter referred to as "TOWN ", and PANNELL KERR FORSTER, whose offices are 425 California Street, 18th Floor, San Francisco, CA 94iO4, hereinafter referred to as "AUDITORS ": W I T N E S S E T H: IT IS HEREBY MUTUALLY AGREED AS FOLLOWS: 1. Term of Agreement: This Agreement shall cover services rendered pertaining to the fiscal year ending June 30, 1987. The TOWN retains the option of extending this Agreement twice, for periods of one (1) year, to cover services pertaining to the fiscal year ending June 30, 1988, and to the fiscal year ending June 30, 1989. Unless the TOWN specifically notifies AUDITORS within sixty (60) days of receipt of AUDITOR'S report of a decision to cancel this Agreement, the Agreement shall remain in effect for the additional year. Conduct of Audit: a. Audit Scope and Work Plan: AUDITORS shall conduct examinations of the books, records, accounts an inancia transactions of all offices, departments, and funds of TOWN for the fiscal year ending June 30, 1987, and subject to extension of the Agreement, for the fiscal year ending June 30, 1988, and the fiscal year ending June 30, 1989. Examination(s) shall be done in accordance with generally accepted auditing standards, including, to the extent necessar� and practicable, the audit standards adopted and the procedures recommended by the American institute of Certified Public Accountants in its audit guide entitled Audits of State and Local Governmental Units, as further defined by the National Committee on Governments Accounting in its publication entitled Governmental accounting, Auditing and Financial Reporting, as amended, and ,3overnmenta Accounting Stan ar s Boar tatement 1-1, inc usive, and suosequent statements as may be issued from time to time.Audit of the Transit Assist Program will be done in accordance with Article 4.5 of the Transportation Development Act and the allocation instructions of the Metropolitan Transportation Commission. Audits referenced in this section will include a separate audit report of the Transit Assist Program and a separate audit report of the TOWN Retirement Plan. b. Examination of Financial Statements: AUDITORS shall examine the general purpose combined balance sheet of all fund types and account groups of the TOWN of Los Gatos at June 30, 1987, 1988 and 1989 and the related statements of revenues, expenditures /expenses, and changes in fund balances /retained earnings and changes in financial position of the proprietary funds for the years then ended. Examinations shall be made in accordance with generally accepted auditing standards and shall, accordingly, include such tests of the accounting records and such other auditing procedures as AUDITORS consider necessary in the circumstances. The purpose of the examinations is to render an independent accountant's opinion on the fairness of the TOWN'S financial state!aents in relationship to generally accepted accounting principles and the consistency of the application of such principles. The T014N understands that these examinations, due to limitations in the auditing processes, cannot be relied upon to discover fraud, defalcations, or irregularities, should any exist. However, any such matters coming to AUDITORS' attention shall be communicated to TOWN. C. Examination on Compliance with Federal Laws and Regulations: in accordance with the Single Audit Act and OMB Circular A -128, AUDITORS propose to perform a compliance audit of federal assistance programs of the TOWN OF LOS GATOS for the years ending June 30, 1987, 1988 and 1989. Examinations shall be made in accordance with generally accepted auditing standards, pursuant to the requirements contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issue y the U.S. Genera Account15a Office, the Single Audit Act of , and the provisions of OMB Circular A -128, Audit of State and Local Governments. AUDITORS shall apply procedures to determine if the TOliN has complied with Laws and regulations to determine whether there have been events of non- conpliance that may have a material effect on the financial statements. The nature and extent of such tests shall be solely determined as a matter of ;AUDITORS professional judgement. Examples of the types of compliance procedures that might be performed include: Tracing the appropriations in the adopted budget to the budget status report to determine if appropriation amounts are correctly recorded in the accounting system and resultant financial statements. Reviewing expenditure reports to determine if appropriations have been violated (exceeded). Examining transfers between funds to determine if they have been authorized. ° Testing expenditures /cash disbursements to determine if they were properly authorized uses of resources. ° Testing cash receipts /revenues to determine if they were accounted for in the proper funds and accounts; especially those restricted externally for certain uses. Reviewing the municipal improvement, parks and special assessment bond indentures to select for compliance testing covenants relating to the establishment of accounts, reserve levels, and repayment. Testing investment transactions to determine if they conform with the TOWN'S investment policy. ° Testing purchases to determine adherence to the TOWN'S purchasing policies. -2- Tire Single Audit Act requires AUDITOR to extend auditing procedures to all malfor federal assistance programs as well as non -major federal assistance ;rrn r °',.i trans,ction , e TOV; OF LOS GATCS, ma7or�edera1 assistance programs are any Federal Program for which total expenditures of federal financial assistance exr,,eei! a3'.'.il ,vil:i in :: 'fiscal year, The following programs will require a compliance audit at June 30, i937�);munity Development Slocl; "rants, Revenue Sharing Program, and Federal Aid irUan IFrUi. For each major Program identified, AUDITORS shall perform a compliance audit in accordance � -aith the Single Audit Act of 1984 and OMB Circular A -128. These documents envision would: Test compliance with AUDITORS general requirements outlined in lVP's supplement. eS compliance n ch the specific program requirements Set forth 'n ne 'd ppleFle nt. ner.1 .Or.P_rn pr hit4tion of spending federal funds for )o! foal 3C7,':v1Cy, payrdent gf prevalling wages, rights, cas'n management, relocation assistance and the aaequacy of federal financial reports. However, AUDITORS are expected to use judgement and expand the compliance tests for particular programs as necessary; for example, if a grant has agreed upon special conditions. The specific compliance tests relate to the types of services allowed, eligibility, matching, reporting,-and special tests prescribed by OMB. In addition, AUDITORS are required to conduct tests of transactions of major programs n determine if the costs are allowable under the provisions of each program. AUDITORS are also required to test for compliance as to cost allowability any transactions of non -major programs selected for testing in regular examination of the TOMI'S financial statements. This expands ordinary tests of transactions as each transaction must ee identified as to whether or not it pertains to any federal assistance program. AUDITOR is required to report in compliance findings any instances of non - compliance brought to AUDITOR'S attention as a result of applying the above Procedures and to question any program costs which AUDITORS believe are (1) unallowable, (2) undocumented, (3) unapproved, or (4) unreasonable costs. In connection with compliance examination, AUDITORS shall also render a report on supplementary information in the Schedule of Federal Financial Assistance. AUDITORS will subject the information in the schedule to the auditing procedures applied in examination of the general purpose financial statements to determine if such supplementary information is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. It is understood that AUDITOR'S compliance testing can not be relied upon to disclose all instances of non - compliance due to inherent limitations in the auditing process. Instances of fraud, abuse, non - compliance with laws or regulations, or illegal acts coming to AUDITOR'S attention will be communicated to TOWN. -3- d. Study and Evaluation of Svstem of Internal Accounting Control: AUDITORS shall perform a study and eva uation o interna contro s accounting and administrative) as part of examination of the general purpose financial statements as required by the Single Audit Act and the Office of (Management and Budget (OMB) Circular A -128. The purpose of this study and evaluation is to determine the nature, timing, and extent of auditing procedures necessary for expressing an opinion on the TOWN'S financial statements and to determine if the TOWN has internal control systems to provide reasonable assurance that it is managing its federal financial assistance programs in accordance with applicable laws and regulations. To fulfill this requirement AUDITORS will: ° Identify the significant elements of the system of internal control. Identify the controls evaluated and those that were not, ° Perform tests of compliance with the controls to determine if the controls are functioning in accordance with prescribeu procedures. Report material weaknesses identified as a result o our study, evaluation and tests. ° Report material weaknesses on internal controls related to federal financial assistance programs. It is understood that AUDITOR'S evaluation cannot be relied upon to disclose all weaknesses in internal controls due to inherent limitations in the auditing process. e. Transit Assist: ".UDITORS shall examine the statement of revenues ana expenditures of the Transportation Development Act Program, Article 4.5, of the TOWPI OF LOS GATOS for the fiscal vears ending June 30, 1987, 1988 and 1989. The purpose of examination is to determine if the financial statement of operations is presented fairly in accordance with generally accepted accounting ;:rinciples. f. retirement Plan: AUDITORS will examine the statement of assets and members' equity of the N 07 LOS GATOS Retirement Plan as of June 30, 1987, 1988 and 1989 and the related statement of changes in members' equity for the years then ended. Examinations of the defined contribution plan financial statements shall be made in accordance with generally accepted auditing standards the purpose of which is to enable us to express an independent accountant's opinion on the fairness of the plan's financial statements in relationship to generally accepted accounting principles and their consistency of application. g. Special Audits: AUDITORS shall conduct special audits on specific functional areas as may be requested by the TOWN. The compensation for these services will be billed at the hourly rate, as stated on p. 28 of the AUDITORS' proposal dated June 30, 1987, and attached as Exhibit "A ". h. In connection with the examination of the financial statements, the AUDITORS shall conduct a review of the systems of internal accounting control, the accounting procedures employed by the TOWN, including the TOWN'S data processing, and related compliance with the laws, rules, and regulations, and shall submit to the TOWN a separate comprehensive report in letter form detailing their findings, observations, opinions, comments, or recommendations resulting from said review, i. Date(s) of Audit(s): AUDITORS shall perform audit(s) as soon as the TOWN'S accounts are ready after t e close of the fiscal year. TOWN shall complete its closing of fiscal year activities no later than July 31. Audit to be completed within ninety (90) days after the closing of fiscal year activities, except for the audit period ended June 30, 1987. 3. Availability of Town Records: Any and all TOWN records necessary for the conduct of this examination shall be made available to AUDITORS by TOWN, and 4UUITORS shall be entitled to use any and all internal audits and records of TOWN as may be necessary or convenient for the performance of this Agreement. ud, ?epor A.LLITORS shall submit audit report(s) and management letter(s) within ninety (90) days following the closing of the TOWN'S books and -,c�ounrs, Tile audit report shall contain AUDITORS' opinion, the financial statements, and related footnotes. AUDITORS shall submit twenty (20) conies of each audit report and management letter. AUDITORS shall type, print, and assemble the financial statements. It is expected that the completed audit would be submitted to the Town by September 30th of 1988 and 1989. It is anticipated that the 1986 -87 audit will be submitted to the Town by November 15th, 1987. 5. Compensation for Audit: AUDITORS shall be compensated for the provision of services outlined herein un er Paragraphs 1 through 4 (pertaining to the audit) as follows: Town of Los Gatos Single Audit Retirement Plan Transit Assist Program 1987 1988 1989 $31,000 $21- 31,000 $21- 31,000 It is agreed that the fees for the June 30, 1988 and 1989 fiscal years are subject to review and negotiation with a minimum fee of $21,000 for each fiscal year based upon the actual audit hours required, however, in no circumstances shall the maximum fee be greater than $31,000. In all cases, total annual compensation shall be inclusive of labor, travel, report preparation and printing, and other expenses. Upon completion of each year's audit, TOWN shall make a determination as to the satisfactory completion of said audit, and shall make payment of the invoice within thirty (30) days after the receipt of said invoice. -5- 6. Additional Services: During the audit process, should extraordinary circumstances arise Thick would warrant more intensive and detailed services be performed, the firm siali provide all facts related to the extraordinary circumstances, and the estimated costs of additional services. There will be no payment for additional services performed without prior written approval of the := Manager and Council. However, should the firm's hours decrease (i.e. TOWN staff prepares additional schedules or typing), the Town Manager may substitute additional services, so long as the total annual compensation is not exceeded. 7. Audit Staffing: Terry E. Krieg will be the on -site Supervisor}dur jn:ie period o this agreement as per page 30 of the audit proposal.0 �� ` _13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first written above: PANNELL KERR FORSTER: 9 t _------ s��� TTY. APPROVED AS 70 M: s ,-ary o L ire 0' Attorney ATTEST: 1 AT AAllag, own ;erK N TOWN OF LOS SATOS: .��q - Deborah Swarttager, Town'Iia r I E)M BIT "A" VI. COST 6.1 Hourly Billing Rates The billing rates of our audit staff are: Staff Level Partner Manager Senior Assistant 6.2 Cost Breakdown Hourly Rate $150 100 50 37 Estimate of Total Time and Total Fee (less adjustment) (8,720) $31,000 6.3 Maximum Fees for Three Years Our maximum fees for each of the three fiscal years is: Fiscal Year Ending June 30 Maximum Audit Fee 7" 1987 $31,000 1988 $21,000 - $39,600-31,Do0 1989 $21,000 - $3&rQW 31,000 It is agreed that the fees for the June 30, 1988 and 1989 fiscal years are subject to negotiation with a minimum fee of Estimated Hourly Staff Level Hours Billing Rate Per Diem Partner 24 $150 $ 3,600 Manager 142 $100 14,200 Senior 320 3 50 16,000 Assistant 160 $ 37 5,920 646 39,720 (less adjustment) (8,720) $31,000 6.3 Maximum Fees for Three Years Our maximum fees for each of the three fiscal years is: Fiscal Year Ending June 30 Maximum Audit Fee 7" 1987 $31,000 1988 $21,000 - $39,600-31,Do0 1989 $21,000 - $3&rQW 31,000 It is agreed that the fees for the June 30, 1988 and 1989 fiscal years are subject to negotiation with a minimum fee of JU 6IIBIT "B" VII. AUDIT STAFFING 7.1 Audit Staff Assignments Personnel in our San Francisco office that will be assigned to provide services to the Town of Los Gatos include: Name Dudley R. Syler Terry E.. Krieg To be assigned To be assigned Position Partner, CPA Manager, CPA Senior Audit assistant Years Experience 1s 13 2 Less than 1 year Pannell Kerr Forster agrees that the personnel listed above will actually work on the audit unless subsequent employment termination dictates otherwise. No more then one first —year staff person will be assigned. If the assigned personnel leave- our employment,. we will provide replacement personnel with comparable experience and grade. The on —site supervisor shall be Mr. Terry Krieg,. CPA and "Sanger with 13 years experience providing auditing, account- ing and consulting services to governments. Mr. Krieg will be the lead person on all services rendered to the Town of Los Gatos during the three year period ending June 30, 1989. ti.