14 Staff Report.Chavan & Associates First Amendment with Attachments
PREPARED BY: Eric Lemon
Finance and Accounting Manager
Reviewed by: Town Manager, Town Attorney, and Assistant Town Manager
110 E. Main Street Los Gatos, CA 95030 ● 406-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 4/2/2024
DATE: March 26, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Chavan & Associates Agreement:
a. Authorize the Town Manager to Execute a First Amendment with
Chavan & Associates, LLP. for Auditing Services Adding Transportation
Development Act Audit Services and Increasing the Compensation by
$15,500 for a Total Agreement Not to Exceed $132,500; and
b. Authorize an Expenditure Budget Adjustment in the Amount of
$10,500 from the Available General Fund Capital/Special Projects
Reserve.
RECOMMENDATION:
Staff recommends that Town Council authorize:
a. The Town Manager to execute a first amendment with Chavan & Associates, LLP. for
auditing services adding transportation development act audit services and increasing
the compensation by $15,500 for a total agreement not to exceed $132,500; and
b. An expenditure budget adjustment in the amount of $10,500 from the available General
Fund Capital/Special Projects Reserve.
BACKGROUND:
In 2021, the Town of Los Gatos issued a Request for Proposal (RFP) for qualified independent
certified public accounting firms to audit its annual financial statement for three fiscal years(FY
2021/22, 2022/23, and 2023/24), with an option to extend the agreement an additional two
fiscal years with Town Council approval.
Based upon the proposals, interviews and reference checks, Town staff, in consultation with the
Finance Commission, selected Chavan & Associates, LLP. On December 21,2021, the Town
Council received the Finance Commission recommendation and authorized the Town Manager
to execute a three-year agreement with Chavan & Associates, LLP.
PAGE 2 OF 3 SUBJECT: Chavan & Associates Agreement DATE: March 26, 2024
DISCUSSION:
With this first amendment, the Town would continue its current arrangement with Chavan &
Associates, LLP to provide auditing services and amend the scope of services and compensation
in the contract to include required Transportation Development Act audits.
CONCLUSION:
Staff recommends that the Council authorize:
a. The Town Manager to execute a first amendment with Chavan & Associates, LLP. for
auditing services adding transportation development act audit services and increasing
the compensation by $15,500 for a total agreement not to exceed $132,500; and
b. An expenditure budget adjustment in the amount of $10,500 from the available General
Fund Capital/Special Projects Reserve.
FISCAL IMPACT:
Transportation Development Act audits were not budgeted in Fiscal Year 2023/24. As a result,
a FY 2023/24 expenditure budget adjustment in an amount of $10,500 from the available
General Fund Capital/Special Projects is necessary to engage in these services. The remaining
increase in contract amount of $5,000 is for auditing services incurred in FY 2024/25 and will be
included in the FY 2024/25 Proposed Operating Budget.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. First Amendment with Chavan & Associates, LLP
2. Engagement Letter for TDA Audits
3. Original Agreement with Chavan & Associates, LLP
1 of 2
Chavan & Associates, LLP. – First Amendment
1st AMENDMENT TO AGREEMENT
This AMENDMENT TO AGREEMENT is dated for identification this 2nd day of April, 2024 and amends that certain agreement for Auditing Services dated 1/12/2022, made by and between the Town of Los Gatos, ("Town,") and the Chavan & Associates, LLP. (“Consultant.”)
RECITALS
A.Town and Consultant entered into an Auditing Services Agreement on 1/12/2022,
(“Agreement”), a copy of which is attached hereto and incorporated by reference as
Attachment 1 to this Amendment.
B.Town desires to amend the Agreement to update the scope of work and compensation
sections.
AMENDMENT
1.Section 2.1, “Scope of Services” is amended to include the additional services described in
that certain proposal sent to the Town on October 8, 2021 and Engagement letter datedMarch 25,2024, which is hereby incorporated by reference and included as attachments 1
and 2, respectively.
2.Section 2.6, “Compensation” is amended to read Compensation for the consultant’sprofessional services will be increased by $15,500 for total agreement that shall not exceed $132,500, inclusive of all costs. Payment shall be based upon Town approval of each task.
3.All other terms and conditions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the Town and Consultant have executed this Amendment.
Town of Los Gatos Approved as to Consent:
By: _______________________________ By: ______________________________
Laurel Prevetti, Town Manager Chavan & Associates, LLP
Department Approval:
_______________________________________
Gitta Ungvari
Director of Finance
Attachment 1
2 of 2 Chavan & Associates, LLP. – First Amendment
Approved as to Form: Attest:
______________________________ ______________________________
Gabrielle Whelan, Town Attorney Wendy Wood, CMC, Town Clerk
Page | 1 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
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March 25, 2024
Town of Los Gatos
110 E. Main Street
Los Gatos, CA 95030
We are pleased to confirm our understanding of the services we are to provide for the Town of
Los Gatos (the “Town”)for the fiscal years ending June 30, 2017, 2020, 2021, 2022 and 2024.
We will audit the Transportation Development Act (TDA) financial statements and the related
notes to the TDA financial statements for each fiscal year then ended. This includes the annual
fiscal audit as required by PUC Section 99245. Our audit will be conducted with the objective of
our expressing an opinion on each opinion unit and an opinion on compliance regarding the
Town’s compliance with the regulations of the Transportation Development Act, including
section 6666 of Title 21, of the California Code of Regulations, and the allocation instructions
and resolutions of the Metropolitan Transportation Commission.
Audit of the Financial Statements
We will conduct our audit in accordance with auditing standards generally accepted in the United
States of America (U.S. GAAS),and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States of
America (GAGAS). Those standards and the Uniform Guidance require that we plan and perform
the audit to obtain reasonable assurance about whether the basic financial statements are free
from material misstatement. An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to error, fraudulent financial reporting, misappropriation of
assets, or violations of laws, governmental regulations, grant agreements, or contractual
agreements.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.If appropriate, our procedures will therefore
include tests of documentary evidence that support the transactions recorded in the accounts. As
part of our audit process, we will request written representations from your attorneys, and they
may bill you for responding. At the conclusion of our audit, we will also request certain written
representations from you about the financial statements and related matters.
Because of the inherent limitations of an audit, together with the inherent limitations of internal
control, an unavoidable risk that some material misstatements or noncompliance (whether caused
by errors, fraudulent financial reporting, misappropriation of assets, detected abuse, or violations
of laws or governmental regulations) may not be detected exists, even though the audit is
properly planned and performed in accordance with U.S. GAAS and Government Auditing
Standards of the Comptroller General of the United States of America.Please note that the
Attachment 2
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determination of abuse is subjective and Government Auditing Standards does not require
auditors to detect abuse.
In making our risk assessments, we consider internal control relevant to the Town’s preparation
and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Town’s internal control. However, we will communicate to you in writing
concerning any significant deficiencies or material weaknesses in internal control relevant to the
audit of the financial statements that we have identified during the audit.Our responsibility as
auditors is limited to the period(s) covered by our audit and does not extend to any other periods.
We will issue a written report upon completion of our audit of the Town’s basic financial
statements. Our report will be addressed to the governing body of the Town. We cannot provide
assurance that unmodified opinions will be expressed. Circumstances may arise in which it is
necessary for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If
our opinions on the basic financial statements are other than unmodified, we will discuss the
reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable
to form or have not formed opinions, we may decline to express opinions or to issue a report as a
result of this engagement.
In accordance with the requirements of Government Auditing Standards, we will also issue a
written report describing the scope of our testing over internal control over financial reporting
and over compliance with laws, regulations, and provisions of grants and contracts, including the
results of that testing. However, providing an opinion on internal control and compliance over
financial reporting will not be an objective of the audit and, therefore, no such opinion will be
expressed.We also will perform tests and procedures required by the regulations of the
Transportation Development Act, including section 6666 of Title 21, of the California Code of
Regulations, and the allocation instructions and resolutions of the Metropolitan Transportation
Commission.
Audit of TDA Compliance
Our audit of the Town’s compliance will be made in accordance with the requirements of the
regulations of the Transportation Development Act, including section 6666 of Title 21, of the
California Code of Regulations, and the allocation instructions and resolutions of the
Metropolitan Transportation Commission; and will include tests of accounting records and other
procedures we consider necessary to enable us to express such an opinion on TDA program
compliance and to render the required reports. We cannot provide assurance that an unmodified
opinion on compliance will be expressed. Circumstances may arise in which it is necessary for us
to modify our opinion or withdraw from the engagement.
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Tel: 408-217-8749 • E-Fax: 408-872-4159
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Management’s Responsibilities
Our audit will be conducted on the basis that management acknowledge and understand that they
have responsibility:
1.For the preparation and fair presentation of the financial statements in accordance with
accounting principles generally accepted in the United States of America;
2.For the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material
misstatement, whether due to error fraudulent financial reporting, misappropriation of assets,
or violations of laws, governmental regulations, grant agreements, or contractual agreements;
3.For identifying, in its accounts,all TDA awards received and expended during the period and
the TDA programs under which they were received.
4.For maintaining records that adequately identify the source and application of funds for TDA
funded activities;
5.For the design, implementation, and maintenance of internal control over TDA awards;
6.For establishing and maintaining effective internal control over TDA awards that provides
reasonable assurance that the Town is managing TDA awards in compliance with section
6666 of Title 21, of the California Code of Regulations, and the allocation instructions and
resolutions of the Metropolitan Transportation Commission;
7.For identifying and ensuring that the Town complies with laws, regulations, grants, and
contracts applicable to its activities and its TDA award programs and implementing systems
designed to achieve compliance with applicable laws, regulations, grants, and contracts
applicable to activities and its TDA award programs;
8.For disclosing accurately, currently, and completely the financial results of each TDA award
in accordance with the requirements of the award;
9.For identifying and providing report copies of previous audits, attestation engagements, or
other studies that directly relate to the objectives of the audit, including whether related
recommendations have been implemented;
10.For taking prompt action when instances of noncompliance are identified;
11.For addressing the findings and recommendations of auditors, for establishing and
maintaining a process to track the status of such findings and recommendations and taking
corrective action on reported audit findings from prior periods and preparing a summary
schedule of prior audit findings;
12.For following up and taking corrective action on current year audit findings and preparing a
corrective action plan for such findings;
13.For submitting the reporting package to the appropriate parties;
14.For making the auditor aware of any significant vendor / contractor relationships where the
vendor / contractor is responsible for program compliance;
15.To provide us with:
a.Access to all information of which management is aware that is relevant to the
preparation and fair presentation of the financial statements, and relevant to federal award
programs, such as records, documentation, and other matters;
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b.Additional information that we may request from management for the purpose of the
audit; and
c.Unrestricted access to persons within the Town from whom we determine it necessary to
obtain audit evidence.
16.For including the auditor’s report in any document containing basic financial statements that
indicates that such basic financial statements have been audited by the Town’s auditor;
17.For adjusting the financial statements to correct material misstatements and confirming to us
in the management representation letter that the effects of any uncorrected misstatements
aggregated by us during the current engagement and pertaining to the current year period(s)
under audit are immaterial, both individually and in the aggregate, to the financial statements
as a whole;
18.For acceptance of nonattest services, including identifying the proper party to oversee
nonattest work;
19.For maintaining adequate records, selecting and applying accounting principles, and
safeguarding assets;
20.For informing us of any known or suspected fraud affecting the Town involving
management, employees with significant role in internal control and others where fraud could
have a material effect on compliance and the financial statements;
21.For the accuracy and completeness of all information provided;
22.For taking reasonable measures to safeguard protected personally identifiable and other
sensitive information; and
23.For confirming your understanding of your responsibilities as defined in this letter to us in
your management representation letter.
As part of our audit process, we will request from management, written confirmation concerning
representations made to us in connection with the audit.We understand that your employees will
prepare all confirmations we request and will locate any documents or invoices selected by us for
testing.
If you intend to publish or otherwise reproduce the financial statements and make reference to
our firm, you agree to provide us with printers’ proofs or masters for our review and approval
before printing. You also agree to provide us with a copy of the final reproduced material for our
approval before it is distributed.
Audit Administration and Fees
Our all-inclusive maximum fee for these services will be as follows:
Fiscal year ending June 30, 2017 $2,500
Fiscal year ending June 30, 2020 (Program 1)$2,500
Fiscal year ending June 30, 2020 (Program 2)$2,500
Fiscal year ending June 30, 2021 $500
Fiscal year ending June 30, 2022 $2,500
Fiscal year ending June 30, 2024 $2,500 to $5,000
Page | 5 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
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Our fees include out-of-pocket costs (such as report reproduction, word processing, postage,
travel, copies, telephone, etc.).
Our standard hourly rates vary according to the degree of responsibility involved and the
experience level of the personnel assigned to your audit as follows:
Engagement Partner $175 per hour
Associate Partner $125 per hour
Manager $95 per hour
Senior Auditor $80 per hour
Staff Auditor $65 per hour
Administrative $50 per hour
Our invoices for these fees will be rendered each month as work progresses and are payable on
presentation. In accordance with our firm policies, work may be suspended if your account
becomes thirty days or more overdue and may not be resumed until your account is paid in full. If
we elect to terminate our services for nonpayment, our engagement will be deemed to have been
completed upon written notification of termination, even if we have not completed our report.
You will be obligated to compensate us for all time expended and to reimburse us for all out-of-
pocket costs through the date of termination. The above fee is based on anticipated cooperation
from your personnel and the assumption that unexpected circumstances will not be encountered
during the audit. If cooperation is not provided as anticipated and at a level that hinders the
progress of the services to be provided, we retain the right to terminate the contract for cause
with thirty (30) days’ notice. During that time, the Town will have the opportunity to provide the
cooperation required to complete the audit and C&A may rescind the cancellation.
If the services to be performed by C&A are not performed in an acceptable manner to the Town,
the Town may cancel this contract for cause by providing notice to C&A, giving at least thirty
(30) days’notice of the proposed cancellation and the reasons for same. During that time period,
C&A may seek to bring the performance of services to a level that is acceptable to the Town, and
the Town may rescind the cancellation if such action is in Town’s best interest. Notwithstanding
the above provisions, the Town may, upon the expiration of thirty (30) days written notice to
C&A, terminate the agreement at will. Payment for services or goods received prior to
termination shall be made by the Town provided those goods or services were provided in a
manner acceptable to the Town. Payment for those goods and services shall not be unreasonably
withheld.
Sheldon Chavan, CPA, is the engagement partner for the audit services specified in this letter.
His responsibilities include supervising Chavan & Associates LLP’s services performed as part
of this engagement and signing or authorizing another qualified firm representative to sign the
audit report.
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Other Matters
During the course of the engagement, we may communicate with you or your personnel via fax
or e-mail, and you should be aware that communication in those mediums contains a risk of
misdirected or intercepted communications.
Regarding the electronic dissemination of audited financial statements, including financial
statements published electronically on your Internet website, you understand that electronic sites
are a means to distribute information and, therefore, we are not required to read the information
contained in these sites or to consider the consistency of other information in the electronic site
with the original document.
The audit documentation for this engagement is the property of Chavan & Associates LLP and
constitutes confidential information. However, we may be requested to make certain audit
documentation available to state and federal agencies and the U.S. Government Accountability
Office pursuant to authority given to it by law or regulation, or to peer reviewers. If requested,
access to such audit documentation will be provided under the supervision of Chavan &
Associates LLP’s personnel. Furthermore, upon request, we may provide copies of selected audit
documentation to these agencies and regulators. The regulators and agencies may intend, or
decide, to distribute the copies of information contained therein to others, including other
governmental agencies. We agree to retain our audit documentation or work papers for a period
of at least seven years from the date of our report.
We will be available during the year to consult with you on financial management and
accounting matters of a routine nature.You agree to inform us of facts that may affect the
financial statements of which you may become aware during the period from the date of the
auditor’s report to the date the financial statements are issued.
With respect to any nonattest services we perform, the Town’s management is responsible for (a)
making all management decisions and performing all management functions; (b) assigning a
competent individual to oversee the services; (c) evaluating the adequacy of the services
performed; (d) evaluating and accepting responsibility for the results of the services performed;
and (e) establishing and maintaining internal controls, including monitoring ongoing activities.
Nonattest services include the preparation of the audited financial statements and note
disclosures. These items will be prepared from information prepared and provided by the Town
during our audit, such as the Town’s trial balance.
We will not assume management responsibilities on behalf of the Town. However, we will
provide advice and recommendations to assist management in performing its responsibilities.
Our responsibilities and limitations of the engagement are as follows:
We will perform the services in accordance with applicable professional standards,
including GAAS and GAGAS.
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This engagement is limited to the services previously outlined. Our firm, in its sole
professional judgment, reserves the right to refuse to do any procedure or take any action
that could be construed as making management decisions or assuming management
responsibilities, including determining account coding and approving journal entries. Our
firm will advise the Town with regard to the nonattest services provided, but the Town
must make all decisions with regard to those matters.
Government Auditing Standards require that we document an assessment of the skills,
knowledge, and experience of management, should we participate in any form of preparation of
the basic financial statements and related schedules or disclosures as these actions are deemed a
non-audit service.
During the course of the audit, we may observe opportunities for economy in, or improved
controls over, your operations. We will bring such matters to the attention of the appropriate level
of management, either orally or in writing.
At the conclusion of our audit engagement, we will communicate to management and the Council
the following significant items from the audit:
Our view about the qualitative aspects of the Town’s significant accounting practices;
Significant difficulties, if any, encountered during the audit;
Uncorrected misstatements, other than those we believe are trivial, if any;
Disagreements with management, if any;
Other findings or issues, if any, arising from the audit that are, in our professional
judgment, significant and relevant to those charged with governance regarding their
oversight of the financial reporting process;
Material, corrected misstatements that were brought to the attention of management as a
result of our audit procedures;
Representations we requested from management;
Management’s consultations with other accountants, if any; and
Significant issues, if any, arising from the audit that were discussed, or the subject of
correspondence, with management.
In accordance with the requirements of Government Auditing Standards, a copy of our latest
external peer review report of our firm is available upon request or on our website.
If the foregoing is in accordance with your understanding, please indicate your agreement by
signing this letter and emailing it to us at info@cnallp.com or follow the DocuSign link in the
email provided. If you have any questions, please let us know.
We appreciate the opportunity to be your financial statement auditors and look forward to
working with you and your staff.
Page | 8 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
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info@cnallp.com •www.cnallp.com
Very truly yours,
Sheldon Chavan, CPA, Managing Partner
Chavan & Associates, LLP
RESPONSE:
This letter correctly sets forth the understanding of the Town of Los Gatos.
Signature:
Title:
Date:
DocuSign Envelope ID: 2529C044-9E24-4 732-8959-482B8D58876E
AGREEMENT FOR CONSULTANT SERVICES
THIS AGREEMENT is made and entered into on 01/12/22 by and between TOWN OF LOS GATOS, a
California municipal corporation, ("Town") and Chavan & Associates, LLP, ("Consultant"), whose
address is 15105 Concord Circle, Suite 130, Morgan Hill CA 95037. This Agreement is made with
reference to the following facts.
I.RECITALS
1.1 The Town desire to engage Consultant to provide professional auditing services.
1.2 The Consultant represents and affirms that it is willing to perform the desired work
pursuant to this Agreement.
1.3 Consultant warrants it possesses the distinct professional skills, qualifications, experience,
and resources necessary to timely perform the services described in this Agreement.
Consultant acknowledges Town has relied upon these warranties to retain Consultant.
2.1
2.2
2.3
2.4
2.5
II.AGREEMENTS
Scope of Services. Consultant shall provide services as described in that certain proposal
sent to the Town on October 8, 2021, which is hereby incorporated by reference and
attached as Attachment 1.
Term and Time of Performance. This contract will remain in effect from 01/01/22 to
01/31/25.
Compliance with Laws. The Consultant shall comply with all applicable laws, codes,
ordinances, and regulations of governing federal, state and local laws. Consultant
represents and warrants to Town that it has all licenses, permits, qualifications and
approvals of whatsoever nature which are legally required for Consultant to practice its
profession. Consultant shall maintain a Town of Los Gatos business license pursuant to
Chapter 14 of the Code of the Town of Los Gatos.
Sole Responsibility. Consultant shall be responsible for employing or engaging all persons
necessary to perform the services under this Agreement.
Information/Report Handling. All documents furnished to Consultant by the Town and all
reports and supportive data prepared by the Consultant under this Agreement are the
Town's property and shall be delivered to the Town upon the completion of Consultant's
services or at the Town's written request. All reports, information, data, and exhibits
prepared or assembled by Consultant in connection with the performance of its services
pursuant to this Agreement are confidential until released by the Town to the public, and
Chavan & Associates -Agreement for Auditing Services Page 1 of6 Attachment 3