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Staff Report with attachments PREPARED BY: Stephen Conway Finance Director Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 06/21/2022 ITEM NO: 15 DATE: June 10, 2022 TO: Mayor and Town Council FROM: Laurel Prevetti, Town Manager SUBJECT: Authorize the Town Manager to Execute a Second Amendment to the Agreement for Audit Services with Badawi and Associates to Increase Compensation by $5,400 for a Total Contract Amount Not to Exceed $173,385 RECOMMENDATION: Authorize the Town Manager to execute a second amendment (Attachment 1) to the agreement for audit services with Badawi and Associates to increase compensation by $5,400 for a total contract amount not to exceed $173,385. BACKGROUND: In 2017, the Town of Los Gatos issued a Request for Proposals (RFP) for qualified independent certified public accounting firms to audit the Town’s financial statements for three fiscal years, with an option to extend the agreement an additional two years with Town Council approval. A review committee selected Badawi and Associates, Certified Public Accountants as the firm to provide the Town auditing and other optional services. In 2020, the Council approved a first amendment to exercise the option to extend the agreement for an additional two fiscal years (Attachment 2). DISCUSSION: For the past five years, Badawi and Associates has provided the following services for the Town: • The annual audit of the basic financial statements in accordance with Governmental Accounting Standards and preparation of the Town’s Comprehensive Annual Financial Report; PAGE 2 OF 2 SUBJECT: Second Amendment to the Agreement for Audit Services with Badawi and Associates DATE: June 10, 2022 DISCUSSION (continued): • A report communicating information related to the audit to those in charge of governance (Town Council) at the conclusion of the audit; • A management letter containing any comments or recommendations resulting from the review of systems of internal controls in connection with the financial audit; • A Single Audit for grant funding if required under the Title 2 U.S. Code of Federal Regulations; and • Optional services including the preparation of the annual report of financial transactions to the State Controller. In addition to Badawi and Associates completing the aforementioned services, the Town has asked Badawi for a complete review of Measure G revenues and expenditures for the period from March 1, 2019 to June 30,2021 per Measure A. Attachment 3 contains the agreed upon procedures for the Measure G engagement. CONCLUSION: Authorize the Town Manager to execute a second amendment to the agreement for Measure G audit services with Badawi and Associates to increase compensation by $5,400 for a total contract amount not to exceed $173,385. FISCAL IMPACT: Funds for this amendment are included in the Town’s proposed Fiscal Year 2021/22 Operating and Capital Budget. ENVIRONMENTAL ASSESSMENT: This is not a project defined under CEQA, and no further action is required. Attachments: 1. Second Amendment to provide auditing and optional services with Badawi and Associates. 2. First Amendment and Original Agreement with Badawi and Associates. 3. Measure G Agreed-Upon Procedures 1 Badawi & Associates – Second Amendment ATTACHMENT 1 SECOND AMENDMENT TO AGREEMENT This SECOND AMENDMENT TO AGREEMENT is dated for identification this 21st day of June 2022 and amends that certain agreement for audit services dated May 24, 2017, made by and between the Town of Los Gatos, ("Town,") and Badawi & Associates. (“Consultant”) RECITALS A. Town and Consultant entered into an auditing services Agreement on May 24, 2017, (“Agreement”), a copy of which is attached hereto and incorporated by reference as Exhibit A to this Second Amendment. B. Town and Consultant entered into a First Amendment to the Agreement on March 6, 2020, (“Agreement”), a copy of which is attached hereto and incorporated by reference as Exhibit B to this Second Amendment. AMENDMENT 1. Section 2.6 – Compensation is hereby amended to add $5,400 for a total Agreement amount not to exceed $173,385. 2. 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 Ahmed Badawi, CPA Department Approval: _______________________________________ Stephen Conway Finance Director Approved as to Form: Attest: ______________________________ ______________________________ Gabrielle Whelan, Town Attorney Shelley Neis, MMC, Town Clerk This Page Intentionally Left Blank ATTACHMENT 2 June 6, 2022 To the Honorable Mayor and Members of the Town Council of the Town of Los Gatos c/o Mr. Stephen Conway, Finance Director 110 East Main Street Los Gatos, California 95030 Dear Mr. Conway: This letter sets forth our understanding for applying agreed-upon procedures to the Measure G revenues and expenditures of the Town of Los Gatos (Town) for the period from March 1, 2019 to June 30, 2021. The Town is responsible for the Measure G revenues and expenditures. This engagement is solely for the purpose of assisting the Town with respect to determining whether Measure G sales taxes were used and accounted for in accordance with specified laws, regulations, and recommendations of the Finance Commission. This report is intended for use by the Town (specified party) and is expected to be restricted to the use of this specified party. Prior to the completion of the engagement, you agree to provide us with written agreement and acknowledgment that the procedures performed are appropriate for the intended purpose of the engagement as noted above. We will apply the following procedures: 1.Obtain and review Town Ordinance 2274, Amending Chapter 2.60 of the Town’s Municipal Code, “’Transactions and Use Tax’ to Extend the One-Eighth Cent Transactions and Use Tax Term for Twenty Years”. 2.Obtain and review Town Ordinance 2314, adding Article 5 to Chapter Two and amending Chapter 25.60.140 of the Town’s Municipal Code. 3.Obtain a schedule of Measure G revenues and expenditures for the fiscal year(s) and agreed totals reported on the schedule to the Town’s audited trial balance. 4.Compare Measure G revenues reported to monthly sales tax reports from the California Department of Tax and Fee Administration (CDTFA). 5.Inquire if the Finance Commission reviewed and recommended use of Measure G revenues to the Town Council to meet the following objectives. a.Maintaining and enhancing neighborhood police patrols and local crime prevention programs; b.Improving Traffic Flow to Reduce Congestion; c.Repairing potholes and maintaining the Town’s streets, roads, and sidewalks; and d.Maintaining the Town’s long-term financial stability. ATTACHMENT 3 Town of Los Gatos June 6, 2022 Page 2 6. Inquire if the Town Council received the Finance Commission’s recommendation and adopted a Council authorized expenditure plan directing the use of Measure G revenues for the period under reported thereupon. 7. Select a sample of 25 Measure G expenditures to verify if they were for allowable purposes. Per Measure A Ordinance 2314 eligible expenditures include: a. Maintaining and enhancing neighborhood police patrols and local crime prevention programs; b. Improving traffic flow to reduce congestion; c. Repairing potholes and maintaining the Town's streets, roads. and sidewalks; and d. Maintaining the Town's long-term financial stability. 8. Agree amounts held in the General Fund Reserve sub-fund for Measure G agree to Measure G sales tax collections from first receipt of revenues to report date less any amounts reduced for Town Council authorized uses as reported on the auditor’s review of tests of expenditures. We will conduct our engagement in accordance with the attestation standards for agreed-upon procedures engagements established by the AICPA. We are responsible for carrying out the procedures and reporting findings in accordance with these standards. We have no responsibility to determine the differences between the procedures to be performed and the procedures that we would have determined to be necessary had we been engaged to perform another form of attestation engagement. Our report will list the procedures performed and our findings. Our report will be addressed to the Town and will be intended for use by and restricted to the use of the specified party as identified above. Our report will contain such restricted-use language. Should we have any reservations with respect to the subject matter, we will discuss them with you before the report is issued. We have no responsibility to update our report for events and circumstances occurring after the date of our report. As part of our engagement, we will request from management and, when appropriate, those charged with governance, written confirmation concerning representations made to us in connection with the agreed upon procedures. You agree to provide such confirmation. During the course of the engagement, we may communicate with you or with your personnel via e-mail and you should be aware that communication in those mediums contains a risk of misdirected or intercepted communications. Professional standards prohibit us from being the sole host and/or the sole storage for your financial and non-financial data. As such, it is your responsibility to maintain your original data and records and we cannot be responsible to maintain such original information. By signing this engagement letter, you affirm that you have all the data and records required to make your books and records complete. We expect to begin our engagement in approximately June 2022 and to issue our report no later than July 2022. Town of Los Gatos June 6, 2022 Page 3 Ahmed Badawi, CPA, is the engagement partner for the services specified in this letter. His responsibilities include supervising Badawi & Associates’ services performed as part of this engagement and signing or authorizing another qualified firm representative to sign the agreed-upon procedures report. Our fee for these services will be as follows: Position Hourly Rate Hours Fee Amount Partner $ 200 5 $ 1,000 Senior 125 10 1,250 Staff 100 30 3,000 Admin. 75 2 150 Total $ 5,400 We will submit our bill for services on a progress basis, and billings are due upon submission. We will maintain the confidentiality of your personal information and will apply procedures to protect against any unauthorized release of your personal information to third parties. Please sign and return the attached copy of this letter to indicate your acknowledgment of, and agreement with, the arrangements for our engagement including our respective responsibilities. If you have any questions, please let us know. We appreciate the opportunity to be of service to you and look forward to working with you and your staff. Respectfully, Badawi & Associates, CPAs Berkeley, California *************************************************************** Town of Los Gatos June 6, 2022 Page 4 RESPONSE: This letter correctly sets forth our understanding. Town of Los Gatos Acknowledged and agreed on behalf of the Town of Los Gatos by: Signature: Title: Date: